My husband and I have a rather unique "frugal philosophy".
It is: save on the big ticket items in a big way, and let yourself live a little by spending on small pleasures.
Now, this philosophy might not work for everyone because frankly we are both naturally penny-pinchers. We probably each spend less than $100/year on ourselves for clothing. We never buy "stuff" just because we like it because we both HATE clutter. We don't buy clothes or toys for our kids (grandparents more than take care of that).
However, we have our weaknesses. Books. Eating out (about once per week). Travel (a nice vacation once/year).
We can afford these things with no problem because of our approach to buying cars and our home.
We live in a 1600 square foot older home in a slightly dilapidated (but on its way up) neighborhood. We could have "afforded" to pay twice as much for a home. But we'd rather not pay the mortgage payments, you know?
As for cars, we only pay cash. We drive a 1998 Taurus that we got two years ago for $2400 and a 2001 Mazda that we got in 2004 for half of the Book value (off of Ebay!). My husband carefully researches reliability and has cars inspected so we've had very little maintenance to worry about.
By making the decision to thrive with less, we are able to afford things we really enjoy. Because really, having a house that is twice as big would just be twice as much for me to clean!