Fellow financial-independence seeker Dividend Mantra has a great article about striking the balance between frugality and quality of life. This is something that a lot of people struggle with, especially in the beginning. I think one of the primary reasons people struggle with it is that they try to fit into somebody else's definition of frugal living.
If your goal is financial independence or retirement, there is only one rule that you absolutely have to follow:
Spend less than you make!
Other than that, it's just about how quickly you want to reach your goals and what you are willing to sacrifice to get there. And this will be different for every person. It's important to remember too, that the reason we want to be financially independent is to increase our enjoyment of life. If you are OK with being miserable all the time, then why does it matter if you are financially independent or not?
I have written before that my method is to save on the things that don't matter to me, so I can spend a little on the things that do.
Some people couldn't use 100 cellphone minutes a month if you paid them to, while another person just cannot fathom giving up their daily phone usage. Same goes for eating, car usage, and whatever else you are spending your money on. As long as your expenditures are controlled and part of the plan, it doesn't really matter what they are. So don't get caught up on working super hard and suffering trying to drop your power bill to $50 a month if it is a lot easier for you to shed $50 off your grocery or gas bill.
I am currently spending about 1500 a month on all my living expenses. If you take 100 people who are all spending that much, I guarantee our budgets are all TOTALLY different. And we would probably all be shocked at how much/little somebody else is spending on something we are spending almost nothing/ a fortune.
The key is to focus on eliminating WASTE, not just on eliminating an activity altogether. For example, there are a lot of things you can to do lower your power bill without actually changing your lifestyle at all. Same with pretty much every other category of spending. Obviously you should change your lifestyle in some categories, but you don't have to go extreme in every single one. Even Jacob Fisker of Early Retirement Extreme was spending $1200 of his annual $7000 budget on his martial arts training, because it was important to him.
It's better to have a plan like: I need to save X% of my income every month for X years, then to just try to never spend any money, ever. Not only is the first type of plan more likely to succeed, but your life in the meantime will be a lot more enjoyable as well.
-The Money Monk