Wed 20 Feb 2008
Why Frugal Tips Don’t Work In The Long Run
Posted by RichSlick under Money Management
[10] Comments
With the over abundance of frugal tips on the pf blogger circuit, you’d think they’d be millionaires left and right all over the place but what I’ve found so far is that most of the people advocating frugal tips aren’t rich (as far as I can tell) but hope to be rich some day.
I find the situation to be quite paradoxically ironic. I also spent a great deal of time thinking why this is so and I can’t really come up with some specific theories. I tend to wonder if frugal people cripple themselves or others around them with their philosophy.
Take for example an 18 year old that wants to go to Princeton or Harvard but is vexed by having frugal parent(s). Little Jimmy goes to mom and dad and says, “I’d like to go to Harvard so I can become a lawyer” and the response from mom & dad comes back, “Harvard is too expensive, why not go to state college instead….”
I’ve touched on this subject before in Frugalism vs. Capitalism but I’m trying to understand the true dynamic of the wealth gap between frugal and rich.
When I read frugal tips offered out in the pf blogger world, I can tell a great deal of time, energy and effort was taken to come up with some of the elaborate tips for saving a buck or two and I can only surmise that perhaps too much time, energy and effort is spent on researching ways to be frugal vs. growing income.
I’m on record suggesting that frugal tips don’t do much more than possibly adjust your expenses to compensate for inflation and often I don’t see how certain tips really offer any advantage over buying something outright from someone with vast economies of scale.
As an example, many suggest growing your own garden to save money on groceries but it’s unrealistic to save any money growing your own veggies. Buying seeds, fertilizer, water, labor and mitigating crop failure from pests or disease as an individual is much more inefficient than an industrial farmer with heavy gear, bulk seed discounts, government subsidies and cheap migrant labor.
I just don’t see how frugal tips work on the long run to make you rich. It takes real earning power, and leverage, to get rich in my opinion and that’s what I try to focus on every day.
10 Responses to “ Why Frugal Tips Don’t Work In The Long Run ”
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February 20th, 2008 at 9:43 pmOther Voices: Links for 2/20/08…
Profundity from the PF blogosphere: Everybody Loves Your Money: From my point of view, I'm a financially savvy, solidly middle class household with a net worth higher than 90+ percent of people my age. In this situation you would think……
February 20th, 2008 at 10:21 am
“It takes real earning power, and leverage, to get rich …..spoken like a true Capitalist!
I also agree, but when the average Joe does not have much $ to work with they immediately think to downgrade or lower their expenses. Focus on your income and once you make a decent salary continue to focus on your Income !!!! Do not create a ceiling. Keep moving up.
February 20th, 2008 at 7:59 pm
The gap isn’t between the frugal and rich. I know a lot of frugal people who are rich, and a lot of successful non-frugal people who are not rich.
My wife and I are frugal and, by most measures, rich. When we graduated from college (with plenty of debt), living frugally saved us about $1500 per month, which we applied to debt. That put us in a strong position to become “rich” as our incomes increased, by avoiding lifestyle inflation.
Hey, this is anonymous so… now of a combined income of about $400K we spend about $6K per month and save about $20K per month. The rest goes to taxes. Our cars each cost less than $20K new and our house is probably worth less than $400K. Our net worth is… well, it’s plenty big.
Compare that to my wife’s boss. He makes plenty of money (*plenty*), but much of it goes to support his flying habit, or his wife’s and daughter’s horse habits. I recently learned that he had only about $100K of investable assets. He’s also *still* paying off college debts, even though he’s been out of school for 25 years.
So I guess the point is that PF bloggers who talk about frugality are generally not making lots of money. For them recycling envelopes may make sense. And the ones who are also working on increasing their top line will find that their frugality translates nicely into a comfortably frugal lifestyle that also provides great wealth in the future.
February 20th, 2008 at 8:12 pm
With a combined income of 400k, frugality is quite irrelevant. I know it is possible for you to spend more money on 70k Mercedes and 1+ million homes and that’s not what I’m talking about. You’re wealthy because of your 400k of income not because you skip the latte or plant your own garden and that’s my point.
I once made $7/hour when I first moved to the “big city” from the small town. Our household income is near 300k at this point and we got there not by skipping lattes or planting gardens. We used extra free time and money INVESTING in our education and financial investments rather than clipping coupons, cooking at home or brown bagging it.
Those little activities had ZERO impact on our ability to bring home 300k today and now it doesn’t matter if I buy starbucks every day or if I buy organic tomatoes rather than planting my own -those frugal activities are pointless when you have 300k coming in every year.
Yeah it’s possible to be an idiot and blow 300k rather easily on stupid things but let’s put it into context: PF Bloggers are spending countless hours dreaming up pointless activities when they should be dreaming up ways to make more money.
February 21st, 2008 at 1:51 pm
I always defined wealth as an accumulation of resources not by how much money one makes. Earning 400K doesn’t make you wealthy if you blow through it every year. It’s how much of that income you save that makes you wealthy.
Also, not everyone has a career where they can rake in 300-400K a year and that may be by choice.
February 21st, 2008 at 2:11 pm
I honestly think its a balance where you end u living within your means. I cannot see how something like freezer packing in some vain effort to reduce electricity costs is worth it in the long run myself. But packing a lunch rather than eating out does makes sense.
Being somewhat frugal in an effort to spend less than you’re making is what I think many of the PF bloggers are really getting at. Going beyond this is honestly a waste of time or a very strange hobby.
February 22nd, 2008 at 12:32 am
I agree with Matt that it’s a balance thing. It also depends on what you enjoy doing with your time and what your values are. I really enjoy the whole gardening thing, so I do that. I’m really not into overconsumption so by nature I don’t really spend much.
But, at the same time, there are certain tasks that are simple (but I hate doing them as they make me feel like a brain-dead monkey) so I pay others to do them for me. This includes proofreading my work (I’m a writer), writing short articles I’m not that interested in doing, sending/making invoices to clients, etc. Sure, it does cost more, but I have more time to spend with my family or starting/studying a new income stream.
So I think when PF bloggers are suggesting frugality, they ARE suggesting living within your means. BUT, at the same time, try to be imaginative and try to expand what those means are.
February 22nd, 2008 at 12:19 pm
I believe that no one will be truly rich unless they are also frugal. it doesn’t matter how much money you make – if you spend it all you are not rich. You are not rich if you can afford the monthly payments on a mansion, a mercedes, a boat, etc. You are rich if you own these things outright and have plenty of money in the bank.
On the other hand, many people have to be frugal in order to afford the basics. We choose to be frugal in most areas so that we can splurge in other areas. We want our kids to do certain activities, we want to be able to travel (frugally throughout our state or nearby states), and we want to be able to save money each month. Being frugal allows us to do all of these things.
Because we are able to save money each month, some day we will be rich. It takes time to become rich and living frugally will allow that to happen for us. If we didn’t we most certainly would never become rich. Not everyone can have a job where they make $400k a year. And it doesn’t matter how much you make anyway – it matters what you do with it and how much you save.
February 22nd, 2008 at 4:45 pm
Jennifer,
I keep reading arguments along these lines but people that buy things typically acquire assets with the money they spend.
If you buy a $100,000 home and it appreciates 4% on average over a 30 year period then you’ll have an asset worth $331,000.
If you buy a $1,000,000 home and it appreciates at the same rate, you’ll have an asset worth $3,313,000.
Who’s richer and by how much in each scenario?
I keep seeing the assumption that if someone isn’t frugal somehow they can never become rich which is hogwash and my example with the house above mathematically proves the point.
The same argument exists if someone is saving $3 day by skipping eating at McDonalds vs someone who makes $3000 on a couple of trades in the stock market.
And I did concede that people can be total idiots and blow through any amount of money but that’s taking things to extreme just like frugal people take things to an extreme with “tips” they frequently write about.
And why can’t you make 400k/year? Why not?
February 22nd, 2008 at 5:45 pm
Well, one of the major reasons why we can’t make $400K a year is because my husband is a teacher and I stay home with the kids and homeschool them. I do some work at home on the computer and my husband does many odd jobs to bring in extra money. But when it all adds up it is never going to be anywhere near the $400K mark.
A home is about the only asset that I can see appreciating. If a person sinks their extra money in real estate then I think that is spending their money wisely.
I am sure you have read The Millionaire Next Door. It talks at great length about how the self made millionaires are almost always very frugal people, which is one of the main reasons why they ended up rich at all. They have spent their money wisely and carefully saved and invested in their future.
I think that being frugal has a lot to do with spending money wisely and carefully saving money for the future. There are always going to be extreme cases of frugality and I typically find these cases to be more that people are being cheap, not frugal. there is a difference.
And of course there are other reasons to be frugal. For my husband and I being frugal is a great way to help the environment. We try to always be aware of how the things we do impact the environment and think that this mindset and frugality go hand in hand. Although not everyone things about it this way, we do.
After thinking about this more I kind of agree with you. ONLY being frugal will not get you rich. However paired up with a good knowledge of finances, careful saving and investing, good decisions regarding money, and time – I think most people will come out far ahead of the others.