Too Frugal For Your Own Good
| October 29, 2011 | Posted by Roshawn Watson under Uncategorized |
By: Roshawn Watson
There are a plethora of articles telling us to be more frugal. Some tell us to get rid of our lattes and gym memberships. Some even tout “frugality” for “frugality” sake, essentially arguing the perils of consumerism. While I am an advocate for frugality, as I think we should be financially responsible, the dangers of frugality often slip under the radar.
Here’s my question to you (and nearly every author of a frugality article):
When is a $10 coffee worth more than a $10 buffet meal?
Frugality Hindering Economic Productivity
This is perhaps the most salacious out of all the topics that we’ll cover today.To be honest, I’m hesitant to bring it up because it may send a duplicitous message: frugality is good except when it’s not. Huh?
Here’s the key consideration though: if you spend an inordinate amount of time at your job and are extremely economically productive, will slashing your grocery bill by 15% be financially beneficial if it takes you 2 hours a week to achieve? It is quite possible that the two hours would be much better spent polishing that presentation, project, report, etc, so that you can continue focusing your efforts on earning money.
Consider the partner at the law firm or the cardiologist at the prestigious hospital. They can all build substantial net worth even without being particularly frugal. The data show that these careers have a higher income; for example, a whopping 38% and 24% of physicians and attorneys are high-income producers (income greater than $200,000), respectively. They also comprise of a high percent of millionaires if you look at the occupational groups as a whole: 10% of physicians and ~9% of attorneys are millionaires. If people in these types of positions are purchasing certain conveniences that ultimately enhance their economic productivity by advancing their careers, this could potentially be a better financial plan, given their orientation to produce high incomes, than expending extra energy on marginal decreases in expenses.
That’s precisely why I personally struggle with this: sometimes career and financial objectives conflict with each other, at least temporarily. For example, it’s true I can save money by not purchasing membership to some trade publications and organizations, but I would ultimately suffer career-wise by neglecting pertinent intellectual capital important to my vocation. Cutting important expenses in the name of frugality is really just being penny-wise but pound-foolish. I still don’t relish in paying for expensive memberships, but that’s part of being a professional in this knowledge-based economy.
My primary caution is that it is easy to use this same rationale as a license to purchase things that are clearly to one’s financial detriment all in the name of improving oneself. Moreover, some apply this same logic to justify purchases solely for “image sake” instead of improvement sake: if I feel better, I make more. If you are going to become “less frugal” to increase your economic productivity, be careful that the purchases are really necessary and that pendulum doesn’t swing too far in the wrong direction.
Frugality Decreasing Quality of Life
If frugality truly decreases the quality of your life, consider whether the foregone purchases SHOULD be in your budget. I’m not suggesting spending beyond the constraints of your budget. However, there are some conveniences that should be in your life even if they don’t directly increase your bottom line. For example, although some of the data is conflicting, it is generally believed that eating healthy requires more money than eating unhealthy. This is not just about paying premium prices at stores such as Whole Foods either. For example, I know that I get much more food if I get an Angus Burger Extra Value meal from Micky D’s compared with their Southwest Chicken Salad. Also, the grilled chicken sandwich at my local Micky’s D’s is also more expensive than both their fried chicken sandwiches and their delectable Angus burgers. Simply put, the price per pound of healthier options tends to be more, but that doesn’t negate the benefit of the healthier options. Another example is traveling: saving money is less important than other considerations (i.e. time, safety, and comfort). Of course, it makes more sense to fly rather than take a bus from Chicago to LA. The lost time would likely cost you. Also, there is a time value to money, and your time may be more valuable than the money spent on plane tickets. Hence, you fly.
Frugality for Frugality Sake
Some people genuinely don’t like to spend money. The carefully scrutinize their purchases. They derive joy from getting a good deal. It’s like a game. As long as this is healthy, then it’s okay. The danger is when cheap people disguise themselves as being frugal. Frugality is concerned with getting good value for your money. That means you sometimes pay more for certain items because of higher perceived quality. In contrast, cheapness primarily is concerned with final price. It’s really born out of stinginess and miserly behavior. Often cheap individuals have a scarcity mentality: they have to protect what they have because they fear running out. Whereas a frugal individual wants to be a good steward over his money, a cheap person is afraid of losing it all and will spend as little of it as possible.
Cheapness can strain relationships, can cause you to buy inferior products, and can limit your growth all in the name of saving a buck.
Short tangent: Personally, I wish all cheap people would own their cheapness. You don’t have to continue giving crappy gifts, ducking out when it is time to pay for a group meal, making excuses as to why you won’t participate. If you are truly cheap (and not just broke), own your cheapness, and stop giving frugality a bad name.
Parting Thoughts
Frugality when practiced judiciously is not bad in itself. Deciding on whether a purchase is worthwhile relies on your analytical skills as well as possessing a clear appreciation for what you value. However, when frugality is more broadly applied to any form of cost-savings (regardless of value of quality), it can be a double-edged sword.
When is a $10 coffee greater than a $10 buffet? According to J Paul Getty, if he were down to his last dollars, he would rather have an expensive cup of coffee in a swanky hotel with the movers and shakers than go to an all you eat buffet. His rationale is the people that he wants in his future are more likely to be at that hotel.
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Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.
Interesting. Your post definitely shows that the frugality question is not as simple as many people make it out to be. One of the complications is that we are bombarded with sales pitches from very creative and talented sources. Thus, it isn't always that easy to make choices.
People find themselves struggling financially and driving too expensive of a car sometimes. Other times you see families taking children to a professional football game (very expensive!) and you know they will struggle to pay for college down the road.
Still, if you've got the means buy bottled water, live in a McMansion and eat out every day. If you don't though being frugal today can mean you have choices down the road.
I agree with many of your points especially the first one. It's foolish to be frugal when it comes to self improvement/investment. I'd rather spend some money and improve my productivity than be cheap about it. I also don't want to spend 2 hours clipping coupons to save $10. It's not worth the time.
I disagree with frugality decreasing quality of life though. Quality of life is so subjective. I guess we need a base line. Reducing luxury goods shouldn't mean decreasing quality of life.
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I'm not going to be buying a $10 cup of coffee, but a $10 buffet might be a good deal. You always have to balance immediate gratification against deferred gratification (investing). The prudent man doesn't live completely for today, but what fun is living if you don't enjoy some fruits of your labor. On the other hand, you don't want to go into retirement as a pauper. I'm not J. Paul Getty so I'll take the fried chicken and mashed potatoes and gravy.
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It is interesting that you quoted J. Paul Getty because he was famous for having a pay phone i his mansion.
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Robert,
You are so correct about frugality being overly simplified. We often try to group choices into a neat dichotomy: it's either bad or good. However, such narrowly defined parameters provide limited utility, which I hope I highlighted. Still, your other comments are great too: there are limits to how much we can spend on image, recreation, etc. We absolutely cannot lose control of discretionary spending. If something fits in your budget, you won't find me pointing the finger though.
Thanks @Joe.
I didn't really thing that the frugality decreasing quality of life would be as controversial my friend. I was thinking about choosing bad food versus healthy food or Greyhound versus American Airlines as examples of people trying to be frugal and having lesser quality of life. However, there's no denying that QOL is certainly an objective measure.
Also, you completely nailed it when you wrote "reducing luxury goods shouldn't mean decreasing QOL." I should have added that as a disclaimer initially.
@The Grouch,
Please don't buy the $10 cup of coffee on my account 🙂
I just thought that it was an example of the very thing people thumb their noses at, paying too much for luxuries, that someone who was extremely wealthy thought of as a necessity.
Like you said, you always have to balance immediate gratification against deferred gratification (investing). The prudent man doesn't live completely for today, but what fun is living if you don't enjoy some fruits of your labor.
Cheers!!!
If the famed billionaire had his own pay phone, I guess I should rush out and get one too. JK
There is a certain irony to that. I guess there is no mistaking that he knew how to create and accumulate wealth though.
Cheers!
True. You've got a point. Eating healthy food costs more, but we should invest in them as it is for our own well-being.
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Thanks Anna,
I do think it is well worth the money to eat healthy and take care of yourself. It takes work and $, but being sick is costly too.
I would have to say I agree with Joe at RB40. Investing in yourself is a great way to spend money because it only improves your situation going forward. I also don't waste time clipping coupons because the majority of things we buy don't have coupons anyways. Fresh produce, whole grains, etc. aren't want companies want to push you to spend on. They want you to buy from the big companies, the processed food companies and beauty product companies.
I also think quality of life is very subjective because everyone looks at it differently . What might be important to me is not important to someone else. I like to find a balance in that I spend money on what is important to me and I save money and skimp on the things that aren't.
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That's an awesome point: QOL is subjective but is also important. This is why people preaching the virtues of frugaliity have to be careful. Things that have value to you may not be esteemed by another. That in itself doesn't mean that the items you buy aren't frugal purchases. Still, investing in yourself is a lot cleaner topic. Thanks for the discussion.
I struggle with this every weekend when I have to pick and choose what I do with my free time. I even thought about it when I paid someone to switch my blog over the Thesis. Yes, it cost money, but it is an investment in my blog. If people constantly just tried to save money and were never willing to spend, then they will greatly hinder their growth. (In my opinion.)
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You are so right Kris!!! It's weird. You work hard and try to do what's best for your family and for the causes that you support. Then, you're faced with doing something nice for yourself. It will in no means hurt you financially, but there is still hesitancy. That the feeling that I think you are describing and that people like you, and like me, share collectively. The result is though, we're hindered if we don't challenge this feeling.
Cheers!!
We have bouts of extravagant non-frugality, judiciously applied.
Tonight we went out for Mongolian BBQ. The frugal thing would have been to stay home and make dinner (extra frugal points for leftover bread crusts dipped in Ramen noodles). But it's the weekend, and we didn't feel like cleaning up the kitchen afterwards. So there.
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Someone with a growth mindset will spend to grow, (probably) achieving great results over time.
But someone with a misplaced growth mindset will spend money they don't have on things that don't help them (or their business, family, community, etc) grow, because they think they are going to have that money in the future. That is a dangerous way to go about things.
It can be a fine line. Spending money on eye-catching business cards can be an investment in networking, or it can be an extravagant waste of money that actually decreases your odds of success.
You are so right that mindset is key. If you are truly committed to aggressively growing your business, organization, knowledge-base, network, etc, then expending resources to do so will often not result in a net loss. In fact, you are missing out by delaying. However, if your motivation is image or anything less authentic, then you are certainly risking your capital: there's no substance to back up your action.
There's a great Oscar Wilde quote that says a cynic is a man who knows the price of everything but the value of nothing.
I like to define a frugal person — the "frugal ideal" — as the search for "best value." Otherwise a person is just being cheap and cynical, like the man in the Oscar Wilde quote.
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Great point, and thank you for quoting a phenomenal playwright. Too many people ignore the value of things until it is too late. For example, I used to love this one type of calculator in undergrad. Someone noted that I was on my third incarnation of the same calculator (it was a gray TI, but don't remember model number) and suggested that perhaps it was time to change and move up in calculator, regardless of my affection for the design and price. That was frugal!
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Balance is key. Spending money on quality of life is perfectly reasonable as long as you can work it into your budget. Of course, saving and investng are critical, but we always have to remember why we save in the first place. I certainly don't want to live the life of someone who is extremely frugal, nor am I convinced that such a lifestyle is the most economically productive for me. Cheers!
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I'm not frugal, probably never will be. I'm all for financial responsibility, and not spending more than you make, but at the end of the day if I'm struggling to make ends meet, I will devote more time to increasing my income than finding more ways to spend less and less money.
While there's a limit to how little you can spend (if you want to live decently), there's almost no limit to how much you can earn. I'd rather operate from an abundance mindset than from a scarcity mindset
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I agree that focusing on increasing your income is very important. It's definitely can play a critical role in one's wealth-building equation. While I cannot underscore frugality enough as a key factor in most millionaires' wealth, being able to generate a high income helps as well! I love your mentioning about the limits of cutting your budget versus the unlimited income potential. That's a superb observation that I, and many others, do not highlight enough. Cheers!
I felt like I had to elaborate with a post of mine. Feel free to comment 🙂
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Great post. Thanks for the alternative perspective.
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