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.
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.