Young and Frugal

While I was at my parent’s house over Easter, I was looking through some of my old stuff when I found a stack of Merit Badge books from Scouts.  Sitting perfectly on the top of the stack was the book for Personal Management, a merit badge designed to teach teens about managing time and money.

The book is filled with very good information on everything from budgeting, to living on your own and debt management, but I’d like to focus in on the section titled: Being a Smart Shopper.  (Keep in mind that as I go through and quote this that it was written in 1996 for teenage boys, but the lessons transcend age and date.)

 Suppose you have your eye on a really special skateboard.  How much does it cost? (Don’t forget to include the cost of protective gear if you don’t already own such items.)  You count your money and discover that you don’t have enough.  What do you do?  You Might:  

• Shop around.  Maybe another store or a catalog has the identical skateboard at a cheaper price.  A telephone can make comparison shopping easy.  Call at least three stores.
• Earn or save more money until you have enough to buy the skateboard.
• Wait for a sale.  A store clerk might tell you if the skateboard will go on sale soon.
• Look for discount coupons.  These can be found in newspapers, coupon books, or the mail.

What if you still don’t have enough money to buy the skateboard, or you decide you don’t want to spend that much money, even if it is on sale?  You have other choices.  Shoppers can’t always buy exactly what they want.  Sometimes they must compromise.  Thats part of being a good money manager - knowing when to say no to yourself. 

 Wow.  I’d say those last few sentences are something everyone needs to remember!  Mary and I are in this situation with our house right now.  We really want hardwood floors in our living room, but we know that we just don’t have the money for it.  We are forcing ourselves to say no, and it’s hard because we need want them.  It is very hard to say no to yourself, and it takes a great deal of self control, especially when (once you get older) it’s so easy to put a purchase on the credit card.  Luckily for Mary and I, we are able to hold each other accountable and it really helps.  

The Scouts are essentially saying, if you can’t afford something you have a few options: shop around, save more, wait for a sale, and look for coupons.  Very smart advice for anyone.  It also reminds us all to consider all of the costs we will encounter for this item, like having extra money for protective gear for the skateboard.

The passage goes on to recommend that you buy a less expensive skateboard with a different paint job, buy a used skateboard, check classified ads, and it even brings up building your own skateboard (which sounds fun and easy to me!)

The book then offers a checklist for smart shopping some of which are (my commentary in parentheses):

• Be wary of advertising…(Always!)
• Before buying a product, talk to…others who may already use [it]…  (Also seek reviews from consumer reports or on the internet)
• Try before you buy/demo
• Consider quality.  Price isn’t everything… Why buy something, even at a low price, if it falls apart quickly or doesn’t work properly.  (I am obsessed with quality products, if there is a difference in quality and price, I will buy the one that has better quality)
• Consider Service. (I’m usually willing to pay more for something if I know that the service behind it will be worth it.  For instance, I’ll pay a bit more for something at Costco in order to get their service and extended warranty)
• Don’t Impulse buy.
• If there’s a problem, take a product back right away (be sure to keep your receipt).  Don’t toss the item aside and feel sorry for yourself….Most stores…[will]…probably fix the item or give you a new one.  (I am terrible at actually returning items to stores.  It always seems like too much of a hassle.  But I’m going to make a point to return a broken glass bowl we got as a wedding present (in June) this week.  We have the receipt.  I hope they take it back!)

It’s not always easy to be a smart shopper.  Most people, myself included, aren’t good at the waiting part.  We impulse buy, it’s what advertisers and marketers try to train us to do, but we need to always remember to stop and ask ourselves if we need the item, or if we just want it.  We also need to ask more important questions… Can I afford this?  How long with this take me to pay off?  How long will it take me to save for this?  Those are the types of questions that should be going through everyone’s head when they see something they want to impulse buy.

Writing this has been very beneficial for me today, because Mary and I did our Tax return yesterday and when I saw the amount we will be getting back I got very excited.  I even caught myself drooling over Mac mini’s online today.  But I slowly moved my mouse up to the corner of the screen and closed the window, because even though a Mac mini is on my list of things I want and need (yes I do need a new computer), I want to achieve other Goals first.  Most of our Tax return will hopefully be going directly into savings to help us achieve higher goals.

When Did Frugality Cease Being a Virtue in Our Society?  Really no matter how far you look back in history Frugality has always been a virtue.

 ”He who gathers money little by little makes it grow” - Proverbs 13:11

Here the bible calls upon us to save where we can, even a little bit helps, and by doing so we can watch it grow. 

 ”For age and want, save while you may; no morning sun lasts the whole day” - Benjamin Franklin

 Here, one of the greatest American’s to ever live writes that you need to have an emergency fund.  You can spend on your wants all day when times are good, but if you don’t save for a rainy day you’ll be in trouble later on.  Benjamin Franklin is documented in many occasions preaching the virtues of frugality, in Advice To A Young Tradesman, Benjamin Franklin writes:

“In short, the Way to Wealth, if you desire it, is as plain as the Way to Market. It depends chiefly on two Words, INDUSTRY and FRUGALITY; i. e. Waste neither Time nor Money, but make the best Use of both. He that gets all he can honestly, and saves all he gets (necessary Expences excepted) will certainly become RICH.”

More recently, some of our most brilliant minds preached and lived frugally.  Henry David Thoreau lived frugally and documented it in Walden Pond.  He removed himself from the pressures of society so he could clear his mind.

Warren Buffet, one of the best businessmen in the US, says, “If a business is worth a dollar, and I can buy it for 40 cents, something good may happen to me.”  In other words, look for bargains and buy low, that’s the way he has made over 30 billion dollars! 

As you can see frugality is in our history, but society has pushed back.  In most of the world if you don’t try and haggle with a salesman, you are considered stupid by the locals.  On the otherhand, when I haggle in America, people will look at me awkwardly and get confused.  

The surrounding world tells us that image is everything and that splurging makes us feel good. 

I prompted my dad with this question the other night, and I received a great response to why frugality is no longer considered a virtue.  This response allows you to connect all the dots.

It stems from the Great Depression.  The people who lived through the depression have known what it is like to be cash strapped, and to get the most out of every penny.   They know what it really means to have a “rainy day,” and they understand that, as Ben Franklin put it, “no morning sun lasts the whole day.”  The people that survived the Great Depression grew up knowing and understanding how important it is to save, but they also never wanted their children to go without like they had to do.

As a result, after the economy settled, there were great new inventions, and the wealthy began putting a TV in their living room.  Because one wanted to go without, the less wealthy followed.  However, no one wanted to drain their savings to purchase a TV, or Washing Machine, or Dryer, so payment plans began. 

Why drain all your savings when you can pay a cheap monthly payment?  What was there to understand?  For $30/ month, you could get what you couldn’t let your family go without, and at such a fair price!

Pretty soon, a ‘fair price’ became just the ‘price’ of an item, and haggling wasn’t needed because you could easily afford the monthly payment.  This increase in credit, made less people need to grasp the concept of frugality.

This is why I believe a generation grew up without learning to haggle or understand frugality.  And somewhere along the way, the term frugal got mixed up with the word “cheap.”

The United States is in the process of coming back around and understanding the perils of credit, and re-learning the virtue of frugality.  Right now, the US has a negative savings rate, and this will be hard to change, but I believe we are headed in the right direction.  A “frugal” search on Google will net you over 7.3 million hits, which is a sign that at least the internet community is getting it.  Hopefully our society is in the midst of realizing the error in our ideals, and will be working hard to get out of debt to become and continue to be financially free.

Mathematically being young and frugal makes a great deal of sense; save as much as you can now, and let the compounding interest build up over the course of your life. 

In theory if I were to invest $50,000 in a decent mutual fund at the age of 23, assuming it earns at least 10% a year (slightly less than the historical average of the stock market), I would have $2,262,962.00 by the time I’m 65.  That sounds great, and the numbers don’t lie, however it’s not that easy.

Achieving this goal, while feasible, means that we need to continue living the way we are now (very frugally) and save for over two more years before we would be back in good financial shape to buy a house.  We could do it, but it wouldn’t be fun, and we are already committed to the house.  

The fact of the matter is that being young and frugal comes with many opportunity costs; the biggest being a social life.  Personally, it’s in my nature to not be able to rationalize going out to bars and paying big bucks for a drink I can make at home for a fraction of the price.  Plus I’m not a big fan of loud crowded spaces.  I do however love hanging out with friends and meeting new people…who doesn’t?

In college I hated going out to bars, I would much rather have hung out with a few of my roommates or thrown a party at our house than go out.  As a bonus we would host the parties, charge a cover to get in, drink for free all night, and have money left over to pocket or pay the resulting tickets.  It was a pretty good setup :)…until we lost about 80% of our deposit when we moved out.  

I know there are always alternatives to going out to bars, but for the most part, when you are hanging out with friends, meeting new people, or even networking you will most likely be doing so while spending money.  Whether it be at a bar, a movie, the golf course, or over dinner, you’ll be spending money.  It’s called social spending, and it’s a fact of being social.

To be honest, this aspect of being young and frugal is less than fun.  It especially sucks in the office because everyone I work with goes out for lunch at least 3 times a week.  The frugal train of thought on this is to take your lunch to work and it will save you a ton of money, so this is what I do, and it does save a great deal of money.  On the flip side, I’m certain that I am missing out on a great deal of good networking (and the male bonding) that comes with going out to eat with the guys.  Also, I’m wondering if my being social with my bosses at lunch could have an effect on an increase in my salary, thus offsetting going out to lunch.

Mary and I have kept room in our food budget for us to each go out to lunch with our co-workers once a week.  At the time we set the budget it was a reasonable expectation, and while it is a reasonable expectation, it’s getting to the point where I feel bad telling them I won’t be going to lunch today.  I love that I am always invited, but I know that there becomes a point where you are turned down so much that you don’t ask anymore. I’m hoping that I am not approaching this point.

Outside of work it’s hard for us to make new friends right now because of our extreme frugality and location (both will hopefully only be around for the 2-3 more months).  We live 45 minutes away from work, and we are more than 45 minutes away from “uptown” where any sort of nightlife in Dallas occurs.  On top of that all of our childhood friends from the area no longer live here!

So with all this, is it possible to live frugal and still have a vibrant social life?  I’m sure it probably is, but for Mary and I, and our extreme situation, it seems that we have struck out.  Our saving for our house and preparing to be house poor is strike one, our current location is strike two, and being married seems to be strike three because all of our peers are still single. 

I am more than open to suggestions on how get our social lives back on track while still living frugally, so if you have any please post them in the comments section. I’d love to hear what you have to say!

I want to share a story about how being frugal can help you make more money, and not just help you save it. 

Ever since Mary and I decided to build our new house we have been living frugally for the first time, and I feel that it has opened my eyes.  I’ve always hated inefficiency with a passion, and I pride myself on trying to find the most efficient way to do things, but lately with frugality on the mind I’ve been seeing waste everywhere.  For example, this waste has forced Mary and I to become active instead of passive about recycling.  But it isn’t just at home I’m seeing waste and inefficiency, I see it on an everyday basis at work. 

The company Mary and I work for is not exactly known for being a leader in employee benefits, and it’s no secret around the company that the employees aren’t thrilled with the 401k.  But by being in the unique situation of working at the same company as my wife, and by talking with some friends, I was able to uncover something that could save the company upwards of two million dollars a year… 

From my Human Resource classes in college I know that an employees health benefits can cost the company around $4,500 a year if they are enrolled.  Because Mary started her job before I started mine, I have been under Mary’s benefits.  Each additional person on an employees benefits costs the company a fraction of that amount more, so assuming that it costs the company $2,000 a year extra to insure me under Mary’s plan, I’m effectively saving the company $2,500 a year by not being enrolled for my own benefits.  Unfortunately for Mary and I, it is more expensive for us to be on the same plan ($480/year more) so it isn’t cost effective for us, even though it’s cost effective for the company. 

In speaking with a friend who works at the same company as his wife, he mentioned that  his company offers a $500 incentive to not be enrolled in their benefits.  An incentive like that would make being on one plan cost effective for us!  So I ran some complicated numbers and realized that if a small percentage of our workforce decided to accept an incentive to not be enrolled in the company’s healthcare system and instead be enrolled in their spouses, the company could save millions of dollars! 

I took this idea, and I approached my boss, I showed him the math, and he loved it.  The next thing I know, I’m in the Treasurer’s office pitching it to him.  He also loved the idea, and even came up with the idea of re-allocating the saved money to improve the 401k (which would double the matching they do now).  After his office, I got an appointment to meet with the Senior V.P. of Human Resources, who also loved the idea!  

They will be passing it through the ranks and may be implementing the idea for the next enrollment period. By looking at things like this with a frugal eye, I have potentially saved the company money and/or doubled the retirement plan our company offers!  And while it’s nice to think that I’ve done this for the company, I’ve really done it for myself.  I got great visibility out of it, and now the executives know who I am and say hi to me in the halls, which is pretty cool for being in my first job out of school.  Hopefully I’ll be able to leverage this later on when it comes to my evaluation! 

I’ve also found that our company doesn’t recycle, and I probably throw two reams of paper away a month as part of my job.  My next task is going to be saving my paper instead of throwing it away, so I can approach my boss with a large stack of paper from only a weeks worth of saving, plop it on his desk, and ask why we don’t recycle!

Not planning ahead can get expensive. This weekend we went on a ski trip with my family, and I didn’t adequately plan ahead. I assumed everything was taken care of (which it was for the most part), but I missed the opportunity to save my family at least $20 a day on lift tickets (we were already getting a good deal, but we could have gotten better via Craigslist or ebay). I also assumed that we would be staying in a cabin or condo on the slopes as we usually do.

Had I fully read the e-mails ahead of time I would have seen that we had to ride a shuttle from the house to the slopes, making it hard to go back to the place for lunch. Without realizing this I paid for lunch on the slopes… BAD IDEA. Not only did Mary and I have to hunt down a table (on a busy holiday weekend), I was price gouged by paying $31 for lunch for the two of us. That amount doesn’t sound too bad, but when we each got a cup of soup, a half a sandwich, and a vitamin water it’s pretty ridiculous. Needless to say, Mary and Stacy (my sister-in-law) got smart and decided to make lunch for day two on the slopes. I volunteered to wear a backpack all day, and we ended up having a great inexpensive lunch, even though it was a bit crushed as the backpack wrecked havoc on my balance in the terrain park.

I usually do plan ahead for things like this, but this time it all just snuck up on me. From now on I will be actively involved in planning trips and I will research before I go.