Review: The New Frugality

Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.

the new frugalityThe title of this book hooked me from the start. What am I writing about at The Simple Dollar if I’m not writing about “the new frugality”?

Chris Farrell, the author of the book, is a name I’m familiar with having been a long-time faithful listener of Marketplace Money (and it’s other Marketplace brethren) on NPR. I expected a well-written book that offered lots of insightful thoughts on the “new frugality” along with some practical tips.

That’s precisely what I got. Let’s dig in.

1 | The Rise of the New Frugality
Farrell opens the book by making a strong effort at defining what “new frugality” means. I think it’s best summed up as “seeking the best value, not the lowest price.” Quite often, frugality has meant the same thing as cheap, but the “new frugality” means something different entirely. It means finding ways to preserve exactly what’s important to you while minimizing the costs, with costs going far beyond just dollars and cents. The cost is about the environmental impact. It’s about the time impact. It’s about even the emotional impact. Really, the new frugality is simply being mindful of the many ramifications of the purchasing decisions we make.

2 | The Great Transformation
How did we get here? This chapter is basically a history of modern consumerism, particularly focusing on the housing bubble of 2008 and the rise in environmental and social awareness of people over the past decade. Farrell’s argument seems to be that the current economic stagnation along with a growing sense that our actions have ramifications far beyond ourselves add up to a new attraction to frugal, simple living for people. I can’t argue – I largely feel the same way.

3 | A Margin of Safety
What’s the result of all of that uncertain feeling? People have begun to desire a margin of safety – something many of us felt naturally until the events of the past decade have shaken that sense of a margin of safety right to our core. How do we get back that sense of a margin of safety? By living within our means and preserving the resources we have – but without abandoning many of the enjoyable perks of today’s life. We seek a balance that wasn’t there in the Depression and wasn’t there in the spend-spend-spend 80s and 90s.

4 | The New Frugality Rules
Keep it simple. Pay yourself first. Invest in yourself. Worry about the downside. Borrow rarely and wisely. Give back. These are the new frugality rules that Farrell proposes – and they pretty much describe a financially stable way of life that maintains that balance we all strive to have. I think the first one is key – keep it simple. The best way to do that is to make all of your saving as automated and straightforward as you possibly can, making it easy for you to make do with what’s left.

5 | Make Frugality a Habit
One big way to make all of this work is to simply make frugality a part of your everyday life. The best way to do that is to simply start being mindful of every dollar you spend. It’s fine if you want to splurge on yourself sometimes – that’s not the point. The point is to think about it first. At the same time, think about what you’re buying at the grocery store or when you go out to eat or anywhere else. Farrell offers tons of ideas on reducing your spending in sensible ways, but they all boil down to this one basic idea: think about what you’re spending and why every time a dollar leaves your account. The more you think about it, the more you’ll likely realize there are better ways of doing it that achieve the same result for lower cost. When you find those routes, that’s nothing but a big victory for you.

6 | Borrow Wisely
The best debt is no debt, of course. When you do borrow, however, make sure you’re borrowing to pay for something that will generate value (like an education) or will at least retain it (a sensible home purchase – meaning not a McMansion in a large metro area). Also, always borrow only when you have a margin of safety – in other words, don’t borrow money when you’re already hurting to pay your own bills and you don’t have any savings in the bank. There’s also a discussion about setting up your own debt repayment plan if you’re already under a heap of debt.

7 | Investing the Simple Way
The investment advice here is pretty straightforward. If you have a 401(k) available to you that offers a company match, jump onto that and get every drop of that match. If you don’t, get a Roth IRA. Put at least some of your money into something safe, like CDs or possibly treasury notes. If you want to take on more risk, buy some index funds – they’re low cost and help you to diversify your money very widely. Use dollar cost averaging – in other words, set up a regular automated investment plan that puts a certain amount into your investment every month.

8 | Live Long and Prosper
This chapter has the most honest answers about retirement I’ve ever read in a personal finance book. Farrell simply says that there’s no way to know if you have enough set back for retirement – and you don’t. No one knows when or how their number will be up. How can you save, then? Your best bet is to save as much as you possibly can. Then, when you retire, rediscover the simple pleasures in life. It’s a lot easier to cook yourself an inexpensive but amazingly delicious meal at home if you’re not running back and forth to an all-encompassing career.

9 | Home, Sweet Home
Should you rent or buy? Much of this chapter focuses on this question. Farrell seems to point people towards the P/R ratio, which is the price of a home you would buy versus the cost to rent similar housing for a year. That ratio should be somewhere around 16 – if it’s higher, you’re probably better off renting. Most of the actual advice on mortgages is very solid – only buy when you have 20% down (unless you want to be hammered on the mortgage(s)), make a “thirteenth” payment each year by making half of a monthly payment every two weeks, and don’t worry about the myth of maintaining a mortgage for a tax writeoff.

10 | The College Sheepskin
What about paying for college? Farrell argues that an education is very worthwhile, but the premium paid for a degree from a prestigious school rarely makes up for the huge difference in tuition costs. In other words, the huge additional cost for a typical student to go to Harvard versus their local four year state school will likely not be made up for after graduation. Your best strategy, actually, is to control costs (unless you get very lucky with a scholarship). He also recommends using a 529 savings plan if you’re saving for your child’s future education.

11 | Generosity and Gratitude
The book closes with a look at charity and the “keep it simple” mantra applies here. Identify charities that match your values. That takes time, because for many of us, a lot of charities sound good. What’s important is to figure out our true purpose in giving. What is our mission with the money we give? Let that specific mission lead your giving and you’ll find that you’re truly building a better world.

Is The New Frugality Worth Reading?
What makes The New Frugality stand out isn’t the advice. For the most part, the advice in this book is the standard personal finance stuff that you can find all over the place. What makes The New Frugality stand out is the broader awareness of the writing, which brings the book to life in a unique way.

I enjoyed reading this book for many of the same reasons that I enjoy listening to Marketplace on NPR. It takes information that I could get anywhere and places it in a social and cultural context that not only brings the ideas into a new light, but also makes clear the connections between our money and the broader world around us in ways that aren’t always obvious.

I enjoyed it if for no other reason than it cast some new lights and angles on a lot of the ideas I already knew. That type of book is always a refreshing read.

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  1. Katie says:

    In other words, the huge additional cost for a typical student to go to Harvard versus their local four year state school will likely not be made up for after graduation.

    My anecdotal experience suggests that Harvard (and the very, very small number of similarly situated schools) actually probably is worth it. It’s the other hundred private schools outside the top five or so that cost the same amount as Harvard, are less generous with financial aid to middle income families, and carry no more prestige/name recognition value than the flagship state school that usually aren’t worth the value. I’d be curious to know if statistics bear that out.

  2. GC says:

    I didn’t expect to want to leave a comment on a comment but Katie had something powerful to say. Great point. Why pay Harvard money if you don’t get Harvard prestige?

    Anyway. . .great review. I’ll definitely consider this book for my not-so-beachy reading.

  3. Michelle says:

    Trent, do you think a VA loan (for those who are eligible) is a good option for folks who don’t have a 20% down payment? Basically, the VA guarantees a certain amount, usually about 20%, that allows you to forgo PMI, and finance the entire amount. I’m curious if you think it’s a good idea for eligible folks looking to buy a house without a down payment.

  4. Tracy W says:

    Your best bet is to save as much as you possibly can.

    I don’t agree with this. There’s always a chance that something could come along and kill you long before you get to retirement age. I’m glad that I’ve woken up for a midnight walk by a remote Alpine lake when there was a full moon and the air was so still you could see the stars reflected in the lake, danced and drunk rice wines in a remote Vietnamese tribal village, gone to a German wedding in Bavaria, seen Picasso’s erotic drawings in Barcelona, eaten bread and cheese while dangling my legs over the edge of the Grand Canyon in the USA. And so many other memories. While I do enjoy cooking, I’m glad I did not save as much as I possibly could.

  5. Matthew says:

    I like to say frugality is the new bling!

  6. DKlein says:

    Sorry, but it seems to me that “the new frugality” is a lot like “the old frugality.” I get it that times change, and things like the internet change some of the ways we practice frugality. But as you have described the new frugality in basic concepts, it is the same as mankind has been doing since the dawn of time.
    For example, this is not the first generation to figure out that cheap short-term solutions are not always the best long-term value. A long time ago builders of houses understood that the house would last longer if it was built with a foundation. They figured out the wood on the house would last longer if it was painted. Yes, it was cheaper in the short term to skip those steps, but the house would not last as long. There is a reason why we say, “they don’t make them like they used to.”
    Forever, the basic survival of mankind depended on individuals making thoughtful choices and maximizing resources. This generation did not invent it. But for some reason it is not hip or chic just to be thrifty. We need to give it a fashionable name like “simplicity” or the New Frugality.

  7. The thing about Harvard and many other prestigious schools is that their tuition for most people *isn’t* the “sticker price”. Because of the size of their endowments and financial aid budgets, they’re really charging on a sliding scale based on how much they think you can afford to pay.

    The amount can vary at different institutions– not everyone can cover the full extent of student “need”, and not everyone calculates need the same way– but a lot of the top institutions are pretty generous to folks who can get in. Some of the top institutions give all their aid to lower and middle income families in the form of grants, for instance, instead of loans like they used to. And most of the top institutions will give some degree of aid to *anyone* they admit who doesn’t have a high income; luck is not required.

    It’s hard to get into a place like Harvard. But if you do have a decent chance of getting in, don’t take schools like this off the table simply because you think you can’t afford them. After aid is factored in, they might actually be cheaper than full-price tuition at other schools.

  8. Bindu says:

    The only point I disagreed with was the comment about Harvard for two reasons. First, depending on your goals, a “name brand” education can do wonders for you. It doesn’t replace hard work and tenacity, but it can get you in the door or help you skip several steps to reach your goals. I did not go to Harvard but I know that my job prospects would have been a lot greater if I had in my field. On the other hand, I admit that if you know that you are going into a field with low income potential, it doesn’t make as much sense to spend extra money for the name brand.

    Second, Harvard provides grants to any student who would otherwise require a “need-based loan” to attend the university. See this link:
    http://www.fao.fas.harvard.edu/icb/icb.do

  9. Sandy L says:

    I second #6’s comment. The school that offered me the most financial aid had one of the highest tuition rates. It was actually cheaper for me to go to the private university vs my state school. Apply to the best schools and make your decision when all the facts are in.

    The networking abilities you get from going to a prestigious university are certainly worth paying a premium for.

    I love NPR and it’s contributors. They are one of my favorites places to give.

  10. Nice article on the “New Frugality” which may describe a new phenomenon, but is really based on old concepts of frugality. I hope more apply these basic concepts, because I think it will benefit them financially, they will be happier in the long run, and we will consume less (and share the planet more).

  11. Nimrodel says:

    Re: Prestigious schools, I think the very top ones are definitely worth it. I graduated from MIT recently, which I had a pricetag of something like $40,000 per year. However, after the financial aid I graduated with only $20,000 or so in student loans. Additionally, companies recruit *very* heavily from top schools, and offer higher salaries because people from the top schools are in such high demand. The starting salary for someone graduating with a computer science degree from MIT last year averaged around $72,000; the average salary of a software engineer in Boston is only around $60,000. Pretty significant.

  12. Jay Banks says:

    I have noticed the boom of ‘frugal blogs'; it’s interesting reading many times, but sometimes I feel that this ‘new frugality’ is taken to extreme. People, we have some 75 years of life scheduled, when will be finally the time to enjoy it? First we save money for school, then for family, than for retirement, then for funeral… Sometimes I just enjoy breaking the frugal rules!

  13. Don’t forget the cost of the health impact. I see moms post pictures of 18 boxes of Hamburger Helper they got free with coupons, but will eating that much processed food zap your energy and send you to the doctor more often? If so, it’d be better to spend a little cash for fruits & veggies.

  14. Jimmy says:

    Just as a correction I beleive marketplace is by APM and not NPR.

  15. TeacHer says:

    Marketplace is definitely NPR.

    (In my quest to pay off cc debt, I got rid of cable and spent a ton of time listening to the radio. Marketplace was one of my favorite programs!)

  16. Pat Chiappa says:

    Trent, I know you’re a fan of Vicki Robin and “Your Money or Your Life”. My husband, Mark Zaifman who is a financial planner, was a contributor to the updated book – he updated Chapter Nine, the chapter on investing.

    Mark went out on the book tour, along with Vicki and Monique Tilford, Vicki’s co-author, and at each book signing he shared a comment from a friend who is a book buyer, “frugal is the new black.”

    I love that frugal is not only no longer tacky, but that it’s hip. Long live the frugalmeisters!

  17. Pat Chiappa says:

    Trent, I know you’re a fan of Vicki Robin and “Your Money or Your Life”. My husband, Mark Zaifman who is a financial planner, was a contributor to the updated book – he updated Chapter Nine, the chapter on investing.

    Mark went out on the book tour, along with Vicki and Monique Tilford, Vicki’s co-author, and at each book signing he shared a comment from a friend who is a book buyer, “frugal is the new black.”

    I love that frugal is not only no longer tacky, but that it’s hip. Long live the frugalmeisters!

  18. On the public radio nitpick: Marketplace is produced by American Public Media, not NPR; however, most of the stations that air it also
    run NPR programming, so they’re often informally referred to as “NPR stations”. But APM and NPR are two different organizations.

    Many US public radio stations carry a mix of programming from NPR (All Things Considered, Morning Edition, etc.), APM (Marketplace, A Prairie Home Companion, etc.), and Public Radio International aka PRI (This American Life, Tavis Smiley, etc.)

  19. Brian says:

    I also enjoyed the book for a lot of the reasons Trent mentioned.

    The biggest part of the book that really stuck with me was his advice regarding getting involved in what you are passionate about ASAP, even if it is only for a small amount of your time (or money). He gives examples of people who waited until they were retired to get involved and then they were frustrated when they couldn’t make an impact because they lacked the experience/knowledge/connections to really help out beyond envelope-stuffing type activities. He points out that finding the time NOW to get involved will allow you to have the opportunity to make a BIG difference later when you have more time/money. And as Trent pointed out, keep it simple. Find the one thing you care about and get involved.

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