Jerome sent me a great question for the reader mailbag, but I found that my answer was getting too long so I chose to spin my response off into its own post.
Jerome asked this:
One of the big ideas of frugality is to not waste anything. That just seems to lead to hoarding, though. Most of the cheaper people I know have garages and closets jammed full of all kinds of things that I would probably just throw out. Does frugality lead to hoarding or am I missing something?
This is a really good question that touches on a bunch of interesting issues all at once, so let’s dig in.
First of all, you’re absolutely correct in saying that one of the big principles of frugality is to avoid waste. You get absolutely no direct value out of throwing something away, but it’s very likely that you had to invest something in acquiring that thing you’re throwing away. Thus, when you throw stuff away, you’re throwing away money.
This is why we do things like saving leftovers in the refrigerator or hanging onto cardboard boxes for future gifts and future shipping. Holding onto them has value. Tossing them in the trash eliminates that value.
Beyond that, there’s a psychological connection that people often build to their stuff. Material items can often become a representation of self-worth. After all, you spent your money on these things. You chose to acquire these things. Those things are a representation of your time and effort and your choices. It’s easy to become attached to things that have those elements associated with it.
(Lifehacker ran a great article entitled “How Clutter Affects Your Brain – and What You Can Do About It” that digs into this psychological connection and some of the steps that people can take to overcome it.)
If you stop right there, it’s easy to see why frugal people become hoarders. However, those points overlook a few really big factors that should push a frugal person away from hoarding.
For starters, every item you hold onto actually has a cost. There’s a cost to store it. There’s a cost to maintain it. There’s a depreciation cost. There’s also a lost opportunity cost. Let’s look at each of these costs.
An item you hold onto has a storage cost. It takes up some square footage inside of your living quarters. You pay for every square foot that contains your stuff in terms of rent or mortgage, property taxes, and insurance. Every single physical item you possess takes up some portion of that space and thus is eating up some portion of that cost.
If you fill your five square foot closet to the brim with stuff and it’s part of your 1,000 square foot home, then 0.5% of your insurance, property taxes, and rent/mortgage is going to store that stuff each year. If you have a bicycle that takes up 0.2% of your living space (2 square feet in this case), then it’s devouring 0.2% of your insurance, property taxes, and rent/mortgage. That doesn’t include other factors like heating and cooling costs, homeowners associations, and so forth.
An item you hold onto has a maintenance cost. Sure, a lot of items don’t need much maintenance, but everything needs some maintenance. You have to catalogue where your stuff is or you’ll never be able to find it. Some items, like mechanical devices and electronics, need some maintenance to keep running smoothly.
An item you hold onto has a depreciation cost. Electronic items quickly depreciate in value. Any physical items that show wear will experience steep depreciation, too. Simply by holding onto them – even if you rarely use them – their value is dropping, and that’s a real cost that needs to be thought about.
An item you hold onto has an opportunity cost, too. If you buy an old record player for $20, that’s $20 that’s sunk into that record player. You can no longer use that $20 for other things. If you sit on that $20 in an investment account that returns 7% a year, it turns into about $35 after ten years. That lawnmower certainly doesn’t go up in value – and that’s the cost of holding onto stuff.
Those costs might seem tiny and trivial for individual items, but they really add up.
Let’s say you buy a lawnmower for $20 at a yard sale. You bring it home and stick it in your garage as a backup because it was a good deal. You use it maybe once or twice over the next ten years and then eventually get rid of it. What does the cost of that look like?
Storage cost You live in a 1,000 square foot home and the mower takes up 3 square feet. You pay $2,000 a year in property taxes, $500 a year in insurance, and $600 a month in rent (totaling $7,200 a year). That’s $9,700 – or 9.7 cents per square foot per year. Over the course of ten years, the mower takes $2.91 to store.
Maintenance cost You have to maintain the lawnmower a little. You change the oil every year and start it up to make sure it works. Let’s be generous and say that you only spend $0.50 a year maintaining it. Over the course of ten years, that adds up to $5.
Depreciation cost At the end of the ten year period, you decide to sell that old mower. You stick a $10 sign on it at your yard sale. Someone offers you $5 and you take it. Over the course of ten years, the mower has lost you $15 in value.
Opportunity cost You could have taken that $20 and stuck it in an investment, turning that $20 into $35 as described earlier. That’s an opportunity worth $15 that’s completely lost to you because of that lawnmower.
All told, that $20 lawnmower actually cost you $37.91 – and, in the end, you have nothing at all. If you keep hanging onto it, the opportunity cost, maintenance cost, depreciation cost, and storage cost keep increasing, making the balance even worse.
It is those costs that many frugal types tend to ignore, and when they’re ignored, it’s very easy to fall into the hoarding trap.
What’s the solution, then? A good frugal strategy for solving this mess is actually pretty easy.
Keep track of when you last used the stuff you’re holding onto. I like to write dates on the outside of cardboard boxes so I know the last time I used the contents of those boxes. I usually write a list of contents on the outside, too.
Whenever I go looking for an item, I’ll pull it out of that storage box, then cross it off the outside of the box. I’ll use it for whatever I need, then I’ll put it back elsewhere.
Once every year or two, I’ll go through the boxes. I’ll pull out every box that’s dated more than a year ago and simply sell off everything in there. There’s no reason to keep it if it has just been sitting in storage for more than a year.
These items either wind up donated to Goodwill or to a library or they end up as items in a yard sale.
When those items disappear, so does their storage cost, their depreciation cost, and their maintenance cost, and it stops the bleeding when it comes to the opportunity cost, too.
Beyond that policy, enacting the steps from that Lifehacker article also helps. The three tips that apply to physical items are pretty useful:
1. Apply Constraints One of the principles of good design is constraints. You can apply this same theory to create a system for mastering consumption. For instance, set a limit for how many people you follow on Twitter, how many books you buy, or how many apps you own. I set a limit of 200 people I follow on Twitter and I don’t buy any books until I’ve finished the current book I’m reading. I also don’t purchase or download any apps until I need them. There will always be more information available than you can consume so set limits so you’re no longer simply trying to just get through it all but rather enjoying more of what you consume.
2. Use Small Storage Spaces Cutting down on your storage space can do wonders for limiting consumption. Try cutting your closet down to 10 hangers or force yourself to use a small bag when you travel. Do you really need a walk-in closet or a rack for all your shoes? Try constraining your storage spaces and you’ll quickly identify what you really need.
3. Conduct a Monthly Review of Your Closet Every month, review your closet looking for items you haven’t worn. If it’s summer and you have t-shirts, shorts, or shoes that you aren’t using, put them in a bag to sell on eBay or Craigslist or give them away. Another option is to try and get rid of one item a week until you’ve cut your belongings down to the things you actually use.
That last tip lines up really well with my method of keeping track of old possessions.
In the end, frugality can encourage hoarding, but only if you ignore the total cost of hanging onto an item. If you’re not using an item, the benefit of hanging onto that item is very tiny, indeed, so the costs outweigh the benefits and should encourage you to dump that item.