Not too long ago, I received a really good email from a reader, “Jan,” who asked some pointed questions about frugality. Here’s that email, in part:
Your story of how you and your wife dug out of debt and started building toward a financially independent lifestyle is a great one. You guys deserve applause for that and I’m sure your openness in sharing it has inspired a lot of people.
My only question is why you guys are so hung up on frugality. You must both have organized and creative minds to have escaped from debt so quickly and built a strong business. Your minds are probably better spent on earning a lot more money than on finding new ways to save a nickel.
I see the point in being frugal when escaping debt, but when the world is your oyster, isn’t it better to strive to maximize your time? The more time you have, the more activities you can engage in to earn a lot of money.
Jan has several good points mixed in there that take her email far beyond what could be addressed in a simple reader mailbag question and answer. So, let’s dig in.
Why Be Frugal At All? A Look at Opportunity Cost
The first point of Jan’s that deserves some discussion is her idea that maximizing time is always better than being frugal. The idea that she’s hinting at is an economic concept called opportunity cost.
Investopedia defines opportunity cost like this:
The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.
For example, let’s say I choose to spend this evening playing a board game with my wife instead of, say, writing a few chapters on my next book.
The benefits of playing that board game are obvious. I really enjoy board games, particularly the ones I would be likely to play with Sarah, plus it’s a great opportunity to just spend time together. It’s “quality couple time,” in other words, with just enough active thinking to make it a good mental exercise.
However, there’s a cost. I am foregoing the potential financial benefit that would come from writing that book chapter – or any of the other things I might do for that hour or two that I’d be playing games with my wife.
Okay, so what does this have to do with frugality? One of the other things I might do for that hour or two is air sealing the entryway in our home. I’ve noticed a draft under the door and it’s clear that something beyond our current strategy of using a door stopper needs to be done. Doing that would save on our energy bills.
On the other hand, I could spend that time doing some home maintenance, saving us repair costs over the long haul. I could replace the furnace filter, install some more energy-efficient bulbs, and so on.
I could spend that hour or two making a ton of homemade breakfast burritos for far less than a dollar a pop, providing some pretty cheap and convenient breakfasts in the coming weeks.
I could make a new batch of homemade laundry powder soap, and since that would only take about five minutes, I could make some homemade dishwashing soap, too, and maybe some homemade window cleaner as well.
All of those options would save me a certain amount of money. No matter how I choose to spend that hour, I’m foregoing all of the other options. Since all of those options would either save me money or earn me money, I am leaving money on the table by spending that hour or two playing that game with my wife.
For the value I get personally out of it, it’s worth it to spend that hour or two playing a game with Sarah. But what about other times? Let’s say I’m home alone and I want to be productive with that hour or two.
Do I choose to work on that book chapter? Or do I choose to do something frugal?
Almost always, the frugal choice provides savings that is direct. When I do something frugal, the end result of that action is that I’m going to be spending less money. Instead of exiting my checking account, it’s going to be staying there. The action I take is going to directly result in that savings.
At the same time, the income-earning choice provides income that is indirect. The income-earning choice is almost always something that’s above and beyond one’s normal method of earning a living. It’s extra work done with the idea that it will improve one’s career standing or eventually help launch some side business – and that’s true with the book. (It’s also true with things like studying or working on a work project at home.) The time you spend might turn into a nice income stream… or it might turn into nothing. Also, any income you earn is going to be taxed.
The advantage of the income-earning choice is that the potential ceiling is much, much higher. The time you spend could potentially earn you a lot of money for the hour spent… or it could earn you nothing at all. In fact, sometimes it’s really hard to tell, particularly when you’re spending that time doing something like learning a new skill.
So, here’s the point: frugality has a guaranteed but relatively low opportunity cost. You will not get rich off of being frugal. However, you can use it as a pretty clear measuring stick of your time.
Smart Frugality Involves Maximizing That Opportunity Cost
Jan’s argument basically boils down to the idea that frugality is never a good choice compared to income-earning uses of your time. Because frugality is never going to be able to earn you a ton of money for that hour, you’re better off spending your time on things that have a high earning potential.
In other words, I should spend my hour working on my book chapter instead of doing something that will save money in my household.
The problem with that idea is that it mistakenly assumes that all frugal options are the same. They’re not.
Some frugal options directly save time and money. There are many frugal activities that end up paying dividends in both time and money.
For example, if I spend half an hour assembling a smart meal plan based on the grocery flyer and then building a good grocery list based on the meal plan and the contents of my cabinets, I’m trimming at least half an hour off of the time I’m going to be in the grocery store plus I’m drastically reducing the amount of money I’m going to spend in there.
Another example: if I spend fifteen minutes swapping a bunch of light bulbs in our house for LED bulbs, I’m going to make that fifteen minutes back each time an incandescent bulb would have burnt out. Since an LED bulb lasts about twenty times as long as a comparable incandescent, I’m swapping 15 minutes of time now for 15 minutes of time every three months or so for the next few years. Plus, I’m cutting back on our energy use from our light bulbs.
Some frugal options save you the potential of big time traps. Often, frugal tactics might save you a little money, but where they really save you is avoiding a huge money or time sink down the road.
One example is the regular replacement of air filters in your home. If you follow the schedule, your air blower will continue to work optimally and you’ll save money by not having the fan work overtime blowing air through a dirty filter. If you don’t change it, eventually the filter becomes so dirty that the fan gets overworked and increases the chance of failure by a significant factor. That’s going to be a big bill and a big headache. Replacing your filter regularly ends up saving you a little bit on the cost of running the fan, but mostly helps you to avoid the big bill and big headache of an air handling failure.
Another example comes from adding air to your tires, something that I do about once a month. When you do this, you’re improving your gas mileage a little – probably somewhere around 2% to 3% given typical tire deflation. That can save you a couple of dollars per thousand miles of driving in most cars, but the real savings comes in when you consider that properly inflated tires reduce the chance of a blowout which can be a real problem, costing you a lot of time and likely a lot of money, too.
Some frugal options just directly reduce the price of the things you’re already doing. There’s no additional effort required and there’s no downgrade in life quality required, either. You just substitute one way of doing things for another, similar way of doing things.
The LED lightbulb example above is one great example of this, but there are many. Switching to a generic version of a household item often falls into this (and if it turns out you don’t like the generic, switch back with the next purchase). Altering your commute to work to save a fraction of a gallon of gas falls into this group, too. They’re all just simple substitutions that don’t really change anything in your life, but they do cost less.
In my mind, there’s no reason for anyone not to do most of the things in these groups, and a lot of frugal tactics fall into one of those categories. Countless tactics recoup the time invested as well as saving money or help prevent a much bigger potential disaster or just directly reduce the price of something you’re already doing with no other impact. There’s really no reason to leave these things on the table because there’s either no real opportunity cost involved or there’s a huge opportunity cost benefit. Just doing the things above can save you a lot of money without any negative impact on your life whatsoever.
Smart Frugality Involves Trying New Things
There’s another big class of frugal tactics that I haven’t even touched on – the class of simply trying lots of new things. This is actually my favorite part of being frugal because it has actually led me to many things that are currently valuable parts of my life that I simply overlooked before adopting a more frugal life perspective.
First of all, you should never deprive yourself of things you enjoy because of some perceived idea of “frugality.” If there’s some aspect of your life that you enjoy, you shouldn’t just give it up for the sake of saving a few bucks. Doing that guarantees misery – and this is the misery people often think of when they think of frugality. Their mind immediately snaps to things that they enjoy in life, they assume they’ll have to give up those things, and thus they immediately reject frugality and think it’s some kind of horrible torture sentence. That’s just foolish and nonsensical.
Instead, there are three very fun challenges that I suggest to anyone who’s being frugal.
First, make an effort to try something new as often as possible. Rather than doing “the same old thing,” try something different. The purpose is to expose yourself to as many new hobbies, activities, and ways of doing things as possible.
Second, draw some of those new things from all of the free or low cost opportunities around you. Most people seem to completely overlook these things.
Need some ideas? Here are 13, one for each week of the first three months of next year.
1. See what the trails and parks are like in your city and in neighboring ones and hike through them.
2. See what’s actually at the library – look through their DVD section.
3. Find out what different community groups exist in your town and go to a meeting of one of them.
4. Learn about rock collecting or tree identification or bird identification, then head out into nature to explore these things.
5. Go geocaching.
6. Take a free class when they’re offered by community groups.
7. Read a book on a subject you’ve always wanted to know about.
8. Go to a free concert.
9. Attend a community festival.
10. Spend a few hours volunteering for one of the volunteer groups in your area.
11. Check out the wide variety of religious services and experiences, just to learn what they’re about rather than what you’ve read or what someone has told you.
12. Do some phone banking or yard sign distribution for a political campaign.
13. Attend a lecture at the local university.
Need more ideas? Stop by city hall and ask about the community calendar. Go to the library and look at the messageboards hanging there. See if you can get a list of the group meetings they host. Check out Meetup.com and see what’s going on in your area.
Simply put, if you can’t find free things to do in your area, you’re not trying to find free things to do.
Finally, when something does “click” with you – particularly if it happens to be low cost – dig deeper. Don’t be afraid to let it nudge out one of your earlier interests that’s gone a little stale. Don’t be afraid to let the new activity slowly alter your primary social circle, either.
I volunteer for a food pantry. I serve on three different community-related committees. In the recent past, I’ve coached youth soccer. I participate in a board game playing group. With my family, I spend lots of time geocaching, going to the library, reading books, and going to free stuff in the community. We’re starting to explore astronomy and rock identification and collecting together.
The cost of all of that stuff? Nothing, other than maybe a bit of gas to get there for a few of the things.
The best part is that almost all of those things have come about over the last several years due simply to my willingness to try new things. I don’t make up my mind about things in advance; instead, I assume if there are lots of people who like this activity, it must be at least worth knowing more about it.
Now, that’s not to say I don’t engage in hobbies and activities that aren’t free. I certainly do that. I’m simply saying that by exposing myself to lots of new things – and making room for plenty of new and free things – I’ve found a lot of enjoyable friends, hobbies, and activities.
Some of those friends, hobbies, and activities have nudge out previous friends, hobbies, and activities, but they’ve been changes for the positive in almost every case. I’ve moved toward things I’ve found that I’m more passionate about and interested in and, in doing so, I’ve been able to “click” with people who share those passions and interests.
Money has not been the motivating factor in any of those shifts, but I have found that because I’ve exposed myself to so many free activities and hobbies, many of the shifts I’ve made have been away from more expensive hobbies – like collecting vintage baseball cards and going golfing – to these less expensive ones.
The important result is a more personally fulfilling life. The fact that it is less expensive is just a nice bonus. To me, that’s really the best part of frugality.
I Also Like Crunching Numbers
The final factor – and this is something that has shown up again and again on The Simple Dollar – in my apparent “love” for frugality is that I love crunching numbers. I always have. I skipped entire grades in math when I was in school and I strongly considered a mathematics major in college (I ended up with enough to almost earn a minor in math). I love figuring out things numerically – it’s something I get personal joy out of.
When that personal passion meets an interest in maximizing one’s dollar, it’s natural that I’m going to spend time calculating the costs of lots of things. I want to know whether or not it’s going to save me money to re-wash a Ziploc bag. My intuition says that it probably isn’t… but I like to crunch the numbers, so I’ll sit down and figure it out. That kind of calculation becomes the genesis for an article.
That doesn’t mean I’m “obsessed with squeezing pennies out of every corner of life.” It means I get personal joy out of solving those kinds of math problems (which was true far before the concept of frugality was anything in my life) and sometimes the result ends up showing me something pretty useful about how I live my life. I like to share those results on The Simple Dollar, not because I think it’s a life revelation that two ply toilet paper is cheaper than using twice as much one ply toilet paper (it generally is), but because it’s one of those little nuggets that makes me go “hmm…” and then becomes a way to save a little bit more along the way.
In business, that kind of perspective is often lauded. I’ve heard often the story of how John D. Rockefeller was so obsessed with minute details that he had his company investigate alternate methods for sealing oil cans in order to save one single drop of solder. You could argue that it’s a matter of scale, but if you can figure out a way to do something a little better each time you do it every day for the rest of your life, that’s a matter of scale, too.
Still, figuring out such minutiae is not necessary at all to be frugal; it’s just something I happen to enjoy for the sake of figuring it out.
The desire to be “frugal” does not keep me from doing anything I want to do. Rather, it simply has opened the door to many more possibilities than I had previously allowed myself to consider.
I don’t throw away opportunities at the shrine of frugality. To me, frugality simply means finding a better way of doing things with one of the important factors in defining “better” being that it costs less money. It’s not the only factor, nor should it be.