
Frugality won’t make you rich, it makes it possible for you to get rich - joshuacc
http://www.thesimpledollar.com/2011/09/13/frugality-wont-make-you-rich/
======
jellicle
Ah, simple, worthless advice from the internet.

Project not going well? _Work harder_.

Not enough money? _Save more_.

Not attractive enough? _Be more attractive_.

I know I'm enlightened. Sigh.

Median income in the U.S. is $40K. Which is about $110/day. Telling people to
cut out some "small thing", a $5 daily expense, is telling them to magically
save 5% of their total expenditures. Except he moves quickly to saving
$250/month, which is now 10% of their total expenditures. Easy as pie! Just
stop eating! Stop renting shelter! Stop purchasing clothes! And then you'll be
free to have money to eat, rent shelter, and purchase clothes.

Utter brilliance.

~~~
trebor
Frugality helps me survive on what I make.

$40k salary a year actually comes out to ~$154/day. Assuming 2080 hours/year
of workable time, this is 40k / 260 "work days".

I get less than this at the moment.

If you _can_ afford to invest 10% of your income for 2 years, then drop to 5%
for the rest, in a mutual fund that averages 15%/year (they do exist) you'd
have ~$813k after 30 years (at $250 the first two, then $125 the remaining
years). At no further investment you'd have $323k after thirty years from the
first $6k invested.

This ain't no drop in the bucket, but we post-modernist consumptive Americans
aren't interested in self-sacrifice.

~~~
alttag

      > Assuming 2080 hours/year of workable time, ...
    

I've had recruiters try to sell me on this figure for salary calculations, or
even worse, use 2085.7 (=365 * 5/7 * 8). That only works if you don't want a
vacation.

I use 2,000 hrs/yr both to factor in some vacation time and also to make the
math easier to do in my head.

~~~
trebor
Sure, this is why the young kids with no family and no life outside work make
buckets of money: they spend almost _all their time_ in the office.

A salaried position is nice, but even then some industries put the salary low
and give bonuses to "dedicated" people like that.

I'm not going to sugar coat it for myself, or for anyone else either. It's
really hard for everyone in this economy, but especially for young folks like
me who don't already own (or at least partly own) houses.

------
aculver
I've found the interest rate on outstanding debt to be a tremendous motivation
to try and limit the number of frivolous things I buy.

For example, our interest rate is 5.5% and we're not due to pay off our
mortgage for 28 years. That means (more or less) that for every dollar I
spend, I could have put that on my mortgage and saved 5.5% interest
(compounded) over 28 years. Another way of looking at it is that I'm going to
be paying 5.5% interest (tax-deductible) on anything I buy instead of putting
the money in an extra payment on my mortgage.

Given the terms of my mortgage, that makes an $500 iPad actually cost about
$500 now and another $481.06 in interest over the next 28 years. My $2300
MacBook Pro will actually end up costing me $4512.88.

The great thing about this approach is that it doesn't discourage me from
buying _nice_ things that are actually worth their value. The MacBook Pro for
example produces incredible value, much more than I paid for it.

However, knowing that for every $5 smoothie I buy now, I'll be paying another
$4.81 for it in 28 years? I don't buy $5 smoothies 2-3 times a week anymore.
Instead I go to Rita's when they're doing $1 kids cones on Monday and I go
again on Wednesday for the $1 Italian Ice.

Anyways, I found this so helpful in curbing frivolous spending that I created
a small iPhone app to help folks do the calculation on the fly.
<http://whatll-it-cost.limelightapp.com/> . I'd be happy to give a promo code
to anyone who thinks it'll be helpful. (After all, that $0.99 would actually
be $1.94 after 28 years at 5.5%. :p)

------
GeneralMaximus
> _Joe Average has $80,000 in student loan debt, $25,000 in credit card debt,
> and a $10,000 car loan. His total monthly debt payment is about $1,200 and
> he’s going to be making those payments for the next, say, ten years._

Okay, I'll just go ahead and ask: _why?_

Why are so many young people so heavily in debt? Is this an American thing? Or
a Western thing in general?

I see people like this in every online community. They barely make enough
money to pay for housing, food and utilities, yet they use credit cards to
purchase Xboxes, e-readers, smartphones, expensive computers, Netflix,
Pandora/Last.fm/GrooveShark/whatever, iPods, tablets, games off Steam and FSM
knows what else[1]. And then they go eat at the local fast-food chain because
it's cheaper than eating real food. Sometimes I have serious doubts about the
sanity of these people.

Why are young people who don't make money being given credit cards? Why are
they purchasing cars with money they don't have?

I'm curious. This cultural phenomenon of spending more than you make is
completely foreign to me.

\---

[1] List not limited to technology, of course.

~~~
Woost
A big part of it (I think) is the student loan debt. 80,000 is huge, and can
lead to just giving up and spiraling(I already owe 80k, what's another 2?)

The car loan is really low, 10k is just about as cheap as you can get a new
car for, and you'll never get a loan for a used car (so if you don't have 2-5k
in savings to buy it used...you're SOL) Biking/walking is only really feasible
in certain cities.

And if you really want to know why young people are being given credit
cards...it's because they don't make money! No, really. Not a conspiracy, but
without a steady income they can only make the minimum payments for a while,
which gives the card issuers more money than someone who has a job. Plus, they
get to charge higher interest on it.

~~~
philwelch
_and you'll never get a loan for a used car (so if you don't have 2-5k in
savings to buy it used...you're SOL)_

This isn't true at all. You might not be able to get a car loan in the 2-5k
range, but for a used car, especially a certified used car in the 10k range,
those are almost always financed. One also makes a down payment on a car, so a
10K car loan may be for a car that's up to $15k. $15k is plenty for a decent
used car.

~~~
Woost
Yes, that was my point. A decent car will put you at least 10k in the hole,
unless you have the cash to buy used from someone who isn't a dealer.

------
bricestacey
For those that wrote negative comments about this article, imagine for a
minute you weren't such a hotshot and couldn't negotiate a $10,000 increase in
salary at your minimum wage job as a ticket taker at the movie theater.
Imagine you were one of those mechanical turk workers that you use in your
shiny web application being paid next to nothing for your time. Then shut the
hell up. This article isn't for you.

------
d_r
Taken within the context of HN audience, this is generally poor advice. I'm
not sure why it is being upvoted other than for the discussion itself. Don't
scrounge those $9 Netflix dollars, and don't skip your coffee. Don't even
spend countless hours lurking on SlickDeals to save twenty bucks here and
there. Your time would much, much better spent if you work on increasing your
income stream. Work harder and ship your darn iPhone/Android/web/whatever app.

~~~
mdda
But it's also partly to do with the kinds of businesses that the HN crowd are
setting up.

If your business is a plain old-style cash-flow business, rather than having a
fast-growth trajectory, it does much sense to optimize for the cents, since
they turn into dollars because of the repetition.

When first-mover advantage is important, don't let the small stuff get in the
way of getting your product out ASAP.

------
lchengify
I've seen a lot of people who are penny-wise pound-foolish, and I think that's
actually a lot more damaging then not being frugal overall. Wasting $8/mo on
Netflix doesn't matter that much, but having a habit of saying "screw it" and
dropping $500 on a night out for no reason can be a much more damaging habit
and much more cost-effective to stop.

Also it's hard to write an article about smart money and not point out that
some people simply do not know when to negotiate. You could spend all year
depriving yourself of coffee or decent food to save $10,000, or you could
spend 5 minutes remembering to _make a counter offer_ on your salary or your
next car purchase.

~~~
LiveTheDream
There was a deleted reply that said:

> On the other hand, a daily habit of frugality makes it easier to not
> splurge.

My response: that might not be true based on the recent information about
decision fatigue[1].

[1] [http://www.nytimes.com/2011/08/21/magazine/do-you-suffer-
fro...](http://www.nytimes.com/2011/08/21/magazine/do-you-suffer-from-
decision-fatigue.html?pagewanted=all)

~~~
philwelch
From experience, that doesn't seem to be the case. If you worry about spending
money at a certain level, you've defined the battle lines, and splurging
desperately on the other side is utterly unthinkable.

If $10 for a day's worth of food seems lavish to you, something like even
setting foot in a decent restaurant becomes unthinkable. You start to lose the
ability to even imagine splurging, because to you spending $15-20 on pizza is
splurging. You understand from an intellectual perspective that you can easily
spend over $100 at a good restaurant ordering dinner for two, but you don't
consider it as a possibility for your own life.

------
jdietrich
"The only people who are obsessed with food are the anorexic and the morbidly
obese" - Stephen Fry

Likewise, it seems to me that misers and spendthrifts are both defined by
their obsession with money. This sort of 'frugality' seems a particularly
unpleasant fixation.

~~~
MikeCapone
"This sort of 'frugality' seems a particularly unpleasant fixation."

To some people it is, and to others it's actually fun and rewarding to do more
with less and figure out new ways to save money for something more important
in the long-term.

If it's not for you, fine, but let's not generalize.

------
dev_jim
Not really. What is going to help you get rich is to focus on increasing your
top-line income. Doubling and tripling and more of your income is going to
make whatever bottom line improvements described in this article irrelevant.

Not to mention that you should be enjoying the money you make, not constantly
worrying about whether you should brown bag it or eat $5 crappy street meat.

~~~
hammock
I don't think your idea and the OP's are at odds. Abundant wealth growth comes
from reinvestment of capital- the more capital you have the more you can
invest. And cost-cutting, naturally constrained by current top-line revenue,
increases earnings to be reinvested.

Two sides of accounting, happening at the same time- cost and revenue.

------
tomjen3
That is nice in theory, but in practice it is a lot easier to double your
income than to find that 25th hour a day.

And much of what he suggest takes so much more time that you still couldn't
make a business.

~~~
ebiester
There are positive frugal actions and negative frugal actions.

Negative actions include not spending as much money on the car, or the house,
and skipping the starbucks. Negative actions are half the battle.

------
yason
Real frugality starts when you've over with the fact that you don't really
need most of that stuff you think you needed anyway. And, further, those
things you do need you choose because you like them, not because what you
think others will like--and thus, think they like you too.

However, there's an interesting issue there. Having little income but
consuming even less approaches a certain point--a point that is the same point
as consuming a lot but yet having even more income.

Either way, at this point you consume less than you earn. And this point
happens to be the one that calls you to think what is it that you're here, in
life, for. The "what would you do if you had a million dollars question", but
just in reality. You don't need millions; to reach this point you just need
more income than you spend.

This calling is always there but you really start hearing it louder as soon as
you don't have to be so busy merely making a living. And that is a dreadful
point for it takes away all excuses you're used to, and makes you either a
weasel or someone who will begins to think hard, really hard.

------
Hyena
My effective income is $17,280, pre-tax. Even pared back to that, I've
accumulated about $3,000 in savings over a year. It helps not to buy stuff.
Like, at all. I have only 14 major physical possessions, including where I
live and "clothing" and "tools" as single objects. I have much more software,
most of it purchased at steep discounts through Steam or the App Store/Market.
Spotify provides music.

Surplus monthly income is roughly $500. It's been a pretty successful
experiment. So saving at low incomes is very possible. What I think bears
mention is that this is mostly possible because of my age and disposition; I'm
young and I'm picky, so I neither pile up expenses nor have a burning desire
to possess most things.

~~~
Impossible
Do you still live at home with your parents? If not where do you live? I saved
a ton of money back when I had a low income but very little expenses because I
lived with my parents.

------
gfaremil
I'm not sure this is a smart advice. Of course, frugality is good thing. But
it does not help you to become rich.

There is a saying which says: Don't waste your time thinking about how to
spend money, think about how to make money.

------
gonepostal
Author makes some good points but comes to an incorrect conclusion. It is very
important to live within your means (income + some delta > expenses). I don't
think anyone would disagree with that statement. There is some debate how big
that delta should but that isn't the root of the issue.

But then concluding being frutal will provide opportunities is false. All
frugality enables is the ability for one to take advantage of opportunities
that someone that is in a lesser financial situation could not.

~~~
lotharbot
If you can't take advantage of it, it's not really an opportunity. Frugality
turns "can't take advantage of" situations into actual opportunities.

------
danielrhodes
How does frugality help you when you have no debt?

~~~
dakr
There are three major and important reasons: for retirement, to provide a
cushion, and to be able to capitalize on opportunity. If you save more now,
you can retire earlier or maintain a higher quality of life. If you save
enough to provide a nice cushion, you can ride out the bad times or worse
(child sick, lose job, car falls apart...). Again, and perhaps most
excitingly, being able to draw on a reserve lets you leverage opportunity.

This is not about debt. It's about making sure you have the ability and the
freedom to live beyond the day to day.

------
fleitz
Frugality also makes you hungry.

When you start your business after being frugal it makes your business frugal
which makes it lean, which means that you'll raise (if necessary) on much
better terms.

    
    
      Caesar:
      Let me have men about me that are fat,
      Sleek-headed men and such as sleep a-nights.
      Yond Cassius has a lean and hungry look,
      He thinks too much; such men are dangerous.

~~~
LiveTheDream
I disagree with the general sentiment of the article, but this comment rings
true. If you are aware of how to survive on a limited budget, that could give
you the strength, knowledge, and confidence to power through a tough financial
situation with your startup.

