Does frugality still work? If so has it changed?
I learned a lot from my grandmothers. One ran a business with my grandfather and the other invested in dividend stocks. They were both ahead of their time in the 60s and 70s. I remember my grandmother showing me her stock certificates and explaining how dividends worked. She explained how she used dividends to support herself after my grandfather Tom passed away at the age of 58. I remember the railroad and utility stock certificates with their elaborate etchings and visiting her stockbroker to execute a trade well before computers arrived.
I didn’t get to really meet either of my grandfathers since they both died young. I did spend quite a bit of time with both grandmothers, either staying overnight or while visiting cousins nearby. By the time I was a young man, they both had lived through two world wars, the depression, Vietnam, the Womens and Civil Rights movements, the Kennedy assassination, 1973 and 1974 energy crisis, inflation, cold wars, and multiple recessions. As savers and investors they had seen some setbacks.
The Old Frugality
If I can think of one thing they truly had in common it was knowing that everything had a purpose and nothing went to waste. Most likely this was hardwired into them after living through some very difficult times when, not only most products, but basic food was rationed, or unaffordable. My dad had rickets as a child because they couldn’t get enough milk during the depression. Milk!
They were smart with money because they had to be. They were frugal but not cheap. I consider myself very fortunate to have gotten these lessons early on.
The old frugality often involved accumulation, repair and reuse. Depression era parents and grandparents would save things like used string and wrapping paper. When my grandmother passed away she had three two-story garages filled with everything from sandblasting equipment, a Model T, Elvis and Beatles 45s, Life magazines dating back to the late 30s and, my personal favorite, 10 Hot Nut machines from the 40s. They were part of one of my dad’s early side hustles, Hot Nut vending. The nuts were still in them.
There were some very good elements to their frugality. They made meals from scratch, repaired damaged clothing, and took great care of their homes. Of course they made their own coffee (electric percolator). I’m sure the damn thing would still be percolating if it were around.
It’s hard to fathom what they would’ve thought of today. They would’ve probably been wow’d by the next day Amazon delivery and the ability to use your smartphone to manage investments and find the best price on everything. The only problem with finding deals now is that much of it’s not worth owning. They would be appalled by the waste and the disappearance of everything from local grocers to quality retailers and products they could trust to be around for a long time. Even with all that, I think they would’ve adapted. They would have purchased less and spent more time thinking about the purchases they made.
Frugality Under Fire
When financial writers criticize frugality today they joke about how it’s a waste of time saving money on small purchases. Mostly they end up talking about treating yourself at Starbucks because you deserve it, etc.. The new frugality goes far beyond saving money with coupons or on a cup of coffee.
Of course, you still make your own coffee (right?) Read the Latte Factor.
The new frugality can be complex because if you’re not careful you find yourself spending more money while trying to save money (I’m looking at you Amazon and Costco). Slick apps and one-click online purchases require a whole different thought process and level of self control. Use the tools, don’t let the tools use you. That brings us to the new frugality.
The New Frugality
Every era has its own challenges and opportunities. I’ve always been an optimist and believe that things get better over sometimes (long) periods of time.
So, if the old frugality was defined by being sparing, thrifty, and economical in the consumption of resources such as food, materials, and large purchases, what does the new frugality look like?
10 Examples of the New Frugality
Technology has allowed us to practice frugality on a much larger scale. Here are 10 examples of the new frugality that did not exist even a generation ago.
- Giving up our commute, working from home to cut back on auto and work related expenses. This trend will continue as companies see the efficiency of allowing workers to telecommute and the efficiency of online collaboration.
- Fintech. A young investor today may never visit a brick and mortar brokerage firm or bank and be able to accumulate a seven-figure index fund portfolio with near zero investment fees or bank charges. I do this now and run a business without visiting a bank or brokerage more than once every couple of years. Banks work for me now. I never need to visit even for a mortgage or line of credit.
- Time saving technology. Working in the cloud using services like Google apps, Evernote, Dropbox, AWS, Filethis, Personal Capital, and Freshbooks. I can literally run my business and life from anywhere using these cloud-based applications.
- Travel. International plane tickets used to be a big chunk of change. I still find it amazing that my family of four can travel thousands of miles, multiple times a year, often with free airline tickets generated by our frequent flyer points machine. We can find a fantastic hotel, home rental and airfare deals internationally using some simple travel hacks.
- Geo-arbitrage. Hand-in-hand with low-cost travel and the ability to live and work from anywhere brings with it the opportunity to live in low-cost cities often in exotic locations like Portugal or Thailand for all or part of the year and spend significantly less than you would staying put.
- Cost savings and repeat purchases. Amazon Prime has its drawbacks, but the ability to optimize spending on household items and quickly compare pricing using Wikibuy or Google shopper can save you money and, of course, time. My favorite feature is just simply using Amazon Prime and Evernote web clipper to remember what I purchased and what I paid for it when it comes time to reorder. Just beware of that one click button and all the recommendations for things you didn’t even know you needed.
- Investment options. Other than my grandmother’s dividend stocks, most of the investments my parents and grandparents owned were in real estate or whole life insurance policies that were sometimes cashed out at a loss and included high fees. The quality and low cost options available today like Vanguard and Fidelity index funds allow investors to create a lean portfolio with nearly 0 fees, perfectly balanced to manage risk. We can track it all in one place with free tools like Personal Capital. Exciting times.
- Automatic savings and the power of compounding. It doesn’t matter if you run a small business, a high-powered corporate job or work part-time in the gig economy, automated savings are available to you. Putting aside just 10 dollars a day compounding at a 10% average return (total stock market index fund) would be worth over $1.77 million after 40 years. That is one hell of a tip jar. Automate it / Invest it. I regard employer match programs as the best savings tool available and it pays to max them out.
- Free Information Flow. Some may see information overload and social media as a time wasting annoyance. Luckily we have technology that allows us to create a free high-quality flow of information from trusted sources utilizing feed readers like Feedly, podcast apps and news apps like Flipboard, Google News or Apple News (free version). Just make sure you only follow sources you trust and try to avoid getting your news from social media.
- Simplicity. We can choose to be overwhelmed by technology, social media, and mass consumption or we can choose to utilize these tools to adopt a more minimalist lifestyle. The ability to travel light, make changes at a moment’s notice, adapt to what’s around us and join the freedom movement.
I’m simply scratching the surface of the new frugality here. The new frugality is not smart shopping or getting a good deal but rather subtraction and living better with less. We can now use all of the tools at our disposal to hack away at the unessential and simplify our lives. Frugality will really be about the time you save and what you do with it.
Frugality gives us the ability to live and work anywhere, to travel light and go at a moment’s notice, or settle in for a long winter without having to trudge to the bank or a job or a mall.
Maybe go for a hike or a long bike ride instead.