One year ago — just about to the day — I took my first stab at this topic in Why Earning More Money is More Important than Frugality. It was one of the most popular posts I’ve done in the five years that I’ve had this site up and running. It seemed for a while that I’d covered the topic as thoroughly as I could imagine, but the subject has hit the blogosphere with a vengeance in the past couple of weeks stimulating additional thinking. Now I’d like to take it one step farther and tackle how frugality becomes counterproductive.
Frugality in a changing world
I believe we’re in the early days of a massive era of change that will eventually earn itself a chapter or two in the history books. Think Industrial Revolution here — an event so all-encompassing that it will change life as we know it. Space doesn’t permit presenting all of my thoughts here, but it’s a topic I’ve covered in some detail on several other posts.
We can safely say that we’re living in world of rapidly changing circumstances — I’d dare say negative for most, though I think the very long term will hold many positive surprises. When change comes, and it seems disruptive in nature, we can do one of two things. We can either circle the wagons and work to protect what we have, or we can plunge forward and try to reinvent ourselves to thrive in a very different looking world.
The obsession with frugality strikes me as part and parcel of the circle the wagons strategy. Inside the wagons, we may feel secure and think that we’re in control, but as conditions outside deteriorate they’ll eventually drag us down in spite of our best efforts.
Frugality works best when you have something approximating employment for life, in a job that pays a living wage WITH full benefits AND predictable increases in pay. In that situation, your income is reliable and rises with time. By cutting expenses and saving the difference you save your way to prosperity.
But that’s not the world we live in any more. Jobs and long term employment are no longer certain, benefits are being cut, and raises – if you get them – are puny. Frugality doesn’t work as well in that situation and isn’t a long term solution to that problem.
The ultimate solution is to move beyond the circle, charge forward and work to cut a new path. Frugality doesn’t prepare us for that, at least not the way it’s generally used.
Micro-frugality vs. macro-frugality
So I don’t risk painting with too broad a brush, let me say that I think there are different types of frugality, and I can identify two as general categories.
Micro-frugality. This type of frugality is searching two dozen expenses for savings in each in the hope that collectively they’ll reach the level of real money. While that may (or may not) happen, the effort itself is exhausting, and requires constant vigilance. It has us researching, analyzing, discussing and executing cuts in nearly all expenses that make up our financial lives, and the effort can easily rise to the level of a part time job.
Macro-frugality. This is cutting the two or three biggest expenses that have the greatest impact on your finances. If your house is costing you $2,000 per month between the basic house payment, utilities and upkeep, you replace it with one that you could live in for $1,200 a month. A car with a $600 payment is replaced by a used car with no payment.
Macro-frugality makes abundant sense, especially if you’re trying to lighten your load to make a career push forward. You cut the structural expenses — which often causes other expenses to drop as well — and let the rest go. It’s a better strategy because you make two or three major changes and then move on. Simple, with maximum effectiveness.
Micro-frugality on the other hand, has us buried in small details. While we should be focused on generating fresh income streams, we’re busy plugging small leaks in our budget. What’s the end game to that strategy?
Is frugality motivated by a hatred of work?
That’s a strong statement but before you judge me too harshly for writing it, I came up with it while reading the comments posted on a New York Times article, Forget Frugality: Focus on Earning More.
The article was written by Ramit Sethi at I Will Teach You To Be Rich, an author and personal finance blogger who’s been very outspoken in his criticism of the frugality faith. There were 90-something comments responding to the article, and from the 40 or so that I scanned, the responses were overwhelmingly negative. I’d even go so far as to say that some of them were hateful, as though Ramit struck a deep emotional nerve.
Why the rabid responses? Ramit was suggesting that rather than use their free time to find new ways to save money, that they instead find ways to earn more money. That was the bone of contention — the frugal wanted to save money precisely so they wouldn’t have to work more.
But was Ramit suggesting that they become workaholics? Hardly. He was suggesting that they think long term. What he was pointing out was that the better use of spare time is to use it to earn more money so that credit cards and other loans can be paid off or savings can be accumulated. With less debt and/or more savings, structural improvements in life take place ultimately resulting in less work, more free time and more money. Its old fashioned work-save-invest, but the masses apparently want no part of it — too much work in the short run.
The primary risk of over-emphasizing frugality
Ever wonder why human beings are creatures of habit? It’s because life is easier that way. We don’t want to have to stop and think about everything we do, to hatch new ideas for the things we do every day, especially those that are mostly about survival. Going into automatic pilot is what we might think of as “brain save mode”, and there’s a good reason for that.
Each of us has only so much creative capacity, and so much time. True, some people are more creative than others, but all of us have the ability. The difference is primarily that some people make better use of their creative skills than others. The same is true of time. Each of us have only 24 hours a day, and much of that is consumed by work and sleep, leaving precious little time for much else.
That begs an obvious question: what are we spending our creative energy and time on?
Are we going to spend it analyzing four cell phone plans to see which is the cheapest? Running from store to store to see who has the best price on laundry detergent? Investing 100 hours of our time on research and efforts to weather proof the home so we can save $25 a month on energy bills?
All of these can seem like noble pursuits, but making a deep dive into details can also be a form of creative avoidance – that’s majoring on the minors, and it’s guaranteed to keep us right where we are.
That’s the risk that frugality brings — that the lion’s share of our creative energy and time will be dedicated to what amounts to an effort to keep what we have. In a time of changing circumstances and declining economic fortunes, will that be enough? Will it move us successfully into the future? I have serious doubts.
Yes, income generation IS more important
Frugality has its place — certainly macro-frugality does — but what I’m challenging is the notion of frugality as some sort of overriding financial guiding principal. That’s a role it can never fill. If your income shrinks down to zero, you won’t be able to cut enough expenses to survive.
Only by increasing income and generating new sources can we move forward, but it may be even more important than that. Why?
- Jobs and careers are disappearing fast, and many of us need to completely retool in order to be economically relevant
- Employers are no longer providing the type of training that will lead us to relevant new careers (they too are circling the wagons and have largely abandoned forward strategies like training in favor of cost cutting and survival)
- Entrepreneurial skills are becoming critical, as the choice for the unemployed is increasingly between self-employment and no employment
- Developing multiple income streams may be the single best survival strategy in a world where fulltime, fully benefited, living wage jobs are becoming increasingly rare
- University educations are not only prohibitively expensive, but the coursework is increasingly out of step with the most recent developments in the economy and job markets
- Developing new businesses and income streams will take time, so the time to get started is now
Income earning ability is our single greatest financial asset. Our overriding financial principle then needs to be that we’ll always have an income — preferably a generous one. Making that happen is now completely up to us, and where we spend our creative energy and time will determine how well we do on that front more than anything else.
If you’re looking for a way to spend more time earning income to help your cash flow, check out my post, The Freelance Blog Writer Side Hustle. Even if you’ve never written professionally in the past, this post will help you get started converting your passions and interests into an income earning business that you can work in from the comfort of your own home.