The online personal finance world has exploded in the last ten years. For most bloggers and self-styled personal finance experts, it’s core message is ‘how to spend less and still enjoy your life’. However this frugality advice doesn’t aim to address the problem of why people need to spend less and what the end product should be. This is probably why the idea of Financial Independence / Retire Early (FI/RE) is so compelling, as it gives meaning to the otherwise boring task of budgeting.
“Nature is pleased with simplicity, and affects not the pomp of superfluous causes”Isaac Newton, Principia (1846)
At it’s core, trimming down on expenditure is a very compelling message. People always look for a way to have a little extra money in their pocket and hence are easy targets. But it’s also an easy message to sell and unfortunately this becomes the key takeaway from many online blogs. That saving money is an end that doesn’t require a means.
I argue that by subscribing to these thoughts, savers can get trapped in a frugal race to the bottom. My argument against excessive budgeting and expenditure trimming comes from two places:
- Unfortunately most people are always looking for a quick fix and cutting out unnecessary services satisfies this, but
- This then leads to boom and bust type thinking. And there is only so far you can cut spending before sacrificing a basic quality of life.
The truth is it is incredibly hard to convert someone who spends all their money into a life of frugality. They not only have to have some sort of in-built self-preservation, (which most people have), but they have to be wholeheartedly on board with a long-term end goal (e.g. early retirement) and understand the mechanics. But by only playing defensive, i.e. cutting costs, we are left wondering how we can win the long game.
In ‘How we change (and Ten Reasons Why we Don’t)’*, Ross Ellenhorn writes that staying the same in your behaviour makes you face your accountability, and this is why most people avoid it. To extend this idea to frugality – when you’re in cost-saving mode and you’ve stripped every unnecessary expense from your life, you are likely to retreat back into your bubble and it will only be a matter of time before you relapse.
By having a goal outside of simply being ‘frugal’, you commit to something bigger than you. You push the boundaries to make life better for yourself. Your accountability gives you the impetus to grow.
Do you want to start a new side business? Earn more in your current job? Meet new people who have different goals in life?
All of these things require accountability and commitment. Maybe you tried once but failed. Ellenhorn’s likens this to being kept inside an electric fence. If you repeatedly get shocked you train yourself to be kept in the bubble. The answer is that you need hope to “force yourself out of the parameters of safety, to face the anxiety of your accountability.”
The False Idols of Parsimony
While I applaud their good will, personal finance bloggers who only focus on frugality miss the bigger picture. They assume that some good is going to come to their readers because of it. However it isn’t always in their best interests for people to truly become converts to a frugal lifestyle, as this would mean less eyes on their website and ultimately less money in their pockets.
These experts ignore by far the biggest factor : your income. This is what sets you free – your ability to produce. There is a certain element of freedom you gain from moving to a cheaper broadband provider, but an increase in income eclipses this. More to the point it moves you away from a position of worrying about your costs of living.
The idea that being frugal is good for it’s own sake I feel is misguided. Every minute you spend trying to get the lowest price for everything is a minute you could be spending trying to increase your agency and your financial clout. By only tackling your expenses, you are resigning to be content with your income. You end up playing defensive and become locked in a battle of optimisation.
Money and time are scarce resources, and earning more money requires eating into precious time. But my argument is that time is better spent this way, rather than trying to optimise your finances or staying indoors for fear of spending money on things that actually matter. Working for money is the only option if you need to pay a mortgage or are aiming for early retirement. And there is no upper bounds on income, giving you a sure-fire and accelerated path to early retirement.
The origins of the word ‘frugal’ are in Latin – the adjective “frugalis” refers to the practice of “harvesting”. In its true sense, a frugal strategy would not be about scrimping and saving, but about bringing to fruition!
There are of course many reasons why frugality is a virtue. But authentic frugality is not only about consuming goods and services in a restrained manner, but resourcefully using what you already have in such a way to achieve a longer term goal.
Cutting costs can be effective in the short term and it would be foolish to dismiss this path to FI/RE. But it will only get you so far, before you retreat completely down the rabbit hole of optimisation and crystal ball-gazing.
Parsimony nowadays has connections with extreme frugality. But in philosophical terms ontological parsimony favours the simplest solution i.e. that which makes the least assumptions (akin to Occam’s razor).
In hand to hand combat with your personal finances, cutting costs is simply a defence mechanism. This is needed of course, but sometimes the simplest solution is to deal a knockout blow.
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