The Simple Dollar (10 page)

Benjamin Franklin once said, “Watch the pennies and the dollars will take care of themselves.”
¹
That quote is often used as a call to arms to pinch pennies, but simply whipping out the scissors to clip coupons misses much of the point of what Franklin was saying. His argument is, quite simply, to be mindful of how you spend your
money. If you’re alert enough to be mindful of your small expenditures, keeping track of your large ones comes easily and naturally.

In
Lifestyle of the Tight and Frugal: Theory and Measurement
, John Lastovica defines frugality as the practice of acquiring goods and services in a restrained manner and resourcefully using already owned economic goods and services to achieve a longer-term goal.
²
In other words, whenever frugal people spend money, they are conscious of the fact that their resources (time, money, mental energy, physical energy, and so forth) are limited, and they’d prefer to invest those resources in something in line with their core values.

So, what differentiates that from a cheap person? Cheap people focus on nothing but retaining money for themselves, regardless of what their personal values might be. Frugal people, on the other hand, are happy to spend money on something in line with their personal values, but outside of those values, they seek to minimize their use of time, money, and energy.

A great example of this is in the purchase of a car. A cheap person will go for the car with the lowest sticker price, period. A frugal person will figure out what they want out of a car and how much they value it, and then do a bit of research to find the best “bang for the buck” for that set of values.

Many people associate frugality with sacrifice: You have to give things up. They hear stories about having to give up lattes or giving up eating out or giving up nights on the town, and it sounds incredibly tedious.

A more appropriate view is that frugality is an exchange:
You’re trading the things you don’t value for things that you do value.

It all comes back to your core values. You have a handful of things that you personally value. Spending money on those things is completely normal and healthy—it reaffirms the things you care most about.

Outside of this exist many things that we might care about a small amount, and other things we don’t care about at all. These are the areas where it’s fine to deeply cut spending.

It’s easier to see this with an example. You’re part of a small circle of friends that you value very much—those friendships are one of the core values in your life. Those friends go out to dinner together all the time. You don’t particularly value the dinner, but you
do
value the friendships.

Many people would just shrug it off and keep going out with friends, spending money on something that they don’t really value to maintain something they do value.

A frugal person will find a new solution: Why not learn how to cook at home and invite them over for dinner? This might inspire others to host additional dinners or convince some of them to come over with ingredients
and help you prepare other dinners. You still get the value of dining with friends (with perhaps the additional value of cooking with friends) without the constant cost of dining out.

If you can then redirect that saved money into another aspect of your life that you value—say, perhaps, saving for a down payment—your life as a whole improves. You don’t sacrifice anything that you truly value while also improving an additional area that you value.

John Warfield, a quality control chemist from Des Moines, IA, puts it well: “I take the long view. Is there anything I really need today, be it extra excitement, gizmos, food, drugs, sex, rock and roll, or so on? I’m not afraid to spend an extra buck to try a new restaurant or a few hundred to jump out of a plane. But I don’t need to do those things every day or every week. The financial security of tomorrow is more important to me than a large high-definition television.”
³

Instead of spending money on relatively frivolous things now, he steps back and looks at his core values—and he values security. A short-term rush might be fun once in a while, but financial security brings real lasting value to his life, enabling him to make powerful choices later on.

The rest of this chapter is filled with suggestions for trimming your spending. As you read them, keep your core values in mind and
don’t follow
the suggestions that damage those core values. Instead, focus on the ones that don’t interfere with your key values at all and
recognize that the money you save by trying these things will actually improve those key values.

Whenever I give a talk about my experiences and personal finance philosophy, I usually show a slide that depicts nothing more than a bucket of soapy-looking liquid. This usually elicits a raised eyebrow or two from the crowd, and several more eyebrows shoot up when I tell them that this bucket contains homemade laundry soap.

You see, I make my own laundry soap out of borax, washing soda, a bar of soap, and water—all available at your local grocery store. A single bucket takes me about ten minutes to make and has enough soap for fifty loads of laundry. Here’s the kicker—I save about eighteen cents per load as compared to the brand of laundry detergent I previously used.

That adds up over time. In a household of four, we do an average of a load and a half of laundry a day. Over a full year, my laundry detergent choice saves us $100.

The laundry detergent is not what’s important here.
The important idea is simple—just go through your life, determine the things that are important and the things that aren’t, and find every way you can to cut back on the things that aren’t important.

To me, laundry soap isn’t important. As long as my clothes are clean, I don’t care what kind of soap I throw in there. So, I cut back as sharply as I could. I tried a homemade recipe that pledged to be the cheapest option—and I found that it did the job up to my standards. That’s what I use now.

When you start applying this litmus test to everything in your life, you begin to find lots of areas to cut back. You start trying generic products. You start trying to make things yourself. You trim out expensive nonessentials.

Here are three examples from my own life:

1. I used to drink three or four sodas a day. It was expensive, plus it wasn’t exactly good for my health. Since I mostly just drank them whenever I was thirsty, I started substituting bottled water for the sodas, with no real drawbacks. This saved a bit, but the real savings came into effect when I just got a handful of sturdy water bottles and started cleaning and refilling them myself. The upkeep cost of four sodas a day basically went away.
   
2. Clothes aren’t an important issue in my life—as long as they fit well and aren’t terribly worn, I’m happy with them. I used to just replace clothes by shopping at a big and tall men’s store, but I substituted that choice by starting my shopping trip at a few local thrift stores. I would often find barely-worn shirts that fit me well for just a tiny fraction of the price. Sure, I might not have a choice of patterns or prints, but such issues really aren’t essential in my life.
   
3. I’ve been an avid reader since I was a child, and I carried this wonderful hobby with me into adulthood. Because I read (and still read) two or
   three books a week, I would often head to the bookstore twice a week and pick out a new title or two each time I visited—and that really added up. What I began to realize, though, is that what I truly enjoyed wasn’t buying books, but reading them. So, I began to use my local library, and today I purchase only the occasional book, supplementing them with a well-worn library card. After all, my passion is reading, not buying.
   

Graham Miller, an independent advisor from Glasgow, Scotland, points to another area of concern. “Clutter and accumulating things is self perpetuating and leads to unhappiness. I was asked to declutter a room in my house and see how I felt,” Graham says. “Before I got this advice, I had a house full of clutter (DVDs, video games, books) and very little money in the bank. I had a lot of things, but I was ultimately unfulfilled and unsatisfied. I would buy something to add to the clutter for the initial rush. This wore off, often within hours, and I would be back at square one. Needless to say, I spent a huge amount of money.”
⁴
The accumulation of things in itself can lead to unhappiness—a point I’ll touch on again later in the book.

Take the time to look at
everything
you spend money on in your life. Ask yourself if that spending is essential to your life—or even truly important.
If it
is
important, leave it alone. If it’s not, cut it sharply
—find every way you can to trim every cent from your spending. Eventually, you find that you actually have enough money to cover everything important to you
and
have
money to pay down your debts or to save for the future. The only things you’ve given up are the things that aren’t essential to you.

In his book
Objective Happiness
, Daniel Kahneman describes the peak-end rule, which states that we judge our past experiences based on our strongest emotional response (the peak, which can be positive or negative) and on how it finishes (again, either positive or negative).
⁵

It’s easy to see this at work. Imagine your last family vacation. What do you remember? Your first thoughts will be either a positive or negative overall feeling, along with a specific memory or two (the peak experiences of the trip). Most of the rest of the vacation will be fuzzy and disordered.

If you keep the peak-end rule in mind when you plan major events or trips, it’s easy to plan to maximize the positive memories and minimize the cost. Figure out the two or three
big
things you want to see or do on the trip (the peak experiences); then minimize the cost of the other elements (the fuzzy parts you won’t remember). Stay in an inexpensive hotel—or even camp out in a tent. Prepare your own simple meals instead of eating out all the time. Focus primarily on events and attractions that are free, excepting the small number of things you
really
want to enjoy.

You’ll still get the peak memorable experiences, but you drastically reduce your expenses, enabling you to focus on other goals with your dollars.

During my early professional years, I made a daily habit out of stopping at a local coffee shop. I’d pick up a bagel, a newspaper, and a cup of overly sweet coffee and retreat to a back table, where I’d browse through the pages, sip my sweet beverage, and nibble away at my breakfast.

I started doing it because I really enjoyed going to coffee shops when I was in college and going to this one felt a bit nostalgic. I’d remember long evenings playing checkers with my friends, arguing about some frivolous point or another, and generally avoiding the studying that needed to be done.

After a while, the morning cup and bagel became so routine that I didn’t believe I could possibly live without it. I
needed
it.

When our finances hit rock bottom, I took a hard look at the money I was spending, and I couldn’t help but notice that $7 was disappearing, day in and day out, at that coffee shop. $35 a week, $140 a month…. $1,680 a year is a lot of money.

So I challenged myself to cut back to just a day or two a week, expecting that it would be very difficult. What I found, though, is that the change was surprisingly easy—the hard part, if there was one, was breaking the caffeine addiction. Before long, I was stopping at the coffee shop once a month at the most.

What changed? For one, I realized I was overvaluing my routine. Humans are creatures of routine—yes, even for those of us who seem to thrive on spontaneity. Most of our days are filled with many of the same activities as other days—a similar amount of sleep, a similar meal pattern, and other such actions. This routine is fairly comforting—it makes us feel in charge of our lives. Thus, we often overvalue that routine in our heads, since it makes us feel
normal
about what goes on in a day.