Earn Big. Make More Money. Be More Valuable. Or...
Many advocate of financial freedom discuss earning more, making more, creating more.
We need to draw a hard line between making more and accumulating more. There is a huge difference between the making and accumulating if one is not frugal and thrifty.
If you would make more and spend more, you would be a poor accumulator of wealth. On the other hand, if you were able to make more and save more, you would be a good accumulator of wealth.
Increasing your net worth is simple. It requires that you become a good accumulator of wealth. It does not mean that you earn a high income and spend everything you make because despite your facade of high social status, you are essentially poor from a net worth perspective.
Word of caution, more income is not always better. You could certainly be a good accumulator of wealth and not have a high income, especially if you practice frugality.
Here are some questions to ask yourself surrounding the concept of more income:
If we are always focused on productivity and output, we may miss the very things that are right in front of us. Further, many activities listed above (exercise, sleep, nutrition, meditation, cognitive challenges) are actually scientifically proven to improve BDNF and neuroplasticity thus making our brains even more productive.
Does More INCOME Always Equal More Freedom?
Short answer: no.
Let us dig in a little further however. More money, more problems -- or Mo' money, Mo' problems for those so culturally inclined -- is a lasting adage because it holds a fair weight of truth behind it. We highlighted above that earning more money can potentially lead to increased psychological, and occasionally physical, stress.
Another axiom worth mentioning is work smarter not harder. Sometimes this is true however, if you are sitting on your ass making minimum wage and living above your means with debt and empty accounts, I would certainly worry about how hard I am working. At baseline, most people work relatively "hard". I use it in quotations because the average individual works hard because they are extremely inefficient and fail to recognize their lack of overall work density (defined as amount of productive output per unit of time).
For those of you working hard with very low rates of actual work density, it is time to focus on efficiency and work flow. For practical purposes, consider the Pomodoro technique pioneered by Francesco Cirillo in the 80's.
Why Do People Say "Money Doesn't Buy Happiness"?
Admittedly, most people who say this either have no money and pretend to be happy or they have money and still are not happy. I propose that you do not have to be either of the aforementioned individuals to believe in the above statement.
Further, may I suggest a revision of the above statement to:
"Buying More Things Doesn't Buy Happiness" - Dr. Jon
The typical belief is that we need to have "nice things" and buy more stuff to display a high social status to prove to others how wealthy we are. My proposal is that displaying a high social status almost always equates to lower net worth.
If you use your higher income to purchase more depreciating assets, and in turn those depreciating assets have other built in costs (maintenance, insurance, accessories, etc.) then it will actually reduce your overall net worth.
Besides, consider how displaying high social status to others actually reduces your true net worth visible to the only real person that matters... YOU!
So How Does Less Income Lead To More Success?
For what it teaches you. For what it permits you to do that you otherwise couldn't.
If your six-figure job requires ruthless hours late into the night and throughout the weekend, inclusive of holidays and allows a measly week for vacation, then I would say your trading your entire life for your income. Sounds to me like a shit trade.
There are certainly ways to make more money with less stress, but those opportunities are few and far between. More stress traded for more money is almost always the deal. Think of the promotion to manager - now you have more employees to manage. Fighting for days off. Always putting in sick leave. Poor performance and lack of motivation. Managing is nearly synonymous to "babysitting adults".
What about the successful business owner who sits in his backyard while earning $10k a month from his business? Where were you the first 35 years he was rolling around on the floor like one of the employees? All you see now is the snapshot of what he has become due to all his time spent, holidays missed, birthdays not attended. All so that he can enjoy the "twilight years" of his life.
My ultimate proposal is that we improve and optimize our efficiency. Researchers indicates that happiness plateaus at an annual income around $70,000/yr. I do not mind people working diligently to attain this point, but you need to enjoy life and enjoy what you do.
Do not be beholden to your job. If you are going to participate in periods of life with higher income and higher stress, please do so wisely by accumulating, saving, and investing your increased earnings, not spending it all away!
Less income will but a greater emphasis on frugality and thriftiness. Think of how much of an advantage it would be if you learned how to raise a family with a wife and three kids while earning a household income of $45,000. I do believe that too little annual income can also have adverse effects.
If you are frugal, disciplined, and value-oriented, focus on the following:
Frugality Is The ANSWER
Becoming more resourceful with less is a great way to combat the added stressors and negative energy associated with worrying about spending more, displaying higher social status, and long nights in the office just to earn enough to "cover" the mortgage on your over-purchased home.
I encourage you to see if there is more to life than money in the respect that money can only buy certain things, most of which derive very little happiness.
There are plenty of things that move the needle on happiness that are free:
Those are few of many. Perhaps your best life is about a balance between what you do to generate income and what you do to define THE REST OF YOUR LIFE. Spend too much time generating income and it will define you completely and, from my experience, MOST people do not want to be defined by their jobs.
Let us know your thoughts below in the comments section. Are there any other free activities that you really enjoy to share with the frugal community?
Housing, Transportation, and Food
Let's face it, extreme frugality isn't that much fun.
To most folks, the idea of putting on 4 jackets in the winter and leaving the thermostat at 50 degrees Fahrenheit simply does not appeal. Standing in the grocery store comparing the cost per ounce of beans is, for many, not a recipe for a good time. Single-ply toilet paper is just too damn abrasive for the potential compounded annual savings over 2-ply for most people.
Don't get me wrong, my fellow frugal friends tend to be pretty weird. Some people actually blog about how they use industrial CO2 containers to make their own seltzer water. We tend to be a pretty strange flock.
If you are motivated by cost cutting and frugality on small ticket items, go right ahead. We won't stop you. Stay the course.
But if the idea of penny pinching on the little things drives you crazy then perhaps you need a much needed re-frame on your concept of frugality.
Enter "The Big Three" Expenses
Housing, transportation, and food.
For those of us who cannot tolerate the idea of skipping our latte factor items, there may be bigger fish to fry for you yet.
Saving on housing, transportation, and food is a hell of a good place to start. In fact, it may be the only strategy you will ever need.
Housing. Buy less house than you can afford, nothing more. Married with one kid and no plans for more? Why the hell do you need a 5 bedroom, 3 bathroom house? You don't. Be smart. Warren Buffet still lives in the home he bought for $31,500 in 1958.
Transportation. Don't buy a new car. Ever. It's really that simple. Buffet, one of the wealthiest men alive drives a midsize sedan, a 2014 Cadillac.
Food. Don't eat out. Split meals when you do go out. Cook at home a great majority of the time.
My Own Rules Regarding "The Big Three"
Housing. Give these guidelines to your mortgage or real estate professional if you have trouble computing a price range off of these numbers.
If you happen to know you need a budget, but cannot see yourself trading in your 2-ply toilet paper for 1-ply to save a few Shekels, then focus your efforts in these three areas.
Housing. Transportation. Food.
Comment below on how you have saved in these areas.
How to Make a Real Difference Saving Money
I read and hear about too many cost-saving methods that are impractical and simply do not produce quite the return they promise.
First, figure out why you want to save money.
Are you saving for a house? Saving for college education? Saving for an investment? Saving for anticipated expenses such as repairs or maintenance?
Second, please realize that saving money does not have to be difficult. It also does not need to lead to massive deprivation where you use candles instead of lights (plus candles are a fire hazard).
To prove my point, here are 3 stupid items that I save real money on every single year. Results may vary.
3 Crazy-Simple Ways to Save Money Every Year
1. Eating Almonds
Almonds, my number one snack food item.
I buy a ton of them. Not literally a ton, but damn close. I buy a 40 oz. bag of whole raw almonds online for less than $13.
A typical 16 oz. bag of almonds at the store is $8. The bag I buy online is 2.5x larger but costs less than twice as much. 40 ounces of almonds would cost me over $20 at the store therefore I save about $7 per 40 ounces. I go through a full 40 ounce bag every week which means I save $7 every single week. This adds up to over $350 of savings every single year.
2. Smarter Paper Products
Single-ply toilet paper and half-sheet paper towels. These two are game changers for me.
I can buy a 1000 sheet single ply toilet paper that lasts for 6 months for less than $7 at the store. Supposedly the average American uses $10 worth of toilet paper per month. By switching to single-ply TP I have been able to spend only $14 per year, per person in our household. This comes out to a little over $1 per month of TP usage. This equates to a savings of over $100 per year compared to the average American 2-ply user!
Half-sheet paper towels allows me to be significantly more mindful of how much paper towel I was using. Full sheets are bullshit. Rarely do you ever need a full sheet. I cut my paper towel usage in half my first year using half-sheets. How much could this switch realistically save? I use two less rolls per week at which saves me over $150 per year.
3. Drinking Filtered Water
Using a water filter could potentially save you big money every year. If the typical household purchases a case of water every week, and bottled water is approximately $5 per case of 24 (depending on where you live), you could save $250 in bottled water every year. If you buy two cases per week, you might be able to save over $500 per year.
Some of these companies even claim you can save up to $1000/yr, but that's a pipe-dream in my opinion.
There are two popular options depending on how often you want to change the filter and how easy you want your experience to be:
Saving Money is Easier Than You Think...
Here is proof that even these 3 ridiculous ideas can save you serious money every year without effecting your quality of life via deprivation.
These don't involve turning the thermostat to 45 in the winter or 90 in the summer. They don't involve biking 30 miles to work. They sure as hell don't include eating noodles everyday (just almonds).
What are 3 things that save you real money every year that might surprise fellow readers? Comment below with your answer.
Why This Headline?
I am amazed about how many people recommend paying for everything in cash and proponents of the Dave Ramsey camp encouraging you to cut up your credit card.
Why do I have such a problem with this? Cutting up your credit card to avoid spending does not correct the actual behavior of overspending.
I agree, it adds friction to the process which psychologists believe will interfere with the participation in an undesired behavior. Another example would be to lock your cigarettes in a cabinet and hide the key in a separate location. Why do this? Your lazy ass will be less likely to smoke because you added a layer of friction by needing to travel and get the key, then go unlock it to have your cigarette.
Personally, I think it's avoiding the original problem and instead not attempting to recognize and regulate that you have undesired behaviors and urges that need some attention.
This is similar to cutting up your credit card. If you have poor spending habits, then recognize that and slowly work to control this issue. I am just not convinced that you have to cut up your credit card.
An Argument for Credit Cards
First, I love me some credit card rewards. The guys over at ChooseFI have a great section on their site about travel rewards and credit card rewards.
Cash back. Bonus points. Airline miles. Travel rewards and hotel credits. There are a lot of things to "game-out" and benefit from when it comes to credit card rewards.
No credit card? No rewards.
Let's address the elephant in the room. Why do credit card rewards even exist? At face value, they certainly do not exist to benefit you if you are an absent minded spender who is a glutton for marketing schemes. These rewards encourage spending behavior. Period. You are lying to yourself if you say that rewards will not encourage you to spend more. It will, unless you are hardcore about recognizing your spending habits and budgeting.
Next up, cards can help build your credit score if you pay attention to the following factors:
Why is building a credit score important? The benefits of a high credit score (720+) include:
Another benefit is the added safeguards of carrying a credit card vs. carrying cash all the time. If you think this doesn't apply to you, think again. Lost your wallet? Just immediately call and freeze your credit card. If there was cash in your wallet, likely forget you ever had it.
Pulling out your wallet or money clip and revealing some serious paper is asking for trouble. Remember, criminals are looking for targets. If they see you at the checkout shuffling through your $100 bills to pay for a light bulb you might have an expected encounter on your way out to your car in the parking lot.
Good Credit Habits
Yes, you can be both frugal and have a credit card. I won't tell anyone. Just manage it responsibly and it can be an asset instead of a hindrance. Spend wisely and continue to find ways to improve your saving habits and spending behavior.
Let me know your thoughts in the comments below.
Cutting monetary costs are not the only benefit of these thrifty habits
Some folks need more incentive than simply a lower price tag to practice frugality. Thrifty habits often come with additional benefits, aside from lower cost.
Below you will find some of the dual benefits of common cost cutting techniques. Use this as a means to continue to motivate yourself on why you chose the financial independence lifestyle.
1. Cutting Cable... or just reducing the monthly services
The cost implications of this are obvious. Paying $160 per month just to watch a few games or occasionally flip on the hunting channel? Why not see if you can reduce how much TV you watch by eliminating the channels you barely watch, or even cutting cable altogether.
Some will make an argument that they get great benefit from watching a certain sports team or having access to a certain movie channel. That is entirely your business, not mine.
What I am suggesting is seeing if truly assessing this habit from more than just a monetary cost perspective really yields a positive return on your happiness.
Remember, time is life's most precious commodity. As far as we can tell, it is a fixed commodity for all of us. Consider that, according to the BLS, the average full-time employed American still finds enough time to watch approximately 2 hours of TV per day! Unemployed Americans watch nearly twice that at 3.8 hours per day. This is alarming! Think of all you could be doing if you reduced, or even eliminated, the TV watching habit.
Consider the following additional benefits of cutting/reducing cable, aside from cost savings:
2. Joining a public library
Save money on books and movies. This one actually lends back to our first idea, cutting cable. Stacking these habits would be an excellent idea for maximum benefits of the frugal lifestyle.
There are many free events at the library. Some events at our local library include, but are not limited to:
For those with a family, most public libraries have dedicated areas for children. This can be a great alternative for children to learn and socialize instead of watching TV or playing games on a device.
3. Learn how to DIY
You control the costs because control the inputs.
Aside from controlling costs, think about how DIY might further impact you in the following ways:
Frugality is often about Dual Benefits
Again, as we highlight in "what is frugality", being thrifty is often of great value to those of us leading a life aimed at financial independence.
These dual benefits are an excellent way to continue to properly value our cost saving efforts beyond dollars and cents.
The more you understand about why you have chosen frugality, the easier it will be to stay on track over the long term.
If you have anything further to add to this article, please place it in the comments below.
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A term often used synonymous with being "cheap".
Is that a completely fair comparison? We think not!
Here is why.
What is frugality to the "frugalist"?
The frugalist's version of frugality is encompassed and embodied by studying value.
Valuing your time. Valuing your life energy. Valuing your savings rate. Valuing your net worth. Valuing compound interest.
Frugality is also the act of becoming conscious.
Conscious of your spending habits. Conscious about what reliably makes you happy. Conscious about where you are directing a majority of your time and energy (don't worry, I am not big on traditional goal setting).
Finally, frugality is about freedom.
Financial independence and frugality are not necessarily the same thing.
Although they often are recited as part of a FIRE or F.I. war cry, they are not mutually inclusive.
Frugality is merely a tool that you can use to decrease the time it takes to attain financial independence. The concept is that by practicing frugality, monetarily speaking, you are able to widen the gap between income and expenses.
Obviously there are two variables that can be manipulated in this equation.
Income - Expenses = Margin of Potential
What do I mean by "Margin of Potential"?
Everyone has a "Margin of Potential" equation. If you make literally $0 annually, or if you make $100,000 per day, this equation applies to you.
For a vast majority of folks, it ends right there however. That is why I call it "Margin of Potential".
You can choose for this potential to land you in great deal of debt. In this case, the potential energy of your money is negative, especially if it has an interest rate associated with it. Think credit cards, car payments, couch payments, dog payments (yes, this is now a real thing). Financing of depreciating assets is one of the more dangerous things one can do.
I can already hear the arguments this one sounding something like, "But if I avoid paying for these in cash, I can invest the difference".
This brings me to my next point. Defining my version of margin. The "Margin of Potential" is yours in my example, not theirs. In other words, you own the margin - not the creditor.
This is where I hope that you decide to invest your "margin" and allow your dollars to go to work for you.
We will be discussing items such as investing, spending, saving, and more in future posts.
Leave a comment below on your reaction to this. Let me know if you have something to add to the conversation.
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Dr. Jon is a physical therapist by day, and a dedicated frugalist by night, deeply enthralled in the thrill of "pinching pennies" and investing the margin.