Last week I wrote about some weird things I think about before purchasing something. A few readers pointed out that calculating cost per unit on food items might not be all that practical…
I agree yet I disagree at the same time.
Ever heard of the latte factor? It is a term popularized by David Bach to symbolize the high cost of small, periodic spending. Spending a $4 latte every day adds up to $1,460 for the year. Imagine spending that money for 30 years, that would add up to $43,800.
What if you invest that money yearly in the stock market?
At 7% annual rate of return, after 30 years you would end up with $149,026.64.
Not pocket change, that’s for sure.
Being Taiwanese-Canadian, I was taught from a young age that every dollar adds up. It doesn’t take long to save hundred dollar if you save a few dollars here and a few dollars there. It’s funny because Russell Peters explained this mentality in one of his hilarious ethnic jokes.
Small things do add up over time!!!
What if you are only being price conscious on the lower priced items and ignoring the higher priced items?
I think that will lead you to bigger troubles.
Imagine you are saving a few cents here and there on a daily basis.
But you are changing your car every other year, or buying a house that is way larger than what you really need.
Because you are not being frugal on these higher priced items, you are negating all the savings and frugality you have done with the smaller items.
It is as simple as that.
Taking out an extra $50,000 on the house mortgage so you can buy a bigger house will do way more harm than that $4 latte that you are buying every day.
Another example…. this past weekend a bunch houses on our street set up a street-wide garage sale. We set up some tables and tried to sell some stuff on our driveway.
I was absolutely amazed how many people were haggling over already-heavily discounted items.
And Justin & Kaisorn from Root of Good had an excellent way to point out the less obvious…
People more focused on 10-25% off a $1 item than saving 0.01% on a million dollars (aka expense ratios on mutual funds). $0.25 vs $100
— Kaisorn (@Kaisorn007) July 16, 2017
Save on the small stuff. Save on the big stuff.
They are not mutually exclusive!!!
The thing with frugality is that you need to look at everything you buy. Don’t just be frugal on only selective items. Be frugal on everything. Let frugality become a lifestyle, rather a fad.
Being frugal, however, does not mean that you never buy anything fancy or never spend a dime.
It comes down to practicality and what is important to you.
Consider our garden and green house…
We are spending quite a bit of money on plants, water, nutrients, and supplies. We also spent over $1,000 on the greenhouse earlier this year so we have a warm environment to grow tomatoes, cucumber, peppers, and other vegetables in the greenhouse.
I can guarantee that all the spending is negating all the savings we get from buying less produce from grocery stores.
But having our own garden and eating home-grown produce have many benefits that cannot be quantified with a dollar value.
- Eating home-grown pesticide free vegetables and fruits are better and more healthy for us
- We get to spend time outside when taking care of the garden
- Our kids learn where food items come from, they learn to be appreciative of food and not to be wasteful
- Gardening makes Mrs. T happy. Happy wife means happy life!
- Mrs. T and I learn different ways to be self-sustainable in the future
The one thing I wish people would understand about frugality is that frugality cannot be qualitatively defined. It is way more complicated than spending vs. saving. The definition of being frugal is different for everyone. What seems frugal to me may not seem frugal to you. Being frugal should not mean deprive yourself from having a good life now. If you are being frugal for the main purpose of achieving financial independence 10 years from today but you are not happy today due being frugal, what makes you think you will be happy all of a sudden when you reach financial independence?
You don’t magically become happy because you possess something.
You don’t magically become happy because you reach a major milestone.
Life would be way too easy if that was the case.
So don’t be afraid to treat yourself from time to time and make what is important for you to be happy a priority in your life. If the math works out and you have considered all the different factors – spend that money and be happy.
It is too tough to live your day-to-day life constantly thinking about how to save money so you can get ahead. Find the right mix between saving and spending that will work for you and stick with it. Find your own personal balance.