Frugal Living & Thrifty Ideas

Why Frugality is the Only Path to Wealth- and the real reason for the “decline” of the middle class

When many people imagine a frugal or minimalist life, the picture in their mind is of extreme deprivation. They think that becoming frugal would ostracize them from the rest of their peers, and this is not the case- most of my friends have no idea that I save as much as I do, if you’d like to see how I live just check out my living room, bathroom, or kitchen.

I’d like to share how I am able to live so comfortably, and normally, and still save over 50% of my income (and in case you’re wondering, I make an average salary-while I’m not willing to post my exact income here, I’ll tell you right now that when I first started saving 50% of my income, I was making about 28k a year- take home pay). And for those of you who are saying, “hey, that’s a lot of money!”- I would like to clarify that I live in New York City, one of the highest cost of living places in the world.

My first tip is this:

If you’re not already wealthy, don’t live like you are. Many people believe that if you can pay for something, you can afford it. They associate wealth with income and consumer objects- which is a fallacy. Wealth is how much accumulated money/investments you have, if you make $200k a year and spend every penny- then you have no wealth. If you have a brand new Porsche and no savings- then you have no wealth, you are still poor. I “could” pay for a studio apartment in Manhattan (a much trendier area than I live now), it would cost more than half my take home pay per month, and I wouldn’t be able to save anything.

I would live paycheck to paycheck, and I’d probably have to start using credit a lot. I’d quickly build up a nice sum of debt, like most Americans, which would result in tying me to my job forever. It would become impossible for me to ever save up a down payment for my own place, or to retire early.

I mention all of this because there have been numerous doomsday articles lately about the collapse of the middle class, the widening wealth gap, and how generally unfair our capitalist system is. While I don’t doubt that minimum wage should be higher than it is, that healthcare should be free, or that we should crack down on insider trading and subprime mortgage type activity- no one seems to ever talk about our role in the decline of the middle class. I think this is because personal responsibility requires us to look at our own bad habits, instead of blaming faceless wallstreet fat cats. So let’s look at the real facts:

The average credit card debt for a household in the United States is over $15,000- remember, this isn’t including what people owe on mortgages or student loans, this is just for credit cards. The average american family saves less than 6% of their income. The average net-worth of different households is broken down by age, the age with the highest net-worth is ages 65-74- and their worth is on average about $200k. Assuming these people have worked 30 or more years, this is not good. It means that for each year of work (assuming a 30 year career), they have about $6,666 to show for it. Is a year of your working life really worth so little? I think not.

For as much as we hear about low salaries being the problem, according to the last US Census, the average household income is around $50,ooo a year. I am not talking about single parents working minimum wage to support several children and being poor, I’m talking about average to high income earners working for their entire lives and having almost no net worth.

So how is it possible, that I’m able to live in one of the most expensive places in the world, make an average income, and save so much money? What is my magic trick to doing something that apparently most of the United States is unable to accomplish? Simple:

The average person upgrades their lifestyle each time they upgrade their pay scale. You don’t have to be a math major to realize that this is logically problematic- it ensures that you will NEVER reach financial independence, whether you make $30k or $300k – if you continue to upgrade your lifestyle with each pay raise, you will always be treading water. 

By contrast, I have kept my lifestyle very similar to my college/minimum wage lifestyle, despite making more than double what I used to make. I had a full time salaried job for three years before buying a television, my laptop is four years old, I don’t have a smart phone or a car. I have no credit card debt. I bought my first couch about two months ago. I lived with roommates for 8 years before finally moving on my own (with my fella) at the age of 26. Could I have paid for a single apartment without roommates before this point? Yes. Could I have AFFORDED it? No.

To me part of being able to afford something is being able to pay for it, and also save money for your future goals. I want to buy property in the future, if the cost of an apartment inhibits my ability to save money for my future property- then I can’t afford it. The personal wealth crisis (and it certainly is a crisis) often cites the ability of past generations to make modest incomes and still build substantial personal wealth. What they don’t cite is the way that these past generations spent, and saved.

My grandparents are the perfect example. My grandfather never graduated high school, he was in the military during World War II and then became a tile layer. My grandmother stayed home. They bought a home in the early years of their marriage for about $15,000. It was under 800 square feet, for four people. As of the 2010 US Census the national average square footage is over 2,300 square feet.

In my grandparent’s era there was no concept of a “starter home” (or a “starter marriage for that matter). They never owned more than one car at a time. They never financed a car, but paid in cash each time. They never bought a new car. They didn’t take family vacations, except for visiting near by relatives. Children were expected to share a room. College tuition was up to each child to finance, and it was assumed that college would be attended nearby at a public institution. Where to live was determined by proximity to work- thus saving hundreds of thousands on gas over the years.

When they got married my Grandfather bought my Grandmother a $100 gold ring. They wore their best clothes and got married in a 10 minute ceremony in their preacher’s house. The next week the neighborhood had a potluck for them, and that was that. Now the average cost of a wedding, the AVERAGE, is over $25,000. That’s half the average household income.

The American public has been sold a bill of goods. Things that were once the territory of the very wealthy (like, say, paying thousands of dollars to get married), are now considered mandatory for all classes. Massive houses, diamond rings, spas, exotic vacations, luxury cars, and dining out used to be things that only the wealthy elite indulged in- now they’re packaged as part of the “American Dream”. In our goal to emulate the wealthy, we’ve given up our real wealth. In our strides to seem more elite, we’ve dug ourselves into debt.

While it’s easy to be angry with marketers or financiers, the great news is that this is all a choice. We don’t have to engage. There is no gun to our heads demanding we finance new cars and buy large homes. The middle class does not have to disappear, it can still grow! Once you see how easy this choice is to make, you can begin to build real wealth. You can eschew superficial symbols of wealth and begin to accumulate real financial assets. Let’s reclaim the original sentiments behind the American Dream, and prove wrong the naysayers who say that the jig is up.

 

12 thoughts on “Why Frugality is the Only Path to Wealth- and the real reason for the “decline” of the middle class

  1. Thank you for this post. You hit the nail on the head when you said that by emulating the wealthy we have given up our real wealth. For much of my adult life I lived in this trap, not knowing how to live below my means. It has been the past several years that I have been able to start turning my life and finances around,

    1. I’m so glad that you liked it. I think it’s so easy to fall into the trap of consumerism- that’s not to say that consumerism is all bad, but it’s certainly no replacement for true financial security! It’s so fabulous that you’ve made a turnaround- for me it was hitting $2,000 of credit card debt. I started looking at personal finance blogs and found the truth!

  2. Great piece! After I finished reading, it made me think about how consumer culture has also become the major way we are encouraged to spend our time, and so reducing our spending-related activities can often feel like leaving a void in our lives. I know you, and that you like to write, cook, exercise and spend time with friends – all free or inexpensive ways to spend the day. But many people shop when they are bored, or spend inordinate amounts of time thinking about how they’d like to “upgrade” their material lives instead of focusing on how to enrich their inner selves. I’m not necessarily referring to spirituality, just a sense of what makes us feel content and not constantly dissatisfied. Nurturing interpersonal relationships and finding ways to express and deepen our human identity are robust antidotes to the pressure to engage in mindless consumerism. Thanks again for your thought-provoking work!

  3. I have a very compelling piece of writing here. And it’s worth noting that in your grandparents’ era, everything about their lives and their lifestyles supported a sane approach to living. Today, it seems to take a concerted effort to break out, even the slightest amount, from this consumerist enmeshment.

  4. Well said, my friend! That’s awesome you’re able to save so much! I share your thoughts about what is viewed as the American Dream. We can be very happy with far less. Things, after all, don’t bring happiness. 😉

  5. Like the other commenters, I love this post – very thought-provoking and has made me think about my actions. I am from Australia – we have also fallen for the trap of upgrading lifestyle with upgraded pay – leading to no saving or real wealth. And giving up our true wealth by emulating the wealthy.

  6. Great post. I agree 100%. Your grandparents wedding sounds a lot like my grandparents. Historically big weddings were not the norm. They were not for the average person. A look in most people’s old family photos reveals this clearly. It is interesting that the American dream has been marketed to us all, big weddings, mortages, autos – all on low monthly payments. No one really looks at what it costs us over time. A new 200K house ends up costing you 400K by the time its paid for. Imagine what could be done with that 200K if it did not go to interest payments. If you think about it, 200,000 is not that hard to save. Eight years at 25k a year gives you 200k. A couple could do that easily. Cars are the same. Why are people financing cars(at all) for five or more years? I can only imagine what the insurance is on a new $40,000 Car.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s