Let’s start things off with a story about a former boss of mine, a small business owner who was just trying to make ends meet.
He knew I was a fellow cheapskate, so he’d tell me all about the things he’d do to save a buck. He would add water to the liquid hand soap in the bathroom. He bought desks and chairs from businesses that went under. He insisted on a scrap paper pile that people could use for notes, rather than throwing it out. We each had a long-distance code; those who made too many calls on the company dime were reprimanded.
He didn’t stop with just office supplies. He constantly would ask ladies around the office if his clothes were nice — not to brag, but to make sure his thrift store finds were presentable. Whenever he’d find a deal on something, he’d excitedly tell all of us. It got so we started to (good-naturedly, of course) kind of make fun of him about it.
Most of the reason why we made fun of him is because his frugality was obviously misplaced. He’d worry about bathroom supplies while driving a leased luxury vehicle. He stressed about recycling while spending thousands per year on the latest electronic gadgets. His life was a constant whirlwind of restaurants, travel, and activity, all of which cost a lot more than a few long-distance calls.
It was a classic example of caring too much about the little things while the big things pile up.
Don’t fall victim to misplaced frugality
For lack of a better term, I’m going to call my former boss’s inability to focus on his big expenses misplaced frugality.
It isn’t just him that’s guilty of it. There are thousands just like him, willing to crunch the numbers on things like furnace efficiency, stove warm-up times, or the optimal placement of food in the refrigerator, while ignoring huge other potential problems.
Your biggest expenses are likely shelter and your vehicle. If you can find a way to save 20% on those two things, you’re on your way to saving close to 10% of your total income.
Yeah, I know that it’s tough to cut major things. You probably like where you live, or else you wouldn’t live there. And everyone has a car payment, right? You’re just doing what everyone else does.
Okay, but keep in mind it’s gonna cost you.
Say you currently live an hour drive from work, commuting each day because you were attracted to the extra space you could afford in the suburbs. The extra gas alone adds up to $50 per week.
We can’t stop there. How much is two extra hours worth every day? That adds up to ten more hours per week. Suddenly, a job that pays $25 per hour worked really only pays $20. Add on additional wear and tear on your car, and we’re looking at a number closer to $18 per hour.
By cutting down your commute from an hour to ten minutes, you’re looking at increasing your wage by an easy $5 per hour. Does it really sound like such a big change now?
Spend money to make money
The other mistake I constantly see people make is refusing to spend money to make money.
Bank fees are the prime example of this. In both Canada and the U.S., options exist so the average consumer can avoid bank fees. The most common solutions are to leave a certain minimum in an account (usually $5,000), or switch to an online-only account. That’s all fine and good, but it neglects the relationship you can build up with your local bank.
By just asking my bank, I’ve gotten better GIC rates and qualified for a mortgage that another lender probably wouldn’t have agreed to. I’ve received a second opinion on investments, and once had a $30 NSF charge reversed because they realized I kept the funds for the cheque in the wrong account.
I’ll gladly pay $5 per month in exchange for all that. Over the years, I’ve easily saved enough to justify paying the fees. Besides, I value having a relationship with my bank, and I think many of you reading should too.
A smart consumer questions every expense. But in the scheme of things, some are important and some aren’t. Cut the big ones first, and then move onto the small ones. Yes, I know the small ones are easy, but ultimately they don’t really make much difference. Misplaced frugality could be your downfall.