The biggest truth in personal finance

The biggest truth in personal finance

For the past six weeks, I've been hard at work writing my “introduction to financial independence and early retirement” project for Audible and The Great Courses. It's been challenging — and fun — to rework my past material for a new audience in a new format.

Naturally, I'm emphasizing two important points in this project: profit and purpose.

  • I believe strongly that you need a clear personal mission statement in order to find success with money (and life).
  • I also believe that the most important number on your path to financial freedom is your personal profit, the difference between your income and your spending. (Most people refer to this number as saving rate. I prefer the term “personal profit” because it's, well, sexier.)

That last point is important.

Too many people want magic bullets. They want quick and easy ways to get out of debt and build wealth. They believe (or hope) that there's some sort of secret they can uncover, that somehow they've missed. Well, there aren't any secrets. Money mastery is a combination of psychology and math. And the math part is so simple a third-grader could understand it. Wealth is the accumulation of what you earn minus what you spend.

There are only two sides to this wealth equation — earning and spending — but a disproportionate amount of financial advice focuses on the one factor, on spending, and that's too bad. Sure, frugality is an important part of personal finance. And if you're in a tight spot and/or have a high income and still struggle, then cutting expenses is an excellent choice. But the reality is, you won't get rich — slowly or otherwise — by pinching pennies alone.

The Biggest Lie in Personal Finance

Recently at his excellent blog, Of Dollars and Data, Nick Maggiulli wrote about the biggest lie in personal finance. What is that lie? He writes:

While there are lots of people who are in financial trouble because of their own actions, there are also lots of people with good financial habits who just don’t have sufficient income to improve their finances.

That’s why the biggest lie in personal finance is that you can be rich if you just cut your spending. And the financial media feeds this lie by telling you to stop spending $5 a day on coffee so that you can become a millionaire.

With charts and graphs and data, Maggiuli demonstrates that the problem facing people with low incomes isn't their spending — it's their earning. If you're living at the poverty line — currently $26,200 per year for an American family of four — you're not going to escape through thrift. Thrift is an emergency measure, a stopgap. It's a bandage on a major wound.

Here's the bottom line:

  • If you're poor and hope to be not poor, your attention should be focused on increasing income, not on cutting costs. Your expenses are likely already very low.
  • If you have an average household income — currently $63,179 according to the U.S. Census Bureau — your path to building wealth will probably include both frugality and income enhancement.
  • If you have a high income but still struggle to make ends meet, your attention should absolutely turn to cutting costs. You need to rein in your lifestyle. But you won't accomplish this with frugality; you'll do this by optimizing the big stuff.

Maggiuli is fed up with the Biggest Lie. It “triggers” him.

“This is the same financial media who write stories about how people save money by living in a trailer, making their own dish soap, or reusing their dental floss,” he writes. “Yes, it’s that ridiculous. But what really gets me is how these examples are provided as ‘proof' of how cutting spending can make you rich.”

From my experience, this sort of stuff is perennially popular because it's easy. It's easy to write and it's easy to read, even if it doesn't offer any real solutions. It's more difficult to write about boosting your income. And, it's more difficult to act on that information because it takes time, effort, and actual sacrifice.

Real-Life Examples of the Biggest Lie in Action

Just this morning, Trent at The Simple Dollar published an article about optimizing dishwashing for money and time. Trent writes:

If I can invest some time and thought and effort into optimizing a routine I do three times a week, and that optimization trims off five minutes of effort and $0.50 in cost, I’m literally saving 13 hours per year and $78 per year for the rest of my life.

Trent isn't wrong. If his math is correct (and his discipline too), he will literally save 13 hours and $78 each year by optimizing how he does dishes. This isn't a lie. In this case, the lie comes from what is implied: Do this and you'll grow rich. You'll reach financial freedom by becoming a smarter dishwasher.

Here's the truth: You don't reap the thirteen hours and $78 annual benefit as a one-time win. You're saving five minutes and fifty cents per day. This may seem like a niggling point, but it's important. If you gain thirteen hours or $78 at once, that's something real and tangible, something you can work with. But an extra five minutes and fifty cents per day? Not so much.

I'm not saying that you shouldn't optimize your dishwashing routine. Do it! But don't expect it to make you rich. Because it won't.

Here's a bigger example of the lie in action.

Elizabeth Willard Thames writes at Frugalwoods, which is one of my favorite money blogs. Recently, especially, Liz has been publishing lots of amazing stuff. I look forward to each new article. (Those of you who make use of the Spare Change list of links on the GRS front page have probably noticed that I bookmark Frugalwoods frequently.)

As you might guess from the name of her blog, Liz focuses (almost?) exclusively on thrift. She and her husband practice extreme frugality. She wrote a book, Meet the Frugalwoods [my review], that documented their journey from poor college students to achieving financial independence on a 66-acre farm in central Vermont.

Now, there's no doubt that Liz and Nate are thrifty. They practice what they preach. But their frugality is not the reason for their wealth, the reason they were able to retire early. You can't buy a 66-acre farm in Vermont simply by optimizing your dishwashing routine. Or clipping coupons. Or hosting potlucks. To do this, you also need a high income. And that's a part of the story that Liz doesn't share with her readers. She and her husband made a lot of money, and that's how they got rich — not through frugality.

I'm sure Liz doesn't mean to obfuscate the truth, but that's the net effect. She's complicit in “the biggest lie in personal finance”.

To her credit, Liz seems to be incorporating more of the truth in her writing. Today, for instance, the About page at Frugalwoods acknowledges their high incomes. This didn't used to be the case.

Now, I don't mean to dog on Liz and Trent. They're both good people and fine writers. But I think they do their readers a huge disservice by covering just one aspect of the wealth equation, by rarely (if ever) mentioning income. They're active participants in Maggiuli's “biggest lie”.

And I'll confess: For a long time, I was guilty of the same thing. Sometimes, I still am. Hell, I've spilled a lot of words lately about my quest to optimize my food spending, haven't I? I'm not claiming to be any better than Liz or Trent. But I want to at least acknowledge the lie — and the reciprocal truth.

The Biggest Truth in Personal Finance

If frugality isn't the path to riches, what is? The answer is simple: Big Wins. Big Wins are the quickest way to wealth.

You can scrape your dishes and rinse them in cold water every day for the rest of your life, and you still wouldn't match the benefits you'd obtain by purchasing a cheaper home. Or choosing a more fuel-efficient car. Or negotiating your salary.

The best way to spend less is to cut back on the big stuff.

If the average American family were to trim their housing costs by 10%, they'd save roughly $150 per housing payment — more than twenty times the benefit of optimizing your dishwashing routine. Transportation offers similar opportunities. According to the American Automobile Association, the average driver spends just over $9000 per year on her vehicle. Reduce this spending by less than one percent and you've accomplished the same thing as a year of diligent dishwashing.

But, as Maggiuli notes in his article, income is the elephant in the room, the subject that too many writers ignore.

You can only cut costs so far. There's no way to reduce your spending below zero, and most of us can't come close to that. As I mentioned earlier, the U.S. poverty line for a family of four is currently $26,200. (For two people, it's $17,240.) Not counting his business, Mr. Money Mustache (a famously frugal fellow) spent $13,068 in 2019.

If you're living like this and want to escape, you shouldn't look for ways to cut costs. That stuff is useless to you. If somebody tells you otherwise, they're lying. In these circumstances, you should be trying to increase your income. And even if you have a standard middle-class salary, boosting income is usually the best way to meet your goals.

There are three primary ways to earn more money.

  • First, become better educated. Despite the dire details in the gloomy mass media, one fact is undeniable: The more you learn, the more you earn. In the U.S., education has a greater impact on lifetime earnings than any other demographic factor. It's more important than your race, your religion, your gender, your location. (In fact, the Census Bureau says education has five times the impact of gender on annual earnings.) That's great news because while you can't control your age or race, you have total control over your education.
  • Second, become a better employee. I read a lot on Reddit (and other places) where people piss on their employers, complaining about how their boss (or company) is out to screw them. This stuff is counter-productive. Sure, there are some shitty employers out there, but most are happy to promote and reward their best workers. If you want to earn more, work longer and harder than others will. If you're in a situation where hard work goes unrewarded, switch jobs.
  • Finally — and most importantly — learn to negotiate your salary. Study after study shows the same thing: Failing to negotiate your salary can cost you over half a million dollars during the course of a typical career. Half a million dollars! For over a decade, I've been pushing Jack Chapman's book, Negotiating Your Salary: How to Make $1000 a Minute. Let me do so again.

“You can't frugalize income you don't earn,” Liz writes in Meet the Frugalwoods. She speaks the truth! The biggest truth.

I'm no enemy of thrift. Yes, absolutely, pinch your pennies, if that makes you happy. Frugality is an excellent way to build good habits. Over the long run, many frugal habits combined can make a big difference to your financial situation.

But if you have a low income, do not focus on thrift. It's a red herring. Instead, turn your attention to Big Wins. And, especially, to increasing your income. Because this is the biggest truth in personal finance: You can't get rich through frugality alone.

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Tinman Money
Tinman Money
7 months ago
Reply to  J.D. Roth

Thanks for the great article. Yes. I am glad you mentioned investment returns. Basically the key to wealth accumulation is to spend less, earn more and invest the difference. I would agree that while investments are income, they behave much differently from income in terms of their ability to grow and their tax treatments. And this distinction is important because thats what really accelerates wealth building. With stocks you can grow your money so much faster than income because of compounding interest and dividends. Also in some cases such as tax advantaged retirement accounts or long term capital gains rates,… Read more »

El Nerdo
El Nerdo
7 months ago

Oh, damn. This is one of my favorite articles by you. It was worth the wait. Thanks.

JC Webber III
JC Webber III
7 months ago

I think you discount frugality too much. Of course a single frugal act, even if a recurring act, is not going to get you there. But, as a lifestyle attitude it is accumulative. As evidence, consider the consequence of the long-tail effect (https://en.wikipedia.org/wiki/Long_tail).

I think both strategies, more income and less spending, work together to get you where you want to go.

El Nerdo
El Nerdo
7 months ago
Reply to  JC Webber III

Yes frugality is important, but a couple of central things to note here: 1) The original Nick Maggiuli article (was on Spare Change like a week ago) shows how households with the bottom 40% of income are already spending most of their money (or going into debt) just to cover necessities like food, housing, transportation and medical care. They’re already thrifty by necessity and there is no room in the budget to save. Cutting costs would just guarantee that these necessities are more securely provided for. There’s no real room for capital acummulation. 2) There are tradeoffs with the pursuit… Read more »

Cara
Cara
7 months ago

This is a great post. As for why frugality is such a popular topic, I think it comes down to control. Yes you can job hunt, you can ask your boss for a raise or your clients for an increased rate, but you’re putting yourself at the mercy of someone who may say no. Whereas saving $10 on groceries through coupon clipping, or saving a few bucks a month from the way you wash dishes, is a much smaller win but one that feels entirely within your control. It’s a seductive idea.

Tyler Karaszewski
Tyler Karaszewski
7 months ago
Reply to  J.D. Roth

I don’t even think this covers it completely. Yes, thrift is more in control than income, but thrift is immediately actionable, and income isn’t. I can change the way I do dishes *right now* and start saving a few pennies a day. On the other hand, I make good money in my career, but I’m 38 and I started working towards this career when I was 15. If I were looking at it from the outside, asking myself how to get here, there’s nothing I could do that would net immediate results. It would take months, or years, before I… Read more »

Patrick
Patrick
7 months ago

I take your point here, as long as we are assuming that a person subscribes a fairly standard American consumer lifestyle…However, you had ERE on not long ago and he has pretty conclusively shown that it isn’t a question of “big wins” vs. frugality, but rather a complete paradigm shift in how you develop skills and your very philosophy of how one interacts with the money economy. Sure the average person could “optimize” their car budget, but instead one could design a lifestyle that completely eliminates it as a budget category. Jacob has even mentioned individuals who have functionally achieved… Read more »

Dan
Dan
7 months ago
Reply to  J.D. Roth

JD, Not so quick… I live in metro DC, and the transit system here isn’t cheap. My office and my apartment are both in the suburbs (cheaper rent!) and it still costs me $3.60 each way on the rail system to get to/from work. Then throw on parking (oops, still have the car) or bus fare at like $1.60 each way and now I’m somewhere in the neighborhood of $10/day for commuting costs. Multiply that out by 20 days and I’m looking at $200/mo in transit expenses. I drive to work 5 days per week, and only put 7,000 miles/year… Read more »

PW Lundquist
PW Lundquist
7 months ago

Outstanding article! Watching the pennies absolutely help . . . . but my family and I were able to turbo charge our savings rate as both my husband and my income increased. It goes without saying to yes increase your income, but it’s just as important to save a lot of the growth in income.

VinTek
VinTek
7 months ago

Focusing on any single aspect of personal finance is folly. The key is to spend less than you earn. Lots of people make lots of money and have very little to show for it. Lots of people are frugal, but also have little to show for it.

Frankly, if it were all about earning lots, you wouldn’t have cases like the ones below:

https://www.cnbc.com/2016/08/29/janitor-secretly-amassed-an-8-million-fortune.html

https://www.cnn.com/2018/06/11/us/new-jersey-teacher-leaves-1-million-students-trnd/index.html

Shawn Levasseur
Shawn Levasseur
7 months ago

Heh, with all the guest bloggers at “I Will Teach You To Be Rich”, I was wondering what happened to Ramit.

I think he somehow got J.D.’s login credentials and made this post. 🙂

Tom Drake
Admin
7 months ago

This is a very “Ramit” post! Fun fact, Ramit has written a couple times for GRS: https://www.getrichslowly.org/author/ramitsethi/

Ivan
Ivan
7 months ago

I liked this article a lot. If we try to save the pennies and for example walk or use a bicycle to commute you may spend a bit. But if this causes for you to spend 5 times the gas on food, then you won’t be saving any money. Although you might help prevent more environnement issues. Which is also debatable depending on what you eat differently… I guess it is a matter of cutting costs wherever it makes sense to you. And keeping track of everything to know the actual effect on finances. And other aspects like saving time… Read more »

El Nerdo
El Nerdo
7 months ago
Reply to  Ivan

Getting rid of a car and commuting on foot or by bicycle is not a “penny saver.”

Having no car saves you on average between $7K-$11K a year.

https://newsroom.aaa.com/auto/your-driving-costs/

That’s more than the maximum contribution to a Roth IRA (or two!) year in and year out.

This isn’t even counting net gains in health and healthcare savings. Another huge budget item expense in every household.

Considering the cost of living with type 2 diabetes and/or heart disease, and walking and cycling are huge moneymakers.

Here’s someone who overcame a different disease. Check it out:

https://www.youtube.com/watch?v=KTT7i3SKpMQ

Ivan
Ivan
7 months ago
Reply to  El Nerdo

Unfortunately I need a car to move around the city. And I found that commuting once or twice a week doesn’t give me much financial gain. But I definitely agree on the benefits of exercising more and not having a car at all.
I only say one must evaluate what fits best for themselves. Thank you for the links! 🙂

El Nerdo
El Nerdo
7 months ago
Reply to  Ivan

Ah, but if you can commute car-free twice a week, how about 3 or 4 times a week? How about 5 times a week? If you live in an actual city rather than, say, an exurb, there are a lot of options to go without a car. But even people in exurbs commute by mass transit to city jobs. You don’t have to live like a derelict to do it, especially in this age of everything delivered, and the savings are significant. I still use a car if I really need it (rideshares, rentals, etc) but I no longer need… Read more »

Steveark
Steveark
7 months ago

I’ve never tried to hide the fact I made bank as a corporate officer in Fortune 500 land. Hardly anyone achieves that income level, 2% to be precise. But there’s a problem for most people with just trying to be a better employee and then negotiating your salary. And that is most jobs are marginal contributors to the company bottom line. I don’t care how great you are at a low value job, you aren’t negotiating anything! You have to be clearly tied to profits and have mad skills and make sure they are known to your company. And that’s… Read more »

Nina
Nina
7 months ago
Reply to  Steveark

This! This is the actual truth!

Anne
Anne
7 months ago
Reply to  Steveark

Absolutely true. Couldn’t have said it better. I get really tired of the implication that you can negotiate your way to a livable wage when you’re a low paid office worker.

El Nerdo
El Nerdo
7 months ago
Reply to  J.D. Roth

Yes but you can’t have a company where everyone is CEO. Even if everyone in the workforce were an engineer, someone has to be at the top and someone has to be at the bottom, because that’s how we organize work. And per the article’s own stats, the person at the bottom 20% won’t be paid enough to afford the basics, the next 20% won’t be paid enough to save anything. And again, sure, you could climb out of the bottom—by beating someone else who must now stay there. Now they have your problem. It’s like a game of musical… Read more »

Janette
Janette
7 months ago
Reply to  El Nerdo

Anne, I agree with JD. This is the US. Moving chairs just gives the next person a chance to sit in the one you left. I saw it in my generation and now I see it in the next. What do a low wage plumber kid from Idaho & dirt farmer’s kid from Missouri have in common? Crappy schools? Starting in the lowest 20%? They got skills/education and took chances. Both live in the top 20% now. Will they ever be in the 1%- nope. They don’t want to be El Nerdo or Steve. They have other priorities/wealth. It used… Read more »

Tonya
Tonya
7 months ago
Reply to  J.D. Roth

I’m a public school teacher, and I absolutely positively CANNOT negotiate my salary. I have achieved the top of my possible earnings short of getting a PhD, but our salaries are set in stone based completely on a grid of years worked and education level. I make an OK amount of money, but I’ll never hit 6 figures, and we can’t encourage all of our teachers to go look for better paying jobs (we’ve already got a shortage)! So yeah, frugality is what I need to focus on. I share household expenses with my adult employed children and my mother,… Read more »

Lizzie
Lizzie
7 months ago
Reply to  Tonya

Tonya, that’s brilliant! I would love to find a way to do that with my parents. They own a condo, and I own a townhouse. Maybe we could sell and buy a single family one story house together?

MsYoung
MsYoung
7 months ago

Hi there, I am sort of new to the personal finance world and I discovered your blog a while ago and read it frequently, along with Simple Dollar and Frugalwoods. I really love this post from an equity perspective. I absolutely agree that the single biggest factor in personal finance is income and focus on frugality obfuscates the fact that impoverished Americans are not lazy or less than, they are struggling and can’t make ends meet. On a personal level, though, I struggle with the advice that I need to make more money to move my finances in a more… Read more »

Crew Dog
Crew Dog
7 months ago
Reply to  J.D. Roth
CiCi
CiCi
7 months ago
Reply to  J.D. Roth

I think there’s a lot teachers can do. And teachers with permanent status (in union states) have many more “guarantees” than people in other professions. Have you listened to the podcast Teach and Retire Rich?
Websites/blogs to get started:
educatorfi.com
https://www.millionaireeducator.com/
https://burningdesireforfire.com/
https://wrachelwrites.com/ (new teacher on the journey)

p.s. I agree with others that without some sort of frugality as a base, most people won’t get ahead. Ask me how I know 😉 Another great blog that shows how gradually increasing your income and flexing your frugality muscles yields results is https://apurplelife.com/

El Nerdo
El Nerdo
7 months ago
Reply to  MsYoung

I don’t know how it works in your state, but in mine, becoming a nationally certified teacher is the way to go for a huge pay boost.

Beyond that, getting into admin positions is how people in education rake in six figures.

Not that everyone is suited for that type of work, but becoming an admin is How to Get Ahead in Education… more so in academia, where the pay disparity between teachers and admins gets obscene.

Chris
Chris
7 months ago
Reply to  MsYoung

Does your district move you up to a higher pay tier if you have advanced degrees? My husband was a teacher and found that putting the time into getting an advanced degree paid off more than enough over his working lifetime to make up for the summers he didn’t work while earning that degree.

Andy
Andy
7 months ago
Reply to  MsYoung

As a teacher I have not found any specific blogs on finance geared toward teachers. In Oklahoma the pension plan is good but only if you make it to 28-30 years of teaching. We did not receive a base pay increase for eleven years. Look at local bookstores or gift shops for working after hours and the summer. I think the hardest part is affordable housing. I was able to purchase a house in a rough neighborhood. I could not afford a house in the suburb where I teach so I have a commute, at least it goes against traffic… Read more »

El Nerdo
El Nerdo
7 months ago
Reply to  Andy

Oklahoma’s education policy has been horrible in this century. Teachers were fleeing that state for years, and finally went on strike in 2018 and won some much needed pay raises. So here is another good personal finance move: join a union, become active in it, and keep your union strong. The power of collective bargaining provides not only salaries and benefits and worker protections, but can also influence state governments to provide other programs like teacher’s home buying assistance. Your union can also help with advanced certifications and professional development. And on the consumer side, they can offer discounts with… Read more »

Janette
Janette
7 months ago
Reply to  Andy

Salaries? Look at charter schools in big cities. KIPP, Edison are good starts. Think about teaching overseas in the International School system. (Most school districts will give you a sabbatical to do it for two years.) Working for a publishing company is a good side gig. Tutoring Chinese students on line is popular. Being a coach for other teachers or homeschoolers. Those people will pay for your skills while developing their plans. If you stay put, let the district send you to conferences to enhance your skills. Some Universities offer free courses to push an agenda (I did a Sierra… Read more »

K
K
7 months ago
Reply to  MsYoung
Kate
Kate
7 months ago
Reply to  K

Hi! Thanks for the mention! I completely agree with this article! Instead of complaining about not being able to save or invest, we need to encourage young people to maximize their earnings as quickly as possible! I’d love for you to check out my article about how teachers can absolutely reach financial independence by increasing their salaries over time. https://financialindependenceforteachers.com/2019/08/03/how-to-retire-early-from-teaching-how-to-calculate-your-teacher-pension/

Tonya
Tonya
7 months ago
Reply to  MsYoung

Oh, just posted before seeing this! We all know that teachers are frugal…we have to be. In Millionaire Next Door they talk about how the only professions that have an increased net worth when they receive money from their parents (I wish!) are the teachers. Just keep doing what you’re doing and bless you for it!!

Tonya
Tonya
7 months ago
Reply to  Tonya

Oh, just posted before seeing this! We all know that teachers are frugal…we have to be. In Millionaire Next Door they talk about how the only professions that have an increased net worth when they receive money from their parents (I wish!) are the teachers. Teaching is exhausting, and as an older teacher (who didn’t start till I was almost 40), I just don’t have the energy to do any side gigs. Maybe in the summer, but summer break is the only reason I can turn around and do it all again in the fall. Just keep doing what you’re… Read more »

Pete
Pete
7 months ago

Yes. Speak the truth! I started reading FIRE or finance blogs about 2 years ago and after about 6 months realized that basically everyone I was reading had the authors making way above average salaries. I’m fine with that, but be honest about it.

Great to see more about this topic recently. Thank you for the post.

Will
Will
7 months ago

I don’t disagree with the message that earning is important, but I think you may have missed the point about the cumulative effect of optimizing recurring activities and small incremental savings. Saving 5 minutes and $0.50 several times a week leads to two benefits. 13 hours of time saved is worth what you personally value your time at, not worth the additional money saved. The $78 is an additional bonus. As someone who lived paycheck to paycheck for many years, following up each salary increase with corresponding spending creep, the big realization started with understanding that small choices add up… Read more »

Syd
Syd
7 months ago

What do you think is the reason why FrugalWoods, you, MMM, etc don’t share your income and / or net worth but only share your spending?

Wouldn’t that mean you guys are all complicit in the biggest lie?

Amanda
Amanda
7 months ago

Great article! I have read a lot in the personal finance world over the years and had often wondered about the lack of talk about income. I had attributed it to our country’s social conventions where to this day most people are taught growing up that discussing salary/income is taboo. However, it is widely considered ok to talk about how cheap you obtained something or how much you were able to save by using . In some circles it is almost a competition! I have also wondered if income wasn’t mentioned because writers would think their readers would be resentful… Read more »

Joe
Joe
7 months ago

You need to optimize both spending and income. One without the other won’t make you rich.
Lots of people earn $100,000+/year, but they still don’t have any savings. IMO, you need to get frugality right first. Once that’s taken care of, then focus on earning more. If you don’t know how to save, earning more will just result in spending more.

Also, I think you overlooked a huge #4 – start your own business. That’s how you became wealthy, right?

El Nerdo
El Nerdo
7 months ago
Reply to  Joe

Yes, both count, but “making your own detergent” by shredding soap and mixing it with borax… won’t get you there.

Maggiulli’s article links to a humorous piece that shows you how to save $100,000 by pooping only at work, ha ha ha ha.

See:
https://www.330ramp.com/blog/2019/12/17/flushing-money-down-the-toilet

(It’s great reading.)

Lizzie
Lizzie
7 months ago
Reply to  Joe

Joe, that is a good point. I live in south Florida. I know quite a few families who earn around a quarter of a million a year, and are dead broke. Their McMansions are mortgaged to the hilt, the luxury cars are leased,and the designer clothes and club memberships are put on the credit cards. Deep down, they know they are in danger of losing everything, and are constantly stressed.

CiCi
CiCi
7 months ago
Reply to  Joe

+1. Totally agree with you, Joe (love your blog, btw). El Nerdo, your example below about making your own detergent is a straw man. Frugality is about deferring, then reducing, some wants. In the U.S., it’s about not buying into the relentless cycle of constant “upgrades,” especially with housing and cars.

Fred
Fred
7 months ago

I found this article to be thought provoking, well done. Absolutely earned and investment income is all important. Still, a level of frugality is a vital part of achieving wealth goals. We all know folks, rich and poor, who spend irresponsibly. Higher education is not the slam dunk it once was. Some areas of study have poor employment prospects. Any degree is expensive and amounts to 4 (or more) years without a substantial earned income. 4 years in a GOOD job is a lot of money earned. I make low 6 figures, so do my immediate colleagues. Some have less… Read more »

John in Co
John in Co
7 months ago

It goes back to the erroneous belief that poor people are poor because they are not _____ enough. Thrifty, organized, investment savvy. It’s all b.s. You can’t invest if you don’t have any money.

I agree with you that it’s the big things that matter. We keep driving down house and car costs now that were moving into our post-kids stage of life. That plus some big raises are making a huge difference in our situation.

Dhany
Dhany
7 months ago

This article opens great and end up sucks. You really should learn from Trent and Liz, read their site! You should prepare your article better next time, because you just point out that you either (1) sucks at math or (2) not prepare your article adequately You said : “Trent loves to calculate the dollars per hour he saves through various actions. He didn’t do that in this case, and it’s easy to see why. If he’s saving $78 in 13 hours, that’s the equivalent of $6 per hour. I don’t know about you, but it’s easy for me to… Read more »

Biggrey
Biggrey
7 months ago
Reply to  J.D. Roth

You are far more polite to a commenter like that than I would ever be! Hats off to you. It’s perhaps the key reason I keep my advice personal and 1-1 only. 20+ years of being very senior and in the public eye in business thinned out my skin for retirement. I have no interest (and no requirement) in taking such “constructive feedback” from just anybody. So I don’t! Congratulations on the job you are doing JD, and the improvements you are trying to make to you own life. It is not easy. You certainly don’t deserve random internet insults… Read more »

Nik
Nik
7 months ago
Reply to  Dhany

I think you are missing a point – the 13 hours saved isn’t one chunk, but 5 minutes at a time. That is enough time to do 2 Two Minute tasks, if you are a “Getting Things Done” fan. Not 13 hours to do productive work.

Chris
Chris
7 months ago

Good points JD. When money and time were a lot tighter for me than they are now, I made a chart for potential money saving/earning ideas. It had 3 columns: the idea, how much I earned or saved per hour of effort, and an evaluation of how much I enjoyed or hated the activity. Some examples: Spending a couple of hours finding a mortgage with a lower interest rate – not particularly fun but tens of thousands of dollars in savings. Driving 3 miles to a gas station where I saved a nickel a gallon on gas for my gas… Read more »

Sara
Sara
7 months ago

I think this article starts to get at the heart of what is important for the average person: In the balance of income and frugality, if you get the big things right (house and transportation) you start to get ahead in the game. For the middle 60% getting your housing and transportation costs at a reasonable level is the biggest and best thing you can do (and I acknowledge that in HCOL cities – this can be close to impossible). The next most important thing is not adjusting your lifestyle up as you may get small income increases.

Dan
Dan
7 months ago
Reply to  Sara

Sara,

I agree with you 100%. Heck, I even live in a HCOL city and have managed to do the near impossible. I have no desire to do the ERE thing, but I’m able to live by myself in a decent apartment, own a decent car, and squirrel away money for a legit retirement.

As I’ve climbed the income, I easily could get into more expensive apartments. *That* is throwing money down the drain.

Brooklyn Money
Brooklyn Money
7 months ago

JD would LOVE an article on how you can get comfortable with spending down your savings after working and saving so long! I worry I will one more year forever out of fear of spending down. This is per your comments about your income

Brooklyn Money
Brooklyn Money
7 months ago
Reply to  J.D. Roth

Thanks, JD!

Dan
Dan
7 months ago

JD, You’re right about the big things and the money side. You simply have to have it to save it, no if’s ands, or buts. I’ve browsed Trent’s site from time to time, and it just doesn’t resonate with me. I admire his ability to literally shave pennies on the small things, but I make like $65/hr or something like that, and live in a high cost of living area. Saving $200-$300/year on the small things just doesn’t move the needle. (I’m not bragging about the income, out here, you can go broke on that in a hurry if you’re… Read more »

OurDebtFreeJourneys
OurDebtFreeJourneys
7 months ago

We are recovering spendaholics but it’s been hard for us to go back to school while having to work full time. I am going to an online class but it won’t pay too much more. My partner’s boss is a special case; most likely a shining example of the boss from hell. But still, we need this job until partner is done with the apprenticeship (they are hard to get into to begin with), at which point, we hope to have better options. We’ll keep trying but sometimes, things just aren’t perfectly aligned as some others may have experienced in… Read more »

BB
BB
7 months ago

First off, I love your blog, so thanks for that. I absolutely loved this article. I follow quite a few finance blogs and podcasts (Frugalwoods blog is one of my faves). However, what you said made a lot of sense to me. I am a teacher, and the one amazing thing about where I teach is the ability to retire at an early age (my early out is 48 and my regular retirement is 53). Obviously negotiating my way to a better wage isn’t a possibility, and my second job as a free uber driver for my kids is definitely… Read more »

Tonya
Tonya
7 months ago
Reply to  BB

Ha, love “my second job as a free Uber driver for my kids”!

Leo
Leo
7 months ago

Rich is a relative term. For someone who is frugal it will require less to retire comfortably than someone who isn’t monitoring and trying to minimize their expenses. Higher income is great and no one would argue that, but being frugal about your larger and smaller expenses will let you be “Rich” with less. Getting an extra job would help me earn more but I also want to enjoy today & there are ways to enjoy life without spending money. Live with less and enjoy life more.

Derrell Huff
Derrell Huff
7 months ago

I am a living example of investment returns. I have been my own financial
advisor for 25+ years and my wife and I have pasted the million dollar mark
just on the investments I have made over the years with stocks, bonds, index
funds (domestic and foreign), reits. I finally had to sell some of investments
last year because of the RMD’s. but was able to reinvest back into the market.

Dominic Blackmore
Dominic Blackmore
7 months ago

Thanks JD – simples!

Stephanie
Stephanie
7 months ago

I personally disagree with the many articles, including this one, I have recently read on this topic. If one is only being frugal in order to meet living expenses, then yes, there is an income problem. However, if one is being frugal to create a surplus, what they do with that surplus is key. Any one with any income can create wealth with a plan and a strategy for helping their money to grow. Now, the earlier they begin and the more they invest will have a direct impact on the size of their portfolio, but what number defines true… Read more »

Mysticaltyger
Mysticaltyger
7 months ago

One other thing that bears mentioning is education alone isn’t enough. It has to be the right kind of education. We’re seeing more and more people taking out student loans for degrees that aren’t helping them. Or they’re taking out student loans for marketable degrees but paying too much for them. That’s something that needs to be stressed more.

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