Too broke to be frugal?
The first few years after I got out of college my finances were seriously out of control. I was making pretty good money, but I was spending all of it. Worse, I wasn't keeping track, so I didn't even really know whether I was getting ahead or falling behind. During that period I more than once made some seriously unfrugal choices, simply because I didn't have cash on hand.
The specific example I'm thinking of is a time I went to a nice restaurant where I could use a credit card, because I didn't have enough cash to go to a cheaper restaurant. (In those days, cheap restaurants often didn't take credit cards.)
I knew it was stupid at the time, and I must admit that I did it with a certain amount of conscious irony--the same kind that makes people call a lifestyle based on ever-increasing levels of debt the American way--but I expect that everyone who wasn't born rich has memories of choices like this:
- Postponing needed auto or home maintenance, even though they knew it would mean expensive repairs later
- Missing a chance to stock up at a great price, because they didn't have the cash
- Paying more for a low deductible on insurance, because they couldn't take the risk of a cheaper high-deductible policy
- Buying the small package, even though the big package was a better deal
- Paying more for heat, because they couldn't afford to buy weatherstripping
- Dropping out of school, because they couldn't afford tuition
- Missing out on decades of investment returns, because they couldn't afford to fund their 401(k)
- Or, as in my case, paying more to buy something from someone who would offer credit, because the best deal required cash they didn't have.
I would argue, though, that the underlying problem isn't being broke. The underlying problem is having out-of-control finances.
Although it's true that a little capital can make frugal choices a lot easier, the fact is that most of these problems don't stem from being broke. If you can't pay for weatherstripping, how are you going to pay the heating bill? If you can't afford an extra can of tomato paste at 39 cents today, how are you going to afford one next week at 49 cents?
The right way to address this sort of issue is not to hope for a magical injection of extra money, but rather to take control of your finances. Start with the basics, like creating a budget and tracking your spending. (Here's some tips on creating a budget, on choosing budget categories, and on tracking spending.)
Once your finances are under control, many of these expensive problems simply solve themselves. If you have a grocery budget--no matter how small--you can allocate the money to take advantage of sales and buy the package that offers the best deal. If you have a utility budget, you can make a smart decision about weatherstripping. Once you're spending less than you take in, you can quickly build up a small emergency fund--and once you have that you can start increasing your deductible to save money on insurance.
The point is not that having a little capital leads to cost savings (although it does), the point is that having your finances under control leads to having a little capital.
It's true that it's tougher to be frugal when you're broke, but the way out is to take control of your finances.
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