The fine line between being frugal and miserly
and how to manage that line in a subtle way
“Money, if not saved wisely, runs away from the owner within no time”
“Money is like water. If you try to squeeze it hard in your hand, it slips away”
There are two quotes written above which most of the people find contradictory. One quote says to save money, be frugal. At the same time, the second quote comes facing the first quote standing on the other side of the line called money management, says “you follow me too”. This is the line where we become confused whether to follow this or that. But, as most of us find it, the two sayings are not contradictory but symbiotic. One supports the other. It is a beautiful pattern of ‘Yin-Yang’ of money management. Just imagine the line as a thin hanging bridge built over a river. You cannot go to the either extreme of that bridge. To save yourself, you should follow the middle and balanced path, as also prescribed by Lord Buddha. Frugality and miserly are two sides of the same coin. Some times this side saves us and some time the other side saves. We should not depend solely on one principle at all times and circumstances. The side of the coin should be chosen wisely. The decision can be based on a parameter called “Expense Effect Ratio(EER)” which is defined as follows:
EER = The positive impact of your expense/The cost of the expense
If the EER is close to ‘0’, which means the advantage you get from your expense is lesser than the cost of the expense, then you should move yourselves towards the ‘Frugal’ counter. Similarly, when the EER is inches towards ‘1’, then the needle of your financial clock should move away from ‘Frugal’ counter.
Any measurement in science like temperature, speed etc., doesn’t tell you anything without an unit of measurement. Similarly the unit of measurement for EER is the elevation per dollar.
The elevation here defines the next stage of your experience, reputation, development as a person and professional. This elevation cannot be established tangibly immediately but will be calculated by the benefits you get in long term. Short term benefits like satisfaction of buying a thing or showing off is not counted as elevation. Going to a restaurant to spend few bucks to get a coffee or a cake just because you are bored is expensive but doesn’t create any elevation. At the same time, if you are spending twice the money you would spend on coffee to spend sometime with a network or a sales lead is not a wasteful spending as you are going to benefit from that meeting. Infact, you lose more if you do not let these happen in such important cases. Knowing when to spend on coffee to take advantage of every dollar you spent and also not to lose a chance to capitalise on a lead is that fine line between being frugal and being miserly.
Ok now, as we talked about that fine line which needs to be managed does not need a business degree from a reputed university. You just need to be more mindful while dealing with some of the daily activities which we do with the subconscious mind. Actually, these are the activities which you need to execute with this line we have been talking about in our mind.
- Budgeting
If you are not familiar with the budgeting of your funds already, then you should start that first before going for the study of the fine line. You need to have the funds available for your expenses written on the top of the paper, immediately deduct the debts to be paid and the mandatory savings to be made and then write the remaining funds which are actually available for your spending. The deductions in the name of savings should be atleast 30%. Now, you can plan the way you want to spend the remaining funds for the rest of the month till you get another paycheck. If this plan includes buying new clothes, new headphones and other stuff which you already having in your house in one corner but want to upgrade the technology, then I would suggest you to think twice as you are so far from the frugal side of the line now. You do need the things which you already have but in upgraded versions. They are not going to help you in anyway different than the older ones which you already have now.The EER of the spending on these kind of things is very less, close to zero. Just because you are able to see good number on your paper does not mean that you need to spend them. If you are planning to pay for a course to learn a new skill or a new language which can help you in advancing your career might be a better option of spending those funds. Or else, you can save some of the funds for a future travel which can have more EER than the first option. So the hack is, when you are budgeting your total funds minus debts and savings, just go directly for high EER spendings like buying a course, buying books, saving for a travel. Keep some funds aside for them and then don’t budget the remaining funds.Let’s plan that for ‘miscellaneous' things for now Till here the things go smooth unless you decide to save everything. That is called being miserly. That is not saving. Illogical savings are foolish. If you are saving something without planning for your development, then there is no way you can come out of the viscious circle of poverty. You are bound for working paycheck-to-paycheck from 9 to 5, infact till 9 PM
- Shopping
Next comes shopping. The extreme antonym of frugality in this activity is impulsive shopping. Went to buy a thing but came out of the shop with 10 other things which you feel you may need them, but actually don’t need them in real sense. The other 9 things have been brought out by you due to the intelligence of the marketing guys of those brands and due to the lack of self control on your part. So, write down the things which you need on a paper and go straight to the counter where these are kept and bring them straight away. If you are creating reasons for buying a thing then please understand that you don’t need that item. You cannot see the thing first and then create a reason for that. It doesn’t work that way. Actually it is vice versa. First you have a reason for buying anything and then you go to shop to buy it. If you follow this you can be very near to that line. But, here some people cross the line and jump to the extreme of the other side of the line. They go for the cheap things irrespective of the ‘significance Index' of the thing in their life. Significance index is an equation that equals 'frequency times its importance' in your life. If a thing plays a very important role in your life and also you use it very frequently then there is no use in going for cheap things. Cheap here doesn’t refer to the cost, but the quality. Unfortunately, both of them are directly proportional. So, if you calculate the ‘significance Index' of the item you want to buy and if you are convinced that it is giving high figures, then go for a better quality product even though it is a little bit expensive. For example, if you want to have a coffee go for the coffee in normal outlets instead of big cafes. You have to drink just a coffee. But if you want to buy something like earphones, don’t go for cheap ones because you don’t want to spend on that again and again. Instead, buy a good one once in a year and then forget it for one year.
3. Extreme sides
The above advices are applicable only when you have all the things under your control. Sometimes, you need to go to the extreme side of this line, either into extreme frugality(also called miserly) or extreme spending like in emergencies. When the emergency is at your door, you cannot sit counting the dollars in your wallet in your bedroom. You have to take your wallet out , open the door and face the challenge. For that you might have to spend more money than you planned to get out of that emergency. If you hesitate to spend some money there, you may face a drastic loss. Once the emergency is cleared, then you may have to go for extreme frugality for some period to balance your previous spending. The emergency need not be yours alone. If you witness a heart breaking situation of some other, then in that situation too it is a good idea to help them rather than locking your money in the locker.
“Because there can never be any deficit for those who give.”
The short lesson :
Money is there to spend, don’t be extra-frugal with everything which may lead you to spend more. At the same time, you should not be spending unnecessarily as money multiplies if you just let it stay with you for sometime. Know the fine line of the balance between the frugality and miserly and then make money work for you.
