Delusions of Poverty: Faux Frugality On A Six Figure Income
15 December 2006I usually like the “example budget” articles run by CNN, USAToday, and others where they walk you through a real household’s budgeting problems. They’re often very instructive about both what you can do and what you need to avoid. But I thought this one from CNN about a family “just scraping by” in Nebraska on $150,000 a year - more than three times the average household income in a very low cost state - was a little absurd. The article plays up the idea that anyone can be living from paycheck to paycheck regardless of income, and all the little frugal steps the family has taken to eliminate unnecessary luxuries.
The problem is that it becomes apparent later on that the gourmet coffee, cable, and a weekly date they cut back on weren’t the problem. It turns out they’ve got much bigger expenses that they haven’t even touched: for one, they’ve got two rental properties which they own, are paying mortgages on, and have failed to find tenants for. For another, they just got a horse - which they are paying the equivalent of a car payment to maintain. They made room for that by cutting down on the several hundred dollars a month they were spending on gymnastics and ballet lessons.
The problem here is that if you focus obsessively on cutting down expenses like the $3 a month you pay to get an unlisted phone number, you are wasting your time if you haven’t already cut out the bigger chunks of fat from your budget, such as extra houses and ponies. If you’re having spending problems on $150,000 a year in Nebraska, cutting coupons is not going to help you. People who make $25,000 a year are the ones who benefit from that, because a lot of little savings can add up to a big chunk of their budgets. People who make six figures aren’t going to right the ship by cutting out the small things alone, because as a percentage of their paycheck saving a hundred bucks a month is not as big a deal. In this case, I think they’re using frugality as a crutch. The article states that the family used to make $250,000, until the husband recently lost his job. You’ve got a lot more room to waste money on a $250,000 income - that extra money is gravy in the sense that you’ve probably already paid for your house, cars, and basic costs of living. Any money above that isn’t really committed to any “need,” and $100,000 will buy you a lot of “wants.” The problem is that losing that money means you lose a lot of your ability to spend recklessly on stuff you want but don’t need. I don’t think this family has adjusted their mindset in the aftermath. They got the horse and the renthouses when they could afford it, and now they can’t. But they don’t want to give them up - and they’re using the excuse of being frugal about the little stuff as a way to justify keeping all the bigger toys.
This is one of those rare instances where I think being frugal can actually be a bad thing. It’s masking the real problems - true frugality would involve making a hard choice and giving up the stuff they don’t need, not making little savings here and there that aren’t going to add up to enough to solve their problems.
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3 Responses to “Delusions of Poverty: Faux Frugality On A Six Figure Income”
December 15th, 2006 at 3:43 pm
It’s called penny-smart and dollar-foolish and is pretty common, especially among so-called income-statement affluent people. I have known several people who rationalize their major money wastes (big car, big house, big…) by saving on the tiny stuff. It’s a form of denial and self-deception and will get you nowhere. These folks usually only wake up when their merc is repo’d…
December 15th, 2006 at 3:56 pm
That’s a good point - I’d forgotten about that old proverb, but it’s a perfect description of this. You can see a lot of self-deception at several points in the story as well, including the belief that the houses will suddenly get tenants and that the kids’ enjoyment of the horse is enough to justify destroying the family’s budget over it.
December 16th, 2006 at 7:06 am
It’s the same with overweight people: they haven’t seen their feet in years, are proud of their six-pack (as in beer) belly but use sweetener instead of sugar