Living Without Debt, An Extreme Example
by Jason SteeleVeering a little of the subject of reward credit cards today, I came across an interesting article on the extremes of living frugally and without debt.
You Can’t Make This Stuff Up
The name of the most economical family in the United States is…the Economides. Coincidence? The article describes how the family of seven gets by on $44,000 a year, with no debt. Two things jump out at me. First $44,000 is a very little amount of money in the United States for family of that size. Their frugality must be epic. Second, they do not even hold a loan on their house, a practice which may actually hurt them.
Lessons From Their Epic Frugality
They shop at discount stores, where the goods are the same, and the prices are a fraction of other retailers. This is a fantastic practice since really, only you know where you bought the item. They explain that they always ask themselves if they really need something before purchasing it. When they do make purchases, they seem to make saving money a game rather than a chore. Buying used cars with cash is another great habit that I have extolled.
They relentlessly plan their meals around coupons and specials. I imagine they rarely, if ever eat out. While I can’t say that I plan meals that meticulously, I almost always use coupons when I eat out. If $44,000 if all they have to live off of, then budgeting everything must be the only way to go.
Owning A Home With No Debt, A Good Idea?
I have always learned that it is actually good to have a mortgage on an appreciating asset, like your house. The article states that they purchased a house for $200,000 that is now worth $700,000, and that it is almost paid off. A home is the rare instance where debt works in your favor. By paying off their house, they loose out on the mortgage interest tax deductions, and are unable to leverage their purchasing power. Their money is now tied up in their home.
Only Using Cash
The article describes how they only pay cash for everything. I would think that a family with this much self control ought to be able to use their credit cards for charging day to day items and earning rewards. Many people, like myself, are far less frugal than they are, yet I earn rewards from my credit cards without paying any interest on my charges. Even better, my money stays in my interest checking account for up to 45 days from when I make a purchase until when it is paid off. I earn interest instead of paying it. I would love to know why such a frugal family does not do that.
Pennywise, But Pound Foolish?
With those kind of economic skills, I wonder why they are only earning $44,000 a year? Indeed, the article indicates that they are publishing a book on consumer finance, and that they also have a website. Unfortunately, as of this writing, their web site, www.homeeconomiser.com was showing a an error message. It appears as if publicity from this article generated so much traffic that their web server couldn’t handle it. Anyone who knows the basics about internet businesses will tell you that web site traffic translates directly into income. Perhaps if they had not been so frugal in finding an internet hosting company, they would be raking it in now.
What About The Opportunity Costs Of Extreme Frugality?
Another aspect of their lifestyle that I would question would be their time management. By spending so much time looking for bargains and budgeting their expenses into 19 separate categories, are they missing opportunities to increase their household income?
For example, I try not to spend time clipping coupons and endlessly rummaging though bargain bins that I could spend either earning money or increasing my earning potential. I have found part time work doing things I enjoy (like writing this column) to earn extra money.
I am also a firm believer in putting a value on your free time. If cutting coupons does not save you more money than your time is worth to you, why bother? While the article does not mention what line of business they are in, pursuing additional education would likely increase their earning potential. Potentially, this would produce a greater net benefit than some of their time consuming penny pinching.
Ultimately It Is About What You Want From Life
I have no problem with frugality. I once lived extremely frugally. I rented out a microscopic room in a run down house and I didn’t even own a car. That time was called college. When I graduated, I made the concious decision to optimize my finances to maximize my ongoing enjoyment of live. I have no doubt that I could go back to living off a minimal budget, but I have come to realize that I wouldn’t be as happy. I simply do not want to live my life obsessed with the cost of everything. It is not that I lack self control, it is that I prefer to make financial decisions that balance my frugality with other goals in my life.
December 19th, 2008 at 07:23
Website seems to be working now….
My thoughts are fantastic for them to achieve what they have achieved but I personally would not strive to live that way. Saving money and frugality are important and all but so is increasing your earning power, which I think the family lacks a bit.
December 20th, 2008 at 00:00
I’m a little surprised by the cynicism of this blog. Some people value other things other than money. I have a friend, who has no credit cards and is very happy, happier then his friends with credit who buy things and are still paying for things they don’t need or even want at this point. Earning power, is only important those who value money. And I would suggest, the reason for this cynicism is because behind this blog, credit cards are being sold. You simply can’t sell credit, if people are finding happiness without it.
June 3rd, 2009 at 20:49
There’s absolutely no reason not to use coupons. I’ve become very fond of them, especially lately with prices in the grocery skyrocketing. Why wouldn’t you use coupons, its like free money!