This post originally appeared on the Frugal for Life blog.
What is Frugal?
I like cooking shows. The Food Network has been a welcome distraction many times and I never stop learning. Iím sure a lot of people feel the same way and will watch these shows for little tricks or tips from the pros. While Iron Chef wonít give me the skills to run a gourmet restaurant I certainly hope it will give me ideas and improve my next meal.
Unfortunately when it comes to finances, your budget, savings and your future, there really isnít a television network devoted to tips and tricks of the pros. And before you say CNBC, donít. CNBC, for the most part, encourages the same destructive behavior that has landed so many people in trouble. Listening to the reports and picks of the analysts you might be tempted to buy and sell the hot stock of the day or trade more often than is necessary. None of that is a good idea.
There was a cooking show on TV before the Food Network was around called The Frugal Gourmet. The host, a tall white haired man who looked like a young, cool grandfather, had to often explain the meaning of frugal to his viewers. You see, people thought he used cheap ingredients or even avoided certain items because they were expensive but he actually used high quality products in his dishes. So how was he frugal? Well letís start with the definition of frugal.
Frugal means thrifty, prudent and economical. It does not mean cheap. So lets take an example from every day life, something we all do. Buying a car. Itís a big decision with a big price tag and yet many people donít give it the consideration a decision like this deserves. How many of us know someone who buys a new car every few years or worse yet leases one every few years? Do you?
The frugal person has to buy a car too, but they probably hold on to it as long as possible in order to get the most value out of their investment. Buying the least expensive car out there isnít necessarily frugal, itís what you do with it after you have it that makes you frugal. Of course buying the most expensive car isnít frugal either. I have some experience with this, both buying the cheapest car as well as an expensive luxury car.
When I was 17 and began driving, I saw some kids in my high school get brand new BMWs or Mercedes, but there was no way my parents were going to do that even if they could afford it. No, I had to learn the value of money and so whatever car I was going to get I had to pay for myself. My choice was a brand new Hyundai Excel (remember those?). I figured it was new and wouldnít cost as much to maintain and yet was cheaper than a lot of used cars I looked at.
Well, back then Hyundai was a new car company and their quality was lacking. In the five years I owned it I ended up paying as much for repairs as the car cost me. Buying the cheapest car just because it will save you money isnít always the best idea.
When the Hyundai just would not go any further I bought a new car. Once again my thinking was that a brand new car would require less repair but this time I did a little research and bought a Honda Civic, a car with an excellent reliability rating.
My parents suggested I might be better off buying something cheaper since I was about to graduate from college and didnít have a job. But no, Iíd gone that route before and promised myself I wouldnít make that mistake again.
Three years after buying the Honda I was more established with a good job and enough money to buy a newer more luxurious car but I didnít. My income was increasing quickly in those years and five years after buying the Honda I owned my own home (a townhouse). Even though I could have afforded a new car I still didnít get one. Seven years after buying the Honda I got married and my wife made even more money than I did but she drove a car that was as old as my Honda and neither of us needed a new car.
Sure I wanted a new car but want is very different than need. I wanted a Ferrari but I certainly didnít need one. Finally ten years after getting the Honda the first signs that things were beginning to wear out. After relentless badgering my wife gave in and let me buy a new car. What did I get for my years of frugality? I was able to afford a luxury car and I was able to buy it for cash.
Understand that weíre not talking about a $90,000 Mercedes although we could have afforded it (yes even for cash). I ended up buying a $35,000 Infiniti that I plan on keeping for at least 10 years maybe even longer. Will I want another car before then? Yup. Will I be tempted, as my wealth increases, to try to justify a new car? Yup. But the reason for frugality in some areas is the freedom to make choices in other areas. While a new car might make me feel good itís a fairly poor use of money when you consider what else that money can be spent on.
The frugal chef used high quality ingredients but nothing was wasted. He was prudent and economical with the tools of his trade. It seems most people donít use as much care with their finances as he did with his food. And as far as there not being a TV network to learn about finances, maybe the Food Network can be that too, after all, one show tells you how to eat well for $40 a day.