When I was a senior in college, I earned my tuition by working as the assistant to the woman in charge of food and dormitory services. Originally, she’d owned a restaurant in New York but came to Oregon when her husband got a promotion. She found the city too sleepy for her liking but she soon put her negotiating skills to work, providing food and shelter needs for the college at half the previous cost. She knew the art of a deal whether it came to buying sheets for dorm rooms or bananas for the cafeteria.
To her credit, she had an eye for small imperfections that in no way affected the use or enjoyment of an item. Nonetheless, by pointing out the flaw, she got the price lowered. I watched with admiration as she wrestled wholesalers to the ground until they stopped haggling and give her the best offer right off the top. That victory came as a disappointment for her, however, as she loved making the deal as much as a fisherman loved landing a trophy marlin.
The lady taught me that being frugal isn’t a condition imposed by poverty. Frugality is the art of growing wealth. Penny pinching doesn’t mean depriving yourself. It’s about never paying more than is required. In other words, to grow wealth, you must hold on to as much of it as you can.
Sarah Fallaw, founder of a behavior research firm, identifies three traits required to become wealthy. The first, obviously, is frugality. The second is to have confidence in your decisions. The third she calls social indifference. (“Invest Smarter,” by Carolyn Bigda et al, Money, September 2016 , pg. 50)
Social indifference means escaping a herd instinct. Otherwise, in the case of investing, you’ll be tempted to buy stocks on the good news and sell on the bad with the other lemmings. Don’t buy the latest version of anything when your old version works. Let the herd waste its money, but not you.
Increasing your wealth doesn’t require you to work harder. It requires that you to pay attention to the little places where money disappears, like ATM fees and bank fees or useless phone apps. Pay with cash as much as possible. A new study in the Journal of Consumer Research shows we feel the money pinch more acutely when we use cash instead of plastic. (“How to Reach 1 Million,” Money, September 2016, pg. 64.)
If penny-pinching causes an acquaintance to accuse you of being stingy, don’t be upset. Smile and say, “Thank you.”
(This blog first published September 28, 2016)