Budgeting is an important part of personal finance management, but when it meets extreme cheapskates, it can get out of control …
(This is a guest post by Eric Rosenberg, a full-time freelancer and blogger at Personal Profitability. Eric writes about personal finance and entrepreneurship at InvestmentZen, his own blog, and other sites around the web. I met Eric personally through the Ignite FinCon event he spearheaded a few years ago.)
Budgeting is an important part of personal finance management, but it can get out of control. Between Extreme Couponing, Extreme Cheapskates, and other shows about interesting money behaviors, extreme budgeting almost looks glamorous. However, looking at these practices through a more critical lens, it is clear that extreme budgeting may be costing some people more than it is saving.
Extreme cheapskates and opportunity costs
Watching Extreme Couponing, I find myself both inspired and disgusted by what people will do to save a buck and get cheap stuff. On one hand, many of the couponers featured on the show are able to feed their family, stockpile for the future, and donate to charities for pennies on the dollar. On the other hand, however, many spend as many hours as a full-time job each week on their couponing habit.
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Economists have a term for everything you give up when spending time working on something: opportunity cost. And with extreme budgeting and couponing, opportunity cost is huge! Sure these families are able to feed everyone for just a few dollars, but at 40 hours per week the opportunity cost is a full-time salary.
The 2014 median income was around $500-$1,200 per week depending on education and other factors. With that kind of money, these families could afford to buy the groceries and have plenty of cash leftover.
Over the course of a year, that translates to a salary of roughly $26,000 to $62,000 per year. That is a lot of money to give up in the pursuit of saving money! You can save and save and save, but no one gets rich budgeting. Wealth and financial freedom comes from earning more, and these extreme couponers are missing out.
Better plan: Do some couponing, but don’t let it get in the way of earning more income. Even without a full-time job, these families could earn big through side hustles and other income earning projects in addition to couponing.
Low Quality Item Costs
Everyone has that one item in the closet that just won’t wear out. A pair of shoes, a shirt, or another item that lives on for years thanks to its high quality. At the same time, we have all seen purchases go bad faster than expected. This leads to an important cost that many people don’t think about.
We often look at our budgets at a high level but don’t think about the related costs of purchases after the fact. Getting a t-shirt from the bargain bin might let you bring home a shirt for a few bucks, but how long will that shirt last?
I bought a handful of shirts from H&M to use as undershirts and t-shirts. I thought the shirts were a bargain at $5-$8 each, but they all started to wear out fairly quickly. Those shirts share a drawer with some other t-shirts that I have had for more than a decade. Sure they cost more than twice as much, but the lifespan is much, much longer than double.
Extreme budgeters might spot what they think is a great deal, but end up spending more in the long run by focusing on price compared to quality.
Better plan: It is okay to buy cheap and bargain priced goods, but think about the quality and long-term cost. If a higher priced item will last much longer, you will save money buying the more expensive product.
Social Costs
My friends have called me thrifty, frugal, and cheap, but I never let my budgeting get in the way of friendships. That doesn’t mean I jump at every opportunity to go to an expensive restaurant or buy a round of drinks, but I am not so frugal that it impacts relationships.
Once on Extreme Cheapskates, I saw a man go dumpster diving to find an anniversary gift for his wife! He found some beaten up, discarded flowers and some junk she probably didn’t want. The look on her face was not pleased. This guy is lucky to be married to someone so patient with his … hobby.
On other episodes of the TLC show – I watched them on Netflix, I don’t have cable – I have seen some interesting bathroom and other hygiene habits that could lead to some awkward, or even disgusting, situations. (JW: I'll leave it as an optional exercise for curious readers to search YouTube for relevant videos. 😉 )
Better plan: Take your budget into account, but if you have multiple friends or family members telling you that you are taking it too far, remember that they are telling you that out of love and consider making some lifestyle adjustments. It isn’t worth losing long-time friends or going through a divorce because of stingy habits.
You Can Budget AND Live a Normal Life
There is a reason these people are called extreme. They take something that we should all do, like saving money while shopping and using our money judiciously, and take it to a whole different level.
Keep on budgeting and spending mindfully, but do it with class and use your common sense. While watching them on TV can be fun, mindlessly trying to save every penny is unproductive and can cost you more than it’s worth.
