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While it’s good to live below your means, being a cheapskate won’t give you financial security. We all know a few extreme cheapskates. They’ll reuse tea bags three times, live off their colleagues’ snacks in the fridge, and spend hours collecting vouchers. In theory, they should be loaded with money because they scrimp so much. So why don’t they get rich this way? It’s all about the mentality.
We don’t mean to put down people who save money. It is a good habit, and everyone’s first priority should be an emergency fund worth six months of your income. However, that alone isn’t enough. The problem with the cheapskate mentality or over-budgeting is that it only helps to work within limitations. It doesn’t help to break out of them.
For example, say you earn S$2,500 a month after CPF. You usually spend S$1,500 a month on overheads, leaving you with S$1,000 to spend. After a lot of tight budgeting, and saving a dollar here and there, you manage to cut overheads to S$1,400. You now have S$1,100 to spend. Great, your income has grown right? No. Because it’s still S$2,500. Even if you can keep up your tight budgeting for 20 years, you are not truly changing anything – your life can’t change significantly because you’re not growing your income. What does that mean if you only know how to budget, and nothing else?
It’s possible to be a cheapskate and hoard up an extra S$200 or S$300 a month. You can choose to only buy second-hand, nitpick with every discount, quibble over vouchers etc. It may even give the illusion of financial responsibility – you are saving much less than you spend.
But consider the inevitable limitations: Say you earn S$2,500 a month. For most of your life, when you needed something expensive, you scrimped and saved. You never grew the income, but you were always able to save up for the occasional emergency. But what if the day comes when you need S$35,000 to put your child through university? Or for a critical medical emergency to help an aging parent? How then can your budgeting help? You can shave a few hundred dollars off your spending each month, but that won’t be enough.
At some point, you will be down to bare bones (buying only food and lodging), and have nothing left to scrimp on. While it’s great to have the discipline to save, here’s the unfortunate news we need to break to you: it’s not enough. You also need to grow your income to be truly financially secure.
There is significant deprivation involved in saving even a small amount, such as S$200 a month. Don’t believe it? Consider what S$200 means giving up:
And we’re still S$12 short. Now consider the deprivation of the above, compared to helping someone paint a living room wall, or helping your friend revamp their website. Those activities could conceivably make you S$200 over a single weekend, without needing
any of the above sacrifices. Sometimes, you can evade a lot of pain just by putting yourself out there and trying to grow your income. Those who only want to budget tend to see this as too much of a burden (they’ll need to call people, blast it out on Facebook, etc). But in reality, it’s much more of a burden to rely just on scrimping. “Going cheap” can seem more convenient than trying to grow your income. But in reality, it’s a much more uncomfortable way to live.
Time always beats money. There is always a chance to earn more money, but lost time is irreplaceable. We are better off spending what time we can with our children before they grow up, with our friends before we drift apart, and with our seniors before they’re gone. But when you want to go the path of an extreme cheapskate, time is often wasted on needless scrimping.
Some people spend an hour every day just hunting for vouchers and coupons. Have you considered the cost of this? An hour a day comes to 30 hours a month. 30 hours is enough to go on five or six family outings, 15 movies with the family, two or three trips to Johor, etc. It’s also enough time to pick up the basics of a new instrument, work out, learn martial arts, etc.
Small amounts of time, like an hour a day, add up to significant differences in our lives. When you are so cheap that you’ll walk an extra two blocks to save 50 cents on your chicken rice, or bother calling your telco for three hours just to shave a few bucks off your bill, you’re trading priceless time for the lesser commodity of money.
Now these days, the situation is not so bad – it’s easier to compare prices of groceries, or even the rates of credit cards and home loans in mere moments (check out SingSaver.come for a fast comparison of the best rates). But even then, it’s important to understand the tradeoff that you’re making. An hour with your children, or anyone you love, should never be valued less than a 20 per cent voucher or a S$10 waiver.
There are two things we can do. First, do not just rely on saving money. You also need to focus on growing your income. That means repeated attempts at finding side income or learning to invest. It’s tough, but you need to grow your money as well as save. Only knowing how to scrimp is like having a car but not a destination. Second, know the value of your hour. We’ve said that time is more valuable than money, but if you have to make a tradeoff, some form of measurement will help.
Work out how many hours you work, and how much you get paid. If you work 45 hours a month and make S$3,000 a month, your time is worth at least S$67 an hour. So it definitely isn’t worth your time to spend two hours comparing curtain blinds, in order to save S$5.