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MAKING CENTS OUT OF THE NEWS
Blog #22
(June 4th, 2009)
SPENDING LIKE A FRUGAL MILLIONAIRE
By Tom McAllister, CFP™
I have always been proud to describe myself as “thrifty,” having learned frugality at the knee of my mother, Vera, a survivor of the Great Depression. Mom graduated at age 16 from Indianapolis Technical High School in 1933 and went right to work, sharing her $8/week paycheck with her large family. Tight with money, Mom made each dollar go as far as humanly possible. Dad was an accountant by training, serving two terms as City Clerk Treasurer in my hometown of Vincennes and at least one term as president of the Indiana Association of Clerk Treasurers. Despite all of Dad’s professional expertise, it was Mom who kept the family books until my Dad’s death in 1981 and thereafter for herself.
I married very young, and rather swiftly became father to six children, so money was often tight, even after I had joined the investment community (just 47 years ago this month). While, over time, I was able to provide an upper-middle class lifestyle for my large family, I never got over being my mother’s son when it came to thrift
I recall a conversation I had years ago on a cruise ship with a self-made millionaire. The Pacific Princess, the original Love Boat, was a far cry from today’s magnificent ships. The boat had no laundromats, so passengers either hand-washed their underwear or paid dearly to have the ship’s laundry provide that service. My millionaire friend complained bitterly about the price. “Look at these shorts,” he cried indignantly. “They charged me $2.50 to launder them! Hell, I didn’t pay that much for them new at Wal-Mart!” I laughed heartily at the time, and as I recall the conversation so many years later, I’m chuckling once again. My millionaire companion could certainly afford to pay to have someone else launder his shorts, but it went against his grain to pay their “exorbitant” price!
An article I read recently resonated with my frugal soul and I believe my blog readers will enjoy excerpts. Written by Jeff Lehman, author of the book The Frugal Millionaire, the piece points out that frugal millionaires are unique thinkers when it comes to money:
1) FMs find it easy to delay their need for gratification through purchasing.
2) FMs are resourceful in getting what they want by carefully timing
their consumer purchases.
3) FMs make living below their means painless.
4) FMs don’t like wasting anything, especially money.
5) FMs’ sense of “self-entitlement” is highly minimized.
6) Spending is OK with FMs… depending on what they are buying
(think appreciating versus depreciating assets).
FMs keep more money than they spend and don’t view shopping as a sport or pastime. They shop critically and spend their time doing more important things with their lives. Here are some of their tips that can help anyone save while spending.
CARS: Buy (NEVER lease) used (or coming-off-lease) fuel-efficient cars, two or more years old, with low mileage for their year. Drive the car for a relatively long time keeping depreciation per mile low.
EATING OUT: Value food quality over expensive ambience. Bring half a meal home (doggy-bag it!) Skip dessert and bring wine from home. You can eat better and less expensively at home. Make it a family and/or friends event. Buy day-old bread from the bakery and freeze it. Buy food on special at the superstores, not specialty stores.
CLOTHES: Whenever you buy something new, donate something used to charity. Buy traditional clothes, but wait for the off-season or close-outs to acquire them. Buy vintage clothing and avoid designer items.
CONSUMER ELECTRONICS: Buy low-end gear that has the basic functionality of the high-end stuff that you need, without the “bells and whistles.” Wait at least one cycle so the “bugs” are worked out. Refurbished electronics can be had for half-off and are factory-new.
COMPUTERS: Buy mainstream computers with proven technology. Select higher-capacity hard drives and a decent amount of RAM (the memory that the program runs in) and a cost-effective processor. Laptops are a good compromise, giving you portability for a little more money. Don’t try upgrading your operating system - it is never cost effective.
GOING GREEN: Being “green”and being frugal go hand in hand. Frugal Millionaires buy green if it helps the environment and lowers their costs. They look at the timeframe within which a product pays for itself. They turn off lights in empty rooms, monitor water, heating and air conditioning usage, drive efficiently, and live in “right sized” rather than “trophy” homes.
Thanks to my Mom I have adopted many if not most of these habits. You can too!
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A highly respected retired money manager friend of mine agreed with last week’s blog on inflation (#21-09) and shared his list of what he is using in his own accounts these days. These recommendations appear to be in line with the Frugal Millionaire mentality of retaining value, and so, with his permission, I am sharing them with my readers.
Some thoughts about protection: These investments are in no way guaranteed, but probably offer some hope of retaining value and are easy to buy and hold.
TBT Lehman Bros. 20 yr double inverse U.S. Treasury bonds
ETF,s such as Van Ecks's MOO (agribusiness), KOL (coal), HAP (hard asset products), GDX (gold mining), NLR (nuclear energy), GEX (global alternate energy). Two others are GLD and SLV.
One big warning! These are all fairly new products with no real important tests behind them. There are also some serious audit problems in my mind about GLD & SLV.
TIPS also have some truly unknown problems if serious inflation appears. If the Fed has to raise interest rates to try to head off the inflationary devastation, what will happen to the old "rates up-prices down" model, until maturity?
If you are enjoying these blogs and know of some friends, relatives, or acquaintances who might enjoy them as well,
I encourage you to tell them about the blogs at www.TomMcAllister.com .
With all the rapid changes in our economy and in the investment markets, there are many investors who would benefit from more consistent guidance. We are currently accepting new financial planning and investment clients, and would appreciate your referrals.
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