Get Rich Slick has a great post contrasting those who are capitalistic and those who are frugal. In it he points out all the advantages of capitalism and all the negatives of being frugal. There are two sides to every story, so allow me to try to tell that story. Let’s take the stanza’s in turn:
1) Researching to save a dollar vs. researching to earn a dollar – That extra dollar will be taxed, so the capitalist will probably need to earn 30% more than the frugalist. The dollar a frugalist saves is typical a 100% guaranteed savings. The dollar that a capitalist earns is likely brought on with increased risk, that over the long run, might turn into a loss.
2) Buying used vs. buying new – A smart frugalist realizes that by saving money, she/he can get two items. The frugalist also realizes that he/she is doing something to save the environment by reusing. The capitalist buying new all the time can over-extend themselves, especially if those investments turn south. The capitalist consumes and consumes without heed of what it might be doing to the environment.
3) Frugalist using rebates, discounts, and sales to save vs. Capitalist paying full price – The frugalist realizes that companies wouldn’t have rebates, discounts and sales unless it helps them. It is the company that decides to offer these things. Again, the capitalist over-extends himself, but justifies it by “helping the economy.”
4) Frugalists view of capitalists and vice versa – This probably stems from the capitalists wasteful nature. If that is not considered, a frugalist will not deride and go with the same explanation. He may say something like, “You can get (3) 42″ plasmas for the price of (1) 46” LCD.
5) Car buying – A frugalist realizes that used cars have to go somewhere and if they are not bought they go to landfills. He also realizes that a car is a depreciating investment and would prefer to put his money in more investments. Capitalists don’t typically consider the overall economy in a purchase, they are looking for a way in which they can make more money for themselves.
6) Pennies – I agree on this point, but don’t see any advantage or disadvantage to either.
7) Spent time – The frugalist will be happy about the better world he has left behind, having twice as much as the capitalist, and have no debt. The capitalist risks ending up like Casey Serin, unable to sleep at night because the investments didn’t work out as planned.
I’m playing devil’s advocate here. I don’t think that these belief systems are mutual exclusive. It’s possible to be a frugal capitalist. In fact, that’s what I’d classify myself as.
Good thoughts. Although I don’t know why you make the assumption that the capitalist overextends himself, and that he consumes and consumes without heed for the environment.
I’d have to agree with Get Rich Slick’s post from a worldview standpoint. Saving my way to riches doesn’t excite me or get me jazzed to devote my life to that. Starting businesses and creatively working to earn passive income by seeking out investments gets me up in the morning!
thats just me though :) Merry Christmas!
Lazy Man says
It’s a Devil’s Advocate argument. It seemed like the idea was to pay new for everything and not to recycle for fear that it put someone out of job (even though recycling is a job).
My assumption about the capitalist over-extending himself was a parallel “the frugalist.” Also things like “He won’t concern himself too much with the cost of an item” led me to believe that.
I really like Rich Slick’s website and stuff (Rich, if you are reading this it meant as satire with a little truth behind it).
I live in the middle. I don’t try to save every single penny possible, but I also don’t bet my life savings on starting a new company. I save some money here and there while I try to find more places to make more money.
Enough Wealth says
I think it’s important to differentiate capitalist (ie. investor) from consumerist (ie. spender). I agree that you can be a frugal capitalist, but some people get so focussed on being frugal that they limit their potential to increase their wealth. Sometimes you have to spend money to make money (eg. education is often a valid example).
The main limitation on frugalism as a wealth creator is that you are limited to saving a maximum of 100% of what you currently spend, whereas increases to earning or ROI is, theoretically, unlimited. For example, I earn around 80K and save 30K of this. I could go beserk with frugalism and save some more out of the 50K pa, but it is generally more worthwhile to spend my time researching ways to increase ROI on my current NW than to spend the same amount of time on new ways to be frugal. Increasing my ROI by 1% would have a bigger impact than cutting my expenses by 20%.
Also, sometimes spending goals are the motivation for attempting to increase one’s NW (eg. having a nice(r) house to live in beats having more $ in the bank but living in a cardboard box).
Rich Slick says
Cheers Lazy Man….
I enjoyed the rebuttal and I wish there were more of it out in the PF blog world so keep challenging (even satirically) the conventional wisdom and everything you read.
Merry Christmas and Happy Holidays ;)
Lazy Man says
Enough Wealth, I agree entirely. Rich Slick had implied that they were distinct personalities and it is impossible to look for a cheap deal while trying to maximize your income. It’s a common theme in the person finance world. If I have to expose that the two are not nearly the same through satire, then so be it.
I am looking for ways to increase my ROI as well, but thus far I’ve been relatively unsuccessful. It seems like most markets are efficient – by that I mean in order to get a better ROI, you have to take on more risk (at least from what I’ve found). It’s still worth the time it takes to try to increase ROI, but a lot of time can be spent with no gain.
The Digerati Life says
First time I’ve seen it writing what I’ve been vaguely aware of. I enjoyed your analysis. I see myself being in the middle of the spectrum on this one.
AJC @ 7million7years says
I’ll show you how a frugal capitalist works:
I sold one of my businesses, so I decided to reward myself by buying a car: I COULD have afforded a new Ferrari (circa $250k), instead I bought a slightly-used (current model … only 1,700 miles on the clock; saving $35k off list) Maserati Gransport Spyder for $90k …
… top down, wind in the hair driving: pricelss!
Frugal Capitalism … for all the things that merely SAVING can’t buy ;)