Gen Y Capitalist

For most of my life I’ve been a disciplined saver. I rarely buy the latest and greatest of any eletronics because they depreciate in value so rapidly. Until this year I used an old fashioned flip phone while my peers were on their fourth generation of smart phones. I had pre-colour display Ipod until recently, because, well it plays music just fine. Hell, half my music collection is on 12” vinyl.

Over this time period, I was smug in my knowledge that I was building a small, but repectable amount of  savings [link] while friends were struggling with school debt or working multiple minimum wage jobs to purchase status symbols of ostensibly no real value.

TOO MUCH OF A SAVER?

Recently, however, I haven’t been able to shake the feeling that perhaps I was being too much of a saver. In one of my first posts [link], I questioned what the point of it all was; many blogsphere personalities maintain high savings rates my making extrodinary sacrifices in quality of life. I feel as that defeats the entire purpose of accumulating wealth.

Beyond that, there are times when being too stingy can cost you money. How do I explain this apparent paradox? Well listed below are some of the I now realize I do:

1-    Settle for lesser quality: Though I fancy myself a savvy consumer and try to look for the best value, sometimes I fall into the trap of trying to satisfice with the least expensive option.  The end result? Not only are you unhappy with what you have, you may have to purchase the higher priced item anyways. You’ve spent additional money, time, and created uncessary waste.

Personally, I’ve done this a lot with clothes. I’ve bought things that were not the best fits, styles or colour because they were cheap and/or heavily discounted. When I cleaned out my closet last year, there were about 10 glad garbage bags worth of stuff that had to be donated because I wasn’t wearing it.  In the end, it would have been more cost effective to buy higher priced items and in the process not have embarrassed friends and family in the process.

2-    Spending time chasing a deal: It’s well documented that people have loss aversion. Ie: We’re derive multiples more pain from losing money than we gain from winning an equivalent amount. This bias causes people to hold onto their losers and hold their winners too long on the stock market. It also affects my consumer behaviour, Recently, I spent hours trying to find a free alternative to a $25 paid app. Evidently, my time would have been better served elsewhere.

I’m still undecided as to whether letting the little things go, ie: things that that too much time / $ to fix is a good idea. On one hand, it frees up valuable time to pursue other more fun, likely more profitable ventures. On the other hand, it could create a slipperly slope which will lead me to become progressively more indifferent to losing money and hamper my savings ability.

UNQUANTIFIABLE LIFE CHANGERS

Now that we’ve covered the small, obvious ones, here are some more difficult to quanity costs of being frugal.

Getting out there: This one probably took me the longest to realize. Growing up, I knew many wealthy kids who spent more money than my family had. I figured it was too costly to socialize with them so I mainly stuck to a different group of friends.

In retrospect, I now realize how valuable those social ties would have been. Sure I could network, but social ties going back years will always trump newly formed working relationships. These guys go to bat for eachother at every possible opportunity and have influence of their family’s affluence and connections. I have no doubt them will be leaps and bounds more sucessful than I regardless of our relative intelligence or drive.

Studenomics suggests that we’re the average of our 5 closest friends, and that we shouldn’t hang out with big spenders. However, there’s a correlation between earnings power (future or current) and spending in absolute terms. Do I find 5 frugal friends and spend less or 5 high roller friends and earn more?

Perhaps I’m just trying to justify my ridiculous bar tabs, but I’m undecided about where the right balance lies in this.

No Debt MBA is attempting to graduate from a top 5 MBA with no debt. While that would be a fantastic accomplishment, I can’t help but wonder if the sacifice is warranted. Apart from pedigree, the value of an MBA is in the network you acquire. If graduating debt free, requires skipping out on the $5k class journey, are you not missing out on an important bonding experience? After all, the same course material is taught everywhere.

Her strict $25/week grocery budget also precludes her from dining out with her classmates. If college was any indication, the closest bonds I formed were outside the classroom.

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