The justly famous Tightwad Gazette is, I believe, misunderstood. I think most people think of it as a collection of tips. There are tips aplenty, most of which I either already did or found useless (to me) or irrelevant (again to me).
Even though I was pretty advanced in the frugal way by the time I got a hold of these books, first by borrowing them from a friend and then by snagging them at a thrift store, I love the books and will probably never pass them on. I re-read them all the time. Not for the tips, but for the philosophy. Plus, Amy Dacyzyn is an excellent writer.
So, here's a bit of her philosophy: an essay in TG II called "The Supermarket versus the Stock Market" (pp. 51-52). She responds to people who have urged her to write about investing. She counters by saying that, first of all, she feels like she's not qualified. Then she goes on to wonder if anyone really is. That's a thought that has crossed my mind of late. I'm not just talking about bloggers here; I'm talking about all the so-called "experts" with or without MBAs who have been declaring that "no one could have seen the financial meltdown coming."
She later points out that "Tightwaddery gives you a great financial return [on investment]." Her example is a family that follows her frugal shopping tips and saves $250.00 a month. This is in the early 90s, by the way. You would need $50,000.00 earning 6% a year to get the same $3000.00. Yes, I am ignoring compound interest.
Fast forward to now. My Vanguard Money Market is earning less than 1%. Even at 1% I would need $300,000 to earn the grocery savings. Oh, and what if I had done a cashout re-fi as all my mortgage broker acquaintances were urging me two summers ago? And invested the proceeds in the stock market as they were advising?
You get the picture. The only sure things these days--or any days, really--are paying off your mortgage and learning to save on necessities. Somehow no one in the financial press was saying this during the boom years. Or bubble years.
Thank you, Amy, for your timeless wisdom.
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8 comments:
I find Ms Dacyzyn's argument disingenuous. If you have saved $250 a month, pay down the mortgage and build and emergency fund.
Then learn about investing. In maybe 30 years of investing I have made far, far more money than I lost.
My sense is that many people take on massive mortgages, believing in the sure appreciation of what they bought (and thinking a huge house is really cool.) That's not a sure thing either.
Ben Franklin nailed it with a penny saved is a penny earned. With taxes, it is more like 1.3 pennies earned.
I enjoy those books too and mostly for the motivation and enthusiasm! I don't think I've found many tips I've used and some were downright gross with using dishwater to rinse diapers,etc but diapers gross me out period! :-)
This is actually my first year at being frugal. I'm a new convert! I mean, I've always liked bargains but never bothered with a budget. I had credit card debt and major leaks! Last year I got serious in my planning and this year I've fared far better with savings instead of credit card debt though there's always room for improvement which I'm gearing up for doing next year!
I grabbed onto the TWG like a life saver when my Dad died, leaving thousands in debt on credit cards at 20-25%. I was newly married to someone with seasonal work and got a surprise 20 month old step-son 17 days after the marriage. I worked for the State as a secretary and felt I was drowning under the weight of the world. I used many, but not all of her tips, but it was her front page editorials that helped me the most. They helped me look at my situation in a much different light at first helping me become determine to fight back against the debt and win and then helping me to see the fun and creative ways in which I could approach this. Between her newsletters and Your Money or Your Life I got the impression their aim was to have 'enough', not to 'make money'.
I've always read that one should only invest in the stock market what one could afford to throw away. I did do a 401K and 457K for the 4 years my employer offered to match my money, but aside from that have only just now started to put money into stocks, £50 a month -- what I can bear to throw away. I have invested in an index linked fund that is part of a tax-free savings here in the UK (I still have to pay US tax on the income if I sell). I don't know what happens when the investment is successful and then becomes too much to contemplate gambling! Move it to safer investments?
My income now is the rent income from the houses I've lived in but not sold. Most of the profit that I made when I was working is in CD's in a credit union. As I made better money I bought a slightly nicer house over here in England, but still well within my means. I really hate the massive houses you see in the States, preferring older and more elegant design, so it's not as though I've sacrificed. Until this last year I always regretted not having invested more in the stock market and felt my economic education was sorely lacking. I'm not feeling superior just now, but I am relieved at having been lucky. I am more satisfied with the course I took than I was before.
As I said, I think the aims of the supermarket strategy and the stock market strategy are not the same. Does that make sense?
Well, I suppose there's something to what she says. But... The money you're saving from pinching pennies at the grocery store amounts to cash flow money, no? Most people would have to be highly motivated and self-disciplined to set those savings aside; I expect that money gets rolled into next month's cash flow or used to buy some other needed (desired?) product or service.
While you're undoubtedly right that few people, if any, know what they're talking about where the stock market is concerned, the fact is that over time it's probably the only effective way to make savings keep up with inflation. Even if you put your $3000 a year of grocery savings into the credit union, its value would eventually fall behind the rate of inflation. In the stock market you at least have a shot at staying afloat.
That said, I don't think all of one's savings should be in the market. Seems to be it should be spread among equities, real estate, and cash, the proportions depending on one's age and one's sensitivity to risk.
One day my financial adviser made the amazing recommendation that, if I really wanted a house that cost about $30,000 more than I could get from the sale of my present home, I should finance the house of my dreams in toto; then put all the proceeds of the old house's sale in the market and use the increase to pay the mortgage.
Exactly how I was supposed to persuade the lender to give me a negative interest rate when the stock market produced negative returns escaped me.
I agree; the old adage about not putting all the eggs in one basket is still true. Towards the end of my working life when the debts were all paid off and I had a safety net in savings, I consulted an 'independent financial advisor'. I realised I was being very naive with putting money into CD's. Everything I'd read was that advisors should either charge a flat rate for their time or a commission fee for what they sold. This guy said on the phone he wanted £50 a month flat rate. On the day, the form he had me sign took out £100 a month. He gave me a lecture (and I took notes) containing the 'to do' list on his website and I agreed we would work through that list. Every month we met, I got the exact same lecture with a slightly different sales pitch. Turns out he got the flat rate AND a commission up front on the investment AND a slice of the annual dividend. I don't know polite words to express how I felt about him when I realised this. There were many other things he did -- like trying to bully me into signing a statement that I was not an American citizen in order to make it legal for me to buy a certain investment (I refused). Not only did I despise him, I couldn't believe how gullible I had been to do business with him at all!
I think financial advisors are hustlers in a new costume and I'll advise myself -- sink or swim -- from now on.
@Duchesse--I think that's what she did, in fact. I guess I didn't explain her point very well.
@Cubicle--I read Franklin last year for a class I was teaching and LOVED his comments. Not just this one, but many many others.
@Suzy--I agree--motivation and enthusiasm. Also, the sense of community, which you can now get in the blogosphere--which didn't exist back then.
@Shelley--Your story is so inspiring. Thanks for all your comments too. I won't really be able to do them justice (since my semester is starting up), but will get to them as I can. Thanks so much!!!
@Funny--AS I said to Duchesse bove, I think I mis-represented the point. I think Amy paid off her house early on, invested, and all that. But in many ways, she challenged the common wisdom of experts--something I appreciate.
@Shelley--That is a scary story. I have heard many similar.
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