Last week, I was talking to a friend on the phone about finances and I decided to pay her a compliment, telling her that I could tell that she really started cutting back on her spending and that she has a finer control over her finances.
In her past she has overdrawn her checking account so badly, that at one time she bounced around 10 check during one time interval. The kicker was that she had overdrawn her check account before… So if the bank charges $20 per each bounced check, that comes to $200 in banking fees. Ouch!
During our conversation, she told me “Well, I’ve always been frugal”. I couldn’t believe that statement! She travels overseas every other year, always had leased newer large SUVs, every years goes skiing multiple times, and goes on out-of-state beach vacations at least twice a year.
The credit card balances were so high, that at her low point she actually cut up all of her credit cards except one. The one card she took and froze it in a small chunk of ice and kept it in the freezer for emergencies.
And now my friend is saying that she is “Frugal“? Doesn’t make sense huh!
That when I realized that the “Being Frugal” concept is the same as “Being Rich” concept in that it’s all relative! Her family (especially her brother) spends a lot of money and even spends more than she does. So while I think she spends way too much when she doesn’t have a strong enough income to support her spending, she see her brother’s level of spending and thinks that she is frugal.
What she doesn’t really take into account is that he’s a small business owner and probably has a positive cash flow.
So perhaps a better gauge of whether you are frugal or not would be your savings delta? But even that number doesn’t really say if you are frugal or not. You don’t have to be getting rich to be frugal. At least this number would tell you if you have a positive cash flow or not.
In the end, frugality (much like being rich) is relative to your peer group. This enables people who have a spending problems to believe that they are living a frugal life, but when compared to the averages they aren’t.
Do you have any friends that believe they are being frugal but are in massive debt to the credit card companies?