Actually, skipping $4 lattés is solid financial advice

posted in: Economics, Finance, How to human | 0

In a popular genre of twenty-something former junior analysts at the Nebrahoma Falls branch of Wells Fargo LARPing as wolves of Wallstreet on Twitter, and dispensing testosterone-soaked bad advice that always seems to boil down to affiliate marketing and selling vitamins, the claim is often made that “Nobody gets rich skipping lattés”.

One, that’s not actually the point.

Two, they actually kind of do.

See, the point of frugality, AKA not burning money like a monkey on crack, is not “getting rich”. The point of frugality is using what you have effectively, because you don’t have unlimited money. In other words, it’s about priorities. And the ability to set priorities is a big predictor of success. See where I’m going?

If you buy overpriced lattés, that’s not by itself what’s keeping you off a mega yacht. You can’t get that rich on mere frugality. But odds are the lattés are a symptom of shitty financial habits. It’s never just the lattés.

It’s four dollars here and there, a couple of times a day, and maybe a bit too much for those shoes, an evening of $15 cocktails, a new iPhone every year, specialized skin creams for the left elbow crease that do absolutely nothing, and then people with okay incomes have negative net worth.

It’s a drip-drip-drip of small dumb expenses, but don’t underestimate that dripping. It’s death by a thousand cuts.

And again, “getting rich” is not the point of frugality. What’s a more immediate concern:

Buying a Lambo? Or paying off debt, and having a positive net worth and some sort of security?

Because you can’t do the first by not having avocado, but it does help with the second. So the question is which is the more salient problem for most people.

When you have some sort of averagish income, the price of a triple-venti-mocha-skinny-soy-fappuccino might feel negligible, but it adds up quickly, and then it compounds.

If you start with two people on identical incomes, and have one go the full YOLO “high time preference” route, and the other be a bit smarter with money, all other things being equal, at age 50 they’re gonna be in VERY different places.

The latter (pun not intended) is likely to be a homeowner with a decent retirement account, some savings to cover any unexpected eventualities, maybe a bit of passive income. The former is likely to be foreclosed.

People do improve their financial situation by not wasting money.

When you’re mister oligarch moneybags and snort cocaine out of the buttholes of 18 year old Brazilians for breakfast, you can have the latté and not notice.

But the problem with the “frugality is for betas” guys is that not even one percent of their audiences will ever be in that sort of jet-setting situation. Heck, even the guys writing those things aren’t.

Private frugality is like public austerity, and triggers the same self-indulgent types.

It’s stupid to act recklessly in the present, hoping to outrun the consequences by making it big in the future. That rarely happens, and least of all to people who rely on it (because when people are stupid about that, they’re probably stupid about a bunch of other stuff).

Anyway, I don’t believe in “too rich to care”. In finance as in everything else, I believe that you never really transcend the basic rules, and that believing that you have is a dangerous conceit that leads to self-destruction.

I kind of hate waste at any net worth, and fellow aspirational middle class do-okays who buy 200 dollar jeans and 50 dollar bottles of champagne to impress dumb girls, in my mind they’re someone’s prey, their narcissism and monetizable vices and personality defects ensuring that 1) they never get much real value out of their money and 2) someone else will.

The same goes for the newly rich and usually villainous spending the equivalent of their grandparents’ lifetime earnings on a waste basket. Dumb is dumb and wasteful is wasteful, no matter the scale.

Oh, and people actually kind of can get rich(-ish) by avoiding large numbers of tiny dumb purchases. This is because of the magic of compound interest.

You see, $5 a day is close to $20,000 in a decade. Put that in an index fund, and forget about it for thirty years. It will actually buy you a boat, and a pretty cool one.

If you’re thinking “fuck old me, he’ll be useless anyway”, consider that medicine is advancing rapidly. Sixty year old you may look and feel like forty.

The big things are made of the small things, and long-term wealth building is a bit of a hare and tortoise situation, as my boy Aesop would say. Not everyone will make billions. You should absolutely aim for big wins that will set you up for life, but in the meantime, it’s wise to play the odds and also go the slow route, because that IS available to everyone.

And now I’m going to contradict myself and ask you to contribute a small recurring sum :-)