June 27, 2005

Extreme Savers (Updated)

By Kevin

CNN/Money has an amusing ongoing series about the lives and habits of "Extreme Savers" -- people who invest wisely, spend frugally, and live like there's no today. These homo-economicae are so good at the penny-pinching lifestyle that they sound like caricatures of real people from The Onion.

Still, I kind of like Rick Kuhlman's approach:

The 33-year-old Topeka, Kansas resident replaced all 52 light bulbs in his house with fluorescents three years ago, in order to cut his monthly electricity bill.

"I even replaced the one in the fridge," he laughs.

His savings, however, are no joke. Rick explains that his $60 investment in energy efficient light bulbs saves him some $20 a month. And he has yet to replace a single bulb.

"The return on that is astronomical. I wish that I could find that in the stock market," Rick states.

To me, the incandescent glow is worth a few bucks a month, but that's just me.

Anyway the ending is just sad:

"If you're smart 360 days a year, then you can celebrate the other five," he explains. A couple of extra days of celebration, though, can hardly be held against him.
See also the woman who won't look at advertising, and saves over half of her gross income:
"If you have the philosophy of saving 10 percent to 15 percent then you end up spending the rest. That also puts you in the trap of thinking, 'As my income increases, so will my spending,'" she said.
And don't miss the parents of twins:
"I spent my pregnancy lying on the couch, eating peanut butter and jelly sandwiches and working on a budget," said Jenny, who in true twin mom fashion recounted her story while working out on her Stairmaster....

The couple lives in a remote location so Will can coordinate highway maintenance but the price is right, at $115 a month for a three-bedroom house. Moving to the middle of nowhere was just one of their tactics for keeping costs in check.

There are several economic justifications for "extreme saving", most of which involve a substantial preference for personal or liesure time today, or early retirement. There are stories of people getting by on garbage scraps for decades and at death bequeathing millions of dollars to charitable foundations, schools, and even complete strangers. But these strategies aren't for most of us; in fact, I'd argue that the median household thinks these people are nuts.

This opinion is based on one anecdote: I remember watching an episode of Oprah when I was a pre-teen. The episode followed a family that lived in the middle of nowhere; there parents wanted a large family and had about a half dozen kids. They lived on the husband's meagre income, and the mother stayed home. To keep in budget, they bought everything generic and in bulk, rarely went on vacation, had a beat-up car or van, and almost never went out to eat (and when they did, they went to McDonalds).

Do you know what the audience's reaction was: respect, understanding, and humility? NO: scorn, disbelief, shock, and horror! I think thir response reflected an attitude of most big-city Americans, who have become used to a much easier and pleasure-filled life. They think that real sacrifice and discipline is unnecessary in this day and age. This is, in my opinion, a very narrow view...

Posted at June 27, 2005 03:16 PM

Comments

Thanks for the link. I got a free subscription to Money from Turbotax in 2004, but it expired before this series started. Very interesting.

I'm an extreme saver. I live in a Chicago 'burb (not cheap, but not stupid expensive like NY or CA). I max out the 401(k), contribute to Roth IRAs and 529s for the 2 boys, and my wife does not work. I'm an engineer, paid less than the median for the Chicago area.

I did not save this much before the boys came along and the wife stoped working. I often ask my wife why we didn't save more when we had twice the income. She has a couple of answers:

1) car payments. We bought new cars in '95, '97, 2000, 2001, and 2003. We have since paid off our 2 cars, and will NOT be adding another car payment anytime soon. When we had 2 car payments, it was over $500 a month. That's just stupid, and we didn't buy extravagent cars either. I've never paid more than $20k for a car. What kind of car payments do you get with a Hummer?

2) taxes. We moved from New York to Illinois and literally cut our taxes in half. New Yorkers are fucking stupid. Move. Now. And Illinois isn't even a particularly low tax state.

3) food. We went out to eat A LOT. Now my wife cooks almost every day. We occasionally get a pizza or take the boys to McDonalds.

None of these things is exactly a sacrifice. Obviously, I'm a gearhead, and I'd like a new car every two years, but not doing so is not exactly a sacrifice.

And not going out to eat is a lot better for your health. My wife cooks healthy. Luckily, she is a wonderful cook (I would not have married her if it were not so).

On the other hand, I understand why most people think that saving is for chumps. Our accounts are growing because we're adding to them, not because we're making money in interest!

Comment by Buzzcut at June 28, 2005 02:19 PM | Permalink

Profiles of "extreme savers" are going to look as weird as profiles of the "extreme spenders." Compact fluorescent light bulb in the fridge == underwater music system in the guest pool.

I save about half of my $30,000 a year earnings, but I'm not really "extreme" about it. Like that second person you quote, I just buy whatever I want, and save what's left over. Since that only involves Tivo, eating out, and the occasional car rental, there's plenty left over. (I once broke down my expenses in detail on my LiveJournal.

But people perceive that I'm making big sacrifices because they compare me to their life and I don't have several things they can't imagine not having. Someone from Brazil might compare me to their life and I might have several things like my own personal computer and air conditioner that would make me seem like a spender, not a saver or sacrificing at all.

Comment by Noumenon at June 28, 2005 05:02 PM | Permalink

You just reminded me of something. In an age where investment returns are zero to none, things like replacing your lightbulbs with compact fluorescants start to make sense. Even though the ROI is paltry (no way is it $20 per month, unless you have every friggin light in the house on!) it is better than risk adjusted investment returns. The "investment" is essentially riskless, so the ROI looks even better.

A 11 watt CPF replaces a 60W bulb. It saves you 49W per hour, per bulb. At 8 cents per KILOWATT HOUR, to save 20 bucks a month you would need to be saving 347 WATTS on average per hour. That's a lot of lightbulbs on a lot of the time. Who has 7 bulbs on at all times? Who has 14 bulbs on half the time?

$60 worth of CPFs is like 10 bulbs or so. I'm sure he isn't saving that much money.

Journalists are a bunch of math impaired morons. Don't the check this stuff?

In any case, there is a ROI, just not as good as Money made it out to be. I'm guessing that he's saving maybe $5 per month, which is still a nice ROI. There are plenty of businesses that would kill for a one year ROI.

Instead of buying stocks in my 401(k), maybe I should be paying off my mortgage, replacing my lightbulbs and windows, getting a solar hot waterheater and a wind turbine, etc!

Actually, I am a compact fluorescant enthusiast. All my bulbs would be CPF if not for my wife, who hates them. She doesn't like the lag it takes to turn on, nor does she like the quality of the light.

Me, I'm just like technology. The Chicago Museaum of Science and Industry has a light buld from 1917 on display, and it would fit any socket in any house in America. What other technology do we use from 1916, unimproved?

Comment by Buzzcut at June 28, 2005 06:09 PM | Permalink

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