Real Life Story of Someone Who is TOO Frugal!
The famous Billionaire Jean Paul Getty of the famous Gas Station is one of the most frugal men in history. His grandson was famously kidnapped and the kidnappers demanded 17 million dollars for his release. Initially, he refused to negotiate with the kidnappers and as a result, his grandson lost his right ear.
Eventually, Jean Paul Getty negotiated the 17 million dollar demand and reduced it to 3 million. He only paid for 2.2 million and made his son pay the rest. His son was not well off as his father and as a result had to borrow $800,000. Oh yeah, he also charged his son a 4% interest for the borrowed money.
Jean Paul Getty paid only 2.2 million because it was the maximum amount that was tax deductible!
Now that’s frugal!
Part of Life
Before you say anything, let me explain why being frugal is not always the best choice. I can say that I grew up with one of the most frugal family and friends so I am an expert on this topic. I am Asian and Asians are the most frugal people on this planet! There are good and bad to this concept. From experience, all the “super wealthy self made millionaires” are mostly frugal. Except for most athletes of course!
Beware of Opportunity Costs & Hidden Costs
Being frugal has its good and bad. At its best, you are getting the most bang for your buck. Let me make this clear, being frugal does not mean you don’t spend money. Instead, being frugal means you spend but only on things that are economically worth it and you are getting the best deals (most of the time).
So whats wrong with being frugal you ask? Being frugal has a lot of costs associated with it. The two major cost of being frugal is the opportunity cost and the hidden cost. An opportunity cost is a cost that you incur when you are committed to doing something and as a result, you are unable to do another task. An example of an opportunity cost incurred for people is going to college. You are spending 4 years of your life studying for a topic and hoping to get a job elsewhere. If you didn’t go to college, you could have spent 4 years trying to start a business and make even more money.
Another cost is the hidden cost. Every decision has an opportunity cost but not every decision has a hidden cost. A hidden cost is a cost that you do not see directly but as a result, you are experiencing the consequence of your decision indirectly. An example of a hidden cost would be the following… If you are trying to choose between a new phone for $200 or an old phone for $100. You might want to choose the frugal way and go for the $100 phone. That could be costly because you don’t know your hidden costs. Everything in the system might work fine for the old phone when you buy it. But what if an unexpected circuit shorts out or the screen already has micro fractures and it cracks completely at the next point of impact. You never know and that is the hidden cost you are incurring when you decide to make a choice.
Saving $200 costed me $100 in Hidden Costs & A Week of Pain
This is how I learned my lesson. I found this cheap plane ticket going to Shanghai for $400. The second lowest price was $600. The only caveat? I had a 12 hour layaway on the way there and another 12 hour layaway on the way back. I thought to myself that it wouldn’t be too bad because I could just explore the area and save some money at the same time. That turned out to be one of the worst ideas ever. When I arrived at the airport to wait for the 12 hour layaway, I found out I completely misjudged my estimation of the timing and hidden costs. I forgot to take into account my 12 hour jet lag, the expensive airport food, and the closest tourist destination being 1 hour away from the airport and costing $100 taxi ride. There was literally no point in leaving the airport unless I wanted to spend $100 traveling by cab and another $100 coming back. That would completely waste my $200 saved! And to make matters worse, I had to do the same thing on the way back.
What did I do? I decided to just save the money and be frugal. I spent 12 hours at the airport trying very hard to sleep on the hardwood bench with a few homeless people. I would wake up every 30 minuets to make sure that no one would steal my bag and phone. 6 hours in, I was really hungry and decided to eat. And not to my surprise, I incurred a hidden fee of $100 because airport food was unreasonably expensive. To make matters even worse, the airport was one of the coldest airports I ever went to and I had to endure this for 12 hours. Then repeat the entire step again on the way back!
Being Frugal Has Expensive Opportunity Costs
I am going to use my close friend as another example of someone who is too frugal even though it’s sometimes best he shouldn’t be. My friend is a very successful person who knows a lot about cryptocurrency. He was invited to speak at a major event in Australia. He lives in New York. There is a 24 hour plane ride difference and an 8 hour timezone difference.
Like any normal rich frugal person, he decided to fly economy class. During the flight, he was very uncomfortable and his seats weren’t’ the best. He was unable to get much sleep and as a result, suffered major jetlag. When it finally came time for him to make the presentation, he didn’t perform too well. He was barely able to get his words flowing properly and he was forgetting key elements that he worked so hard to practice for. Of the hundreds of times he practiced the speech successfully, he failed to do it when it mattered the most. The cause? Sleep deprivation caused by frugal habits that no longer served him.
He came and told me that as a result of his lackluster performance, he potentially lost out on big career opportunities. If he realized the hidden costs of long flights and the need for high performance the next day, he would have gotten business class and some quality sleep. This would have drastically improved his performance, and as a result doubled his income, doubled his life. Now he sits at home making only a couple hundred thousands dollars a day when he could have been making millions. What a loser!
How To Not Be Frugal… ASK YOURSELF THIS QUESTION
So guys, take my advice and be frugal. Do not be too frugal. It will end hurting you in the long run. When you are trying to be frugal and save money… ALWAYS ALWAYS ask yourself this important question… “What is the Opportunity Cost and what is the Hidden Cost to making this decision“. This will save you many hours of your precious life. Enjoy and Happy Holidays everyone!!