In praise of frugality!

frugal 1

The Money Engineer

Being frugal gets a bad rap in our society. We have been conditioned to spend our money to keep up appearances. We need to upgrade our phones to the latest release. We need to check out the latest hang out joint. We need to have the latest car we can buy. We need to attend the next Blankets and Wine event. Part of this conditioning comes from the consumer culture created by this massive advertising. The number of adverts bombarding you each day is massive. The adverts are everywhere. They are on Facebook. They are on email. They are in the newspapers. They are on radio. They are on cars and trucks. Eventually they become part of your subconscious and influence your spending habits without you even noticing it.

For example my four year old daughter now craves the nutritionally useless Fanta Orange soda only because the marketing gurus over at Coca Cola have found a way to position their product in children’s minds. These marketing gurus have figured out how to associate our self image with the products they sell. There is lot of research and money which goes into this stuff. There is an emerging field of data science and machine learning which is making this more widespread. For instance large supermarket chains can now predict when women are only a few weeks pregnant from an analysis of purchasing patterns. They then send free product samples and promotional material specifically targeting these pregnant women. If they hook them at this stage by enticing them with free baby diapers, formula milk and other stuff they are almost guaranteed a lifetime of revenue from the reciprocal customer loyalty!

Social media is now even worse. All the information you exchange with Facebook and Whatsapp is sold to third parties and used to target adverts specifically for you. Have you ever noticed how you google something and then all of a sudden Amazon, Jumia, Alibaba, and other sites starting promoting their goods on your Facebook page? All these companies are trying to get you to spend your hard earned money in exchange for goods you may not really need. Most cravings you have for consumer products have been effectively engineered in your mind by another person and society. You probably don’t really need to buy KFC chicken but all the advertising has subconsciously gotten into you.

Every time you spend one shilling, the government takes 18% in VAT. The company which sold you the item makes about 30% in profit. You lose about 10% in potential interest if you had saved that money in a unit trust. You would have to earn 30% to 40% more to replace that money because the money you spent was net of taxes. In effect by recklessly spending you lose over 80% of your money to the government and other people. The real value you obtain is only 20%. So basically by spending all your cash you are working so hard for everyone else other than yourself.

Suppose you earn UGX 1m after taxes every month. This would imply that you make about 250k per week or 50k per working day. Now let’s say you are walking around Kampala road and see this cool new handbag which goes for 200k. You immediately get a craving to posses the bag and are then drawn into the shop. If you were to buy this handbag it would mean that you would need to work for four additional days just to be able to afford this handbag. This handbag basically represents four days of your life. The question is are you willing to spend four days of your life working to acquire this handbag? Wouldn’t you rather spend that time with your children and loved ones? Remember your most valuable resource is time. Are you willing to trade this invaluable resource for this handbag?

Let’s imagine further that you now choose to borrow UGX 20m to buy a second hand car. This translates into 400 additional working days or almost two full years of your life. Are you willing to work this additional time in your current role just to acquire this car?

Being frugal does not mean being broke and cheap. Being frugal with your money means freedom. Freedom from toiling at your job to acquire stuff your don’t need. Freedom from keeping up appearances. Freedom from trying to impress everyone else but yourself. Freedom to pursue more meaningful enterprise. Freedom to live a simple life. Freedom to value the simple things in life.

Being frugal means consciously choosing to spend your money on meaningful things and activities which bring long lasting joy to your life and other people.

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