Living Small

 

Some folks have trouble understanding why frugality and investing play well together. Frugality suggests stingy. Investing suggests opulence. Frugality can also suggest awareness of cost and benefit. Stingy only sees cost. Opulence only reflects egocentric benefit. My version of frugality is the attempt to respect and balance time, effort, and money. For me, frugality results in a lifestyle that some others see as minimalist.

 

This week was very nice for my portfolio. It was up about 87%. In one week. Thank you DNDN, but also thanks to the others too, because several of my stocks rose significantly. Friends who are also shareholders represented hundreds of thousands of dollars of fresh net worth. Yet, the only talk of opulence was as day dreams. Most of my friends are fairly frugal folk. The biggest splurge I heard of was for steaks in the future when some shares might be held.

 

To some, that might seem like a tight-fisted group. For me, I recognize people who know that buying trinkets is not going to buy happiness.

 

Tonight I'll be hosting a party that has nothing to do with stocks. It is spring and we'll finally be able to dance outside again. In my 840 square foot house

there will be room and music for at least three dances. The living room, the deck, the carport, and maybe even the office, will be open for swing, waltz, latin, fox trot or whatever. I never know how many people will show up, but last time there were thirty people chatting and moving to the music. Writers, dancers and other interesting friends make for a fun mix.

 

My returns have been good enough that I've been asked if I will move into a bigger house. No. This house is my home. It is the first place that I've owned that truly feels like home. I don't want to leave. Owning a small house is a wonderful frugality lesson. My home is one third the size of other houses that I've owned. A smaller house has smaller worries. Utilities, maintenance, cleaning, searching for lost keys, are all easier because there is less to deal with.

 

One bathroom means only one toilet to clean. One third the floor space means one third the sweeping, and this house doesn't have carpets so there is no vacuuming except to chase down dust bunnies. The heating costs are so low that I can bump the thermostat up a degree or two occasionally without burning up a lot of money. I'm getting ready for a party that may have six people or three dozen dancers. And yet I have the time to blog because there isn't much to clean. I can enjoy the day and my friends much more because there is less work and stress.

 

Extend that concept across the other aspects of my life and similar benefits build. A simple car, simple clothing, simple food, all lead to an existence that more than satisfies my needs, many of my wants, and a few of my dreams, without costing a lot.

 

And here's the multiplier where such frugality meets investing.

 

This week's portfolio performance increased my net worth by more than a year's living expenses. For some of my less frugal friends, it would be about one year's expenses. For others it would be about five years of living expenses. That is an effective factor of five in terms of financial returns. Making a million dollars while spending a million dollars doesn't provide as much security as making a million dollars while living on twenty thousand. The lifestyle of the "rich" investor is supported for another year. The lifestyle of the "cheap" investor is supported for the rest of their life. Successful investors who lead frugal lives effectively increase their total financial health when the benefits of an increased portfolio are measured against the cost of their lifestyle.

 

I am not the most frugal person I know. As my portfolio grows I tend to spend a bit more on food, entertainment, travel, toys, and the house. This place definitely needs a new kitchen. As I make more money I'll live a somewhat larger lifestyle. Partly that is because my financial situation has yet to recover from the divorce and the recent market trauma. Luckily, it won't take much to reclaim the lifestyle that I prefer. Eventually I look forward to funding work that has a much broader reach. I measure my performance against my current lifestyle and my future lifestyle. As such I am doing well and can do much better.

 

Personal finance isn't just about investing. It is also about spending, and those expenses are measured in dollars and days. It is easy to be distracted by the stock side of the story. DNDN was up ~ 185% this week. That is definitely distracting and worth celebrating (that party hasn't happened yet, tonight's is just because I haven't had one in a few months). But the DNDN shareholders who made the most this week are the ones who accumulated years of living expenses. Portfolios are easy to measure, but I suspect that the person with the best performance didn't make the most money. The ones with the best chance for success are the ones who are living small and investing large - and wearing the biggest smiles.