A Case Against Frugality: Why Pinching Pennies is NOT the Best Path to Wealth


After reading articles by Ben Leybovich and Elizabeth Colegrove where they discuss frugality and the mechanics behind it, I figured I’d jump into the mix with my thoughts. As a millennial, the idea of frugal living is constantly being force fed to me via articles, friends, relatives, etc. This is likely a direct result of the economic struggles this nation (and world) have experienced in recent decades. However, I’m an investor and I like to take a contrarian view to the norm and as such, I disagree with the commonly promoted frugal lifestyle.

The commonly promoted frugal lifestyle is all about cutting out anything that isn’t a necessity and never (or rarely) splurging. They say doing so will allow you to save, save, save some more, invest and eventually retire early. While there are certainly successful frugalists among us, this advice isn’t practical, as so many people indulge in the immoral activity of spending money for a nice Starbucks Latte or buying the latest and greatest iPhone. Further, some of these splurgers have still figured out how to retire early. How? They ignore the shadow frugal living advocates cast and instead focus their time and energy on building businesses that pay for their splurging plus some.

Related: You Should Take $1 Today, NOT $2 Tomorrow: A Counterpoint

Don’t get me wrong, I’m all for “living within your means” and not financing your entire lifestyle to simply keep up with the Joneses. I also like the definition of frugal: “economical in use or expenditure.” The ability to make smart or “economical” decisions in managing one’s finances is key to generating substantial wealth; however, I disagree that pinching pennies is the best way to live your life and build that substantial wealth.

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Scarcity vs. Abundance

When you hear the word “frugal,” what do you think about? Probably spending and living on less allowing you to stash more money away each month. While exhibiting control over your expenditures is important, frugality is the wrong way to think about building wealth.

People who abide by the commonly advertised frugality lifestyle see money as a scarce resource. These people tend to think money is limited and difficult to access. Frugal people spend their time devising methods to stretch their paycheck so they can achieve financial independence and retire early. Rather than learning how to earn an extra dollar, they learn how to save an extra dollar, which is only good up to a certain point, as you can’t save more dollars than you earn. Frugality teaches people how to be a miser, not a mogul.

The fact is: Money is abundant. The rich know this and spend their time developing systems to tap into said abundancy and snag a share for themselves. They don’t waste an hour figuring out how to save $10, as they know they can make $100 in that time. They don’t stand in a 30-minute line waiting for a free sandwich from Chik-Fil-A because 30 minutes of their time is not worth the $5 they’d save.

Ben gave a great example in his article – his business (clients) and tenants pay for his mortgage and provide him with passive income to pay for his lifestyle. Ben has spent his time developing systems that will earn him money so that he can live a comfortable life and splurge as he wishes. Saving is important, but building additional streams of income is likely the primary focus.

Create Additional Streams of Income

Think about this – if a person makes $50k after taxes, the most that person can ever save in any given year is $50k. They can’t save a penny more because they haven’t earned a penny more.

On the other hand, a person who is focused on building additional streams of income, whether they be passive or active, has unlimited potential in terms of the amount they can save. They can invest in their income streams to make them larger and more lucrative. The possibilities are endless for the person focused on expanding their annual income by developing diverse streams of income. 

It really isn’t difficult to create additional streams of income. By defining and leveraging your core competencies, you will find there are plenty of business opportunities to take advantage of. The main goal, as the majority on BP would agree, is to create passive income streams. By dedicating yourself to creating quality products up front, you can essentially build businesses that run themselves and require little maintenance once established (e.g. real estate, royalties, software as a service, etc.).

By focusing on creating additional streams of income, you will learn good business habits. You will be able to splurge on that Starbucks coffee without it seeming immoral or feeling depressed at the expenditure.

Best of all, creating additional streams of income diversifies your income risk. People with one income stream (e.g. W-2) are more susceptible to risk than people who have started a business or multiple businesses. If a W-2 employee gets fired, their income is gone. On the other hand, if a business owner has 100 clients, that’s 100 streams of income – talk about diversification. A business owner can also adapt to a slowing economy by moving capital around and reorganizing. This is not a luxury an employee can utilize.

It’s All About Opportunity Cost

I live in an up-and-coming area in DC and as such, I pay a hefty $1,200 per month in rent. The building is new, nice, and safe (keyword “safe”). I’m within 100 feet of a metro station, which allows me to get anywhere in the city in under 15 minutes (this also happens to be my average commute time). I’m also within 50 feet of a grocery store entrance and right around the corner from a CVS and a dry cleaner.

If I bent over backward to live a frugal lifestyle, I may move out to Northern Virginia, where I can rent a similar place for $900 per month and save an additional $300 per month. However, I’d also be burdened with an additional 1.5 hours per day in commuting alone, equating to 30 hours per month simply to save $300.

Instead, I asked myself how I can boost my income to justify the higher city apartment expense and save on the grueling commute time. So I started a side CPA practice (I have a W-2 job), as I know that I can make significantly more than $300 with the 30 extra hours I’d save living in the city apartment.

An example that may hit closer to home for BP members is whether to rehab your properties or hire the work out. Doing the work yourself saves money and may make sense towards the beginning of your investment career. However, eventually you will reach a critical point where your time simply isn’t worth the cost savings of doing your own work.

I’m in the beginning stages of my investing career, and I invest at a distance. Naturally, I have taken the oversight/manager role rather than getting into the weeds and performing the work myself. Taking this role, even early on in my investing career, provides me with significant experience in developing a business system that is scalable and applicable to many different locations, strategies, and environments. By figuring out how to develop a system that removes me from the core operations, I am able to spend my time souring deals and partners — and ultimately growing my portfolio.

Conclusion: Find a Balance

Unfortunately, many people support the frugal lifestyle, and I think it’s because frugality is the path of least resistance. It’s easier to spend less money than it is to earn more.

Related: 10 Things Only Personal Finance Nerds Would Understand

But I firmly believe that everyone reading this article has the ability to generate additional streams of substantial income. It’s very important to develop financial competence and live within your means; however, the logic promoted by frugalists is flawed – they spend too much time and energy figuring out how to save their already limited income. They employ a scarcity mindset rather than one of abundance. Finding a balance, as Elizabeth stated in her article, between saving and developing additional income streams is what it’s all about.

What do you think? Do you agree, or would you argue that being frugal is the most important concept in building wealth?

Leave your opinions, comments, agreements or disagreements below!

About Author

Brandon Hall

Brandon Hall, owner of The Real Estate CPA, is an entrepreneur at heart who happens to be good at taxes. Brandon is a real estate investor and CPA specializing in providing business advice and creative tax strategies for real estate investors. Brandon's Big 4 and personal investing experiences allow him to provide unique advice to each of his clients. Sign up for my FREE NEWSLETTER to receive tips and updates related to business and taxes.


      • Brandon, Glad you qualify your premise well. Love the phrase, you cannot save what you didn’t learn. But also consider that each dollar you go out an earn comes with a premium tax as does each dollar you spend splurging. So each time you save a dollar (wisely) you save an ‘after tax’ X2 dollar. Each time we find a way to accomplish the same task for $100 less it would take me $153 of earning to replace it.

  1. After reading this article I get the impression that your assumption is that one cannot be frugal AND expand their earning potential at the same time. Your example of spending $1200/month to live close to your work rather than spending $900/month and have to commute for hours a day in my opinion is following the mindset of a frugal person.
    Warren Buffet is self-admittedly frugal, yet he was able to grow significant wealth to become one of the richest people in the world. There are plenty of other examples like this. Being frugal alone will not lead to riches but it is an important component of building wealth.

    • Brandon Hall

      Hey Paul – I wholeheartedly agree with your statement. I’m pointing out that while smart spending should be employed, it shouldn’t be the focus of one’s ability to build wealth. It promotes the scarcity mindset when money is abundant. Thanks for reading!

    • Marvin Tu

      Just want to quickly make a response to this comment when Warren Buffet and living in frugality is used in the same statement.
      Featured in a recent podcast by Brandon and Josh, I remember the guest speaker mentioned how the board members of BH ultimately persuaded Buffet to get a private jet for commuting, instead of traveling in coaches…. The members believes Buffet’s time is too valuable to take longer commutes, but from Warrent’s point of view the “investment” in purchase of jet is “unjustifiable”…

  2. Gregory Hiban

    How many times do you see a celebrity who has made tens or hundreds of millions only to declare bankruptcy. Regardless of how great your income is, unless you learn to control your expenditures, you’ll always be poor … that is the key.

    No one is saying spend all your time clipping coupons, just like you do with your investment capital, you need to find the highest and best use of your time. However, there are plenty of things you can do to keep your expenses down that cost no extra time.

    If you need a car, buy an inexpensive, reliable car for cash. If you can find a way to live somewhere that doesn’t require you to have a car, you can invest the money you’d spend on a car and also not have gas, insurance & repair costs. Unless you are big on sports, you don’t need cable, just use the Netflix, Hulu & the network sites themselves at a fraction of the cost. Get rid of the gym membership & workout around the house or in the park.

    These are all things that don’t take any extra effort, but could save the average person hundreds of dollars a month that could be used to build up the savings for a downpayment on an investment property.

  3. Mark Ferguson

    Awesome article! I always hear people talk about how awesome the millionaire next door is. I really disliked the book because it to aches you to postpone enjoyment in your life. You do have to find a balance and not be completely frugal but learn to invest as well.

    Spend money on the things that make you happy and save money on things you Dont care about. Dont spend all your money on expenditures either. Attitude had such a huge effect on success and frugailty is the opposite attitude to attract money.

    • Brandon Hall

      Hey Mark – 100% agree. These books that become famous because they appeal to the masses who have been brainwashed into thinking save save save when they should be asking “how can I expand my income?”

      Look at Reddit as a prime example – 39k people follow the “frugal” tag while only 34k people follow the “entrepreneur” tag.

  4. Cory Binsfield

    You can’t save your way to wealth. The secret is to make your money work harder than you. Saving is simply a means to create capital. Warren Buffet managed to save more money at very young age than 99% of Americans. From there, he was able to compound his savings at 20% a year over 50 years. Yet, even as a billionaire he never allowed himself to spend up to his net worth. This is the beauty of letting your capital snowball over time.

    • Brandon Hall

      Hey Cory – thanks for reading. Everyone always uses Buffet as an example, and I agree that he has done a great job living frugally, however I think he’s the exception to the norm. He invested in a time where he was in a prime position to capitalize on access to information that few others had which allowed him to rapidly expand his wealth. His getting rich likely had little to do with living frugal and more to do with his investing/business savvy mind.

      I definitely agree that you can’t save your way to wealth, otherwise everyone living frugal lives would be wealthy.

      • Charles Worth


        As someone with many years of stock market experience I can tell you Buffet did not have access to anything that someone else could not get. The point I think you are trying to make is that just being frugal did not make him wealthy but his being really talented and able to see things other did not (not because they did not have access but because he thought differently). I would point out though that Buffet had what most people who are being frugal crave which is freedom and was able to do what he wanted because of this like moving to NYC and starting his own firm.

  5. Joe Cummings

    It takes money to make money. For most people, the reality of the situation is they have to be frugal in order to acquire that initial start up capital.

    If you have nothing else good going on, that means clipping coupons and driving a older car

  6. Cindi Anderson

    While many of your points are good, you underestimate the importance of saving money by being frugal so that you have funds to invest. Sure, it is “possible” to make money starting with nothing to invest, but it is much, much more difficult and takes a much more significant time commitment, on par with having a job. The majority of people in this country who have passive income from real estate, did so not through the methods espoused by BiggerPockets, but simply through saving and then investing the those funds (often in real estate). People who, because of education and skills can get high paying jobs, can easily be better of doing that than being “full time” real estate investors.

    Having done this, and living now off passive real estate investments, I could afford daily Starbucks and iphone 6’s, but I still find them unnecessary, and don’t. And this mentality, above all else, is why I have so much. Small things add up to a lot more than you think.

  7. Nobody could ever say that passing on 30 to save 5 could ever be considered frugal but as you point out it may be exactly the route that many Americans and citizens of the world may feel compelled to take. It could be that advertising campaigns of the very people helping them save have made that the sensible direction to travel even though FRUGAL would have made their own damned sandwich in the first place .
    To me spending money to make money is frugal to most of the people I know it just might be considered wild and risky but I don’t ask those people for help,I might buy lunch because we don’t have enough time to wait in that line !!

  8. serge s.

    You got it right Brandon! Instead of spending energy on pinching pennies all of our focus needs to be on growing income and net worth. After all it takes just as much energy to complain and devise “frugal” systems as it does creating cash flow. This is the difference between us and our tenants. Saving is great but unfortunately it’s not what gets is to our goals. Leverage talent and the W2 and plow cash into assets that create both income and equity.

  9. DL Martin

    Uh.. “hefty $1,200 per month in rent”??? In Downtown DC?? In my opinion, there is NOTHING decent downtown for under $2,500 per month. How can you stand to live like that?? Goodness, you only live once. Get out there and generate some additional income streams so that you don’t have to live like an animal for crying out loud.

    I think that maybe you are the one operating within a scarcity paradigm. Why would you deprive of yourself of a decent place to live?

    I just don’t understand you millennials…


    p.s. I talked to Warren Buffet this morning and ran the whole “Is Starbucks a waste of money?” thing by him. He told me that he would give me his old coffee brewer and bean grinder that he has at home sitting in his basement. He said that I could go to Walmart and buy 12 ounces of Starbucks coffee beans for $7.48 and brew it myself. He then leaned over and whispered “There are 16 ounces of coffee in a Starbucks Grande. Two ounces of coffee beans makes 84 ounces of coffee per pot, and that works out to 5.25 Grandes per pot.” He then winked at me and said, “That works out to less than .24 cents per Grande. Starbucks Coffee Shops get $1.95 per Grande!!” He ended with, “You have to get up pretty early in the morning to screw ole’ Warren on the price of a cup of coffee.”

    I thought that the moral of the story was that you can have your Starbucks and drink it too. Until I told this story to my wife.

    So My wife says, “Why are you listening to Warren about getting a good deal on coffee? Warren may be frugal, but he’s not thrifty. Why buy your Starbucks beans at Walmart for $7.48 per 12 ounces when you can buy it at Costco for $19.99 for 2.5 pounds?? It sounds to me like Warren has a habit of overpaying for his coffee beans.”

    • Brandon Hall

      Hey DL – sounds like I struck a nerve. I have a roommate and we have a 2bed 2 bath flat, in a building that was renovated and came on line Dec. 2013. It’s actually a much nicer place than any of my friends and co workers live in and has all of the amenities. Admittedly, our timing was perfect as they were looking to fill the place so they were offering deals, but we just resigned at our same rate.

      Look me up when you are in DC, more than happy to show you around. Thanks for commenting!

      • Jesse T.

        Ah I was wondering how you were close to a metro in DC for $1200/month. I think having a roommate is to some degree a frugal choice. I think a lot of times taking a cheaper location is false frugality – when factoring in the extra time it takes from being productive.

        • Brandon Hall

          Hey Jesse – I definitely make economical choices in my everyday life, and I am by no means bashing the idea of frugality. I just want people to take that time and energy they spend trying to figure out how to scrape pennies and use it to start a business, or invest in an income producing asset class.

          And I definitely agree about the false sense of frugality people may have – always need to factor in the opportunity costs.

          Thanks for reading!

      • DL Martin

        Brandon, I was just joking. : ) Mostly.

        I knew that there was “more to the story” and that you very likely lived in a very nice apartment.

        My caution to you younger guys (I’m a 50 year old guy) is that you don’t want to wake up on your 40th birthday and have high income and no net worth.

        No one here believes that having multiple income streams, building passive income streams, and increasing W2 income is a bad thing.

        We are simply pointing out that being frugal, within reason, is a good thing. When you have kids you will understand just how important it is to model these attributes for your kids. It matters.

        Keeping up with the Jones’ is a deadly trap.

        Take Care buddy

        • Brandon Hall

          Hey DL – naturally, it’s difficult to gauge one’s emotions via a comment board, so I appreciate the follow-up comment 🙂

          I am very economical in my decision making, so I completely agree with you that saving and being “frugal” is a powerful thing. The main idea of my article was to point out the cost/benefits of being frugal vs. growing an income stream. Sometimes, too much time and energy is being wasted trying to stretch an already limited income stream, so why not figure out how to create new income?

          Thanks for commenting!

  10. Scott Trench

    I think the question really comes to this:

    “What is the most efficient means of accumulating assets over the long term?”

    As a young person with relatively low assets (compared to many on BP at least), I believe that frugality is by far the most powerful way for me to initially accumulate assets to deploy and invest.

    Prior to focusing on frugality, I drove for uber on my weekend nights, tutored high school students during the week, and tried a number of other of moneyaking schemes. Sure, I might have made a few hundred extra bucks doing that, but the reality of the situation was that I was being paid a very low wage per the total effort involved. I personally found it quite difficult to make good money on the side without sacrificing large portions of my day and felt that the challenges of starting a business on the side, on top of working a full time job, was not a reasonable sacrifice to make.

    When I decided to focus on being frugal (or optimizing my lifestyle) I saw an immense increase in the amount of money I sock away each month, and at the same time had more overall time in my day to pursue my interests. This approach allowed me to save over $20,000 in just one year out of college, buy a property, and “house-hack”. While I could have achieved the same result by working harder and longer, my lifestyle would have been far more negatively impacted than it has been by simply cooking my own meals, avoiding starbucks, biking to work, and living with a roommate.

    I’m sticking with frugality for the next few years. I think it’s the most efficient way to gain initial traction and build the foundation from which to invest going forward.

    • Brandon Hall

      Good points Scott – I suppose I take the approach of figuring out how to create additional income, and if that means longer hours, I’m okay with that. Of course the cost benefit analysis should be ingrained in every decision we make, so driving for über and tutoring may not have been the best use of time as you stated.

      Either way we will both come out on top!

    • DL Martin


      I just thought of another way that your “frugality” might benefit you “going forward.”

      Any potential mate will view your frugal lifestyle and either embrace it or reject it. If they like you enough to stick around and continue to get to know you, they will learn that there is a method to your madness and that you have a purpose and an endgame. If they view you as a “cheap skate”, … then good riddance.

      This, my friend, will very likely cause many spend thrift types to de-select themselves, saving you countless headaches and heartaches.


  11. Sure your example of waiting in line forever for a free sandwich is a waste of time…but that is an exceptional example, not a daily habit. Take a more common daily ritual…I think most people would save a lot of time making coffee at home rather than waiting in line at starbucks.

    In our consumer based society, being bombarded by commercials and ads at every front…its great that older folks are trying to teach frugal habits to younger generations. Most young people will not listen and would rather justify any consumption.

    I spend a ton of time buying stuff, its fun to come home with new “stuff”. I am better than many and we live well below our income level, but if I was more frugal I would save time in this regard.

    I am teaching my kids about investing, creating wealth, leverage, and being frugal. I think they are all important aspects of financial health. Kind of reminds me of the old take away I got from “Rich dad, poor dad”…know the difference between assets and liabilities…and buy assets, not liabilities. Timeless advise for all generations.

  12. Jered Sturm

    Brandon great article, and very good comments from everyone else. I was going to drop all my opinions on here but decided to save it for my own article!
    Keep writing. Great articles elicit disagreement. I look forward to reading your next stuff.

  13. Chad W.

    To each their own I guess. I don’t see why anyone would feel the need to make a case “against frugality.” The fact is that “stuff” doesn’t do a very good job at making us happy, at least not long term. I am sure the term “hedonic adaptation” has crossed your Facebook feed more than once if your friends are constantly sharing frugal links, right?. Emotional stuff aside, I believe that we have preserved more wealth in our budget through frugality than we have created with our current, non W2, income streams. I would like that to change soon, but a solid financial footing, free of debt and waste, is a great start. It’s kind of hard to get the ball rolling with tons of debt and a habit for new purses, luxury cars and lattes.

    Anyway, I was in my 20’s and 30’s once and I was not very good at delaying happiness either. I would really like to see if you change your tune in 10 – 20 years. 🙂

  14. Jeff S.

    My observations have been that people that love their work have a tendency to spend more. Spending is fun and if you want to look successful then you need to spend to look good. If you sell RE you need a nice car and nice clothes and want to get people in the spending mood.

    If you are one that isn’t trying to impress then you can thumb your nose at those that feel the need to look the part.

    One of my tenants just bought a motor home for 20k. It is funny because that isn’t something I feel I could afford even though I own the house he lives in.

    My favorite guy is Joe Weston, a local RE investor that kept his 160 employees working during the recession. He kept buying beat up buildings just to keep his crews busy because his downtown projects were on hold.

    He drives a VW bug and rents an apartment. He says he eats at Subway so he doesn’t have to raise rents. His RE is worth around $250,000,000. Oh yeah, his license plate says: don’t bug me.

    • Jerry Kaidor on

      That’s just silly. It reminds me of a lady I read about once who had inherited a major fortune. But she was really REALLY cheap, and was found frozen to death in her Chicago apartment.

      She had taken frugality to the point of insanity.

      Years ago, I was pretty cheap. My coworkers were buying new Benzes and BMWs, I soldiered on in my old car, and changed my own oil.

      Time passed. I now own 81 units.
      Last year, I decided I needed a minivan, and just went out and bought one. Brand new. Paid cash.

  15. Chris Newman

    Great thoughts, Brandon! I couldn’t agree more.

    I have friends who focus their time on saving money and constantly cruising the “Free” postings on CraigsList. But, they’re still usually a day late and a dollar short. Thrift makes a wonderful servant, but a terrible master.

    It’s always been my thought that if people would spend half the time making money that they spend saving it, they’d have both twice as much money and twice the time to enjoy it.

  16. Hi Brandon,

    Good article and good conversation in the comments. I hope you aren’t too discouraged by those pushing back on the importance of frugality; I know you see a role for this as well. But I think your article is perfect for someone like me — in my fifties, have always only had one income stream at a time (beyond investing in mutual funds), and thrifty to a fault. As others have pointed out, there is a benefit to being frugal, but I read your article as rightly saying that there is such a thing as over-focusing on frugality. That would be me.

    Anyhow, well done. I have a lot to learn about creating passive income streams, but the season is upon me… Thanks for the encouragement.

  17. Jordan H.

    Great article Brandon.
    I agree that frugality doesn’t make you wealthy. But the opposite of frugality isn’t building income streams. The opposite of being frugal is spending frivolously, and we all know that doesn’t make you wealthy either. Whether you call it being frugal, good budgeting, or simply living within your means, you need this discipline in order to build wealth. I am a DC resident as well and know the pain of renting in this city. I have far too many friends and coworkers paying $2000 a month for nice trendy apartments. But I choose to live in a less popular area of the city with lower rents and get by without a car. This allows me to save a decent amount each month. Frugal? I don’t think so.
    You could argue that the guy making $40,000/year is being frugal when he saves 50% of his income. But no one uses “frugal” to describe the girl who makes $1 million a year and saves half of it. Frugality is not the goal, but simply a means to an end. Whether you have $1 million or a $1,000, I believe being “frugal” is financially healthy, and necessary to increasing your wealth.

  18. Great post Brandon!

    You and I are looking at the world through the same lens my friend. It is so true that you can focus your energy on the expense side with a natural floor in how much you can cut your expenses. At some point you have have somewhere to live and something to eat.

    But when you focus on the income side of the equation the sky is the limit. I think that being frugal is a good trait to have, when it comes to making smart financial decisions.

    However, I personally find Extreme Frugality about as sustainable as FAD Diets. I don’t know a single person that has not completely binged after losing 30 lbs on a very restrictive diet.

    When you think things are too expensive, find a way to make it affordable.


  19. I totally agree with your post. I also disliked the Millionaire Next Door, for the same reasons. A good alternative is Secrets of the Millionaire Mind, which echoes a lot of the sentiments from your post.

    As a person who grew up poor and was formerly overly frugal, this was a shift I had to go through personally. For penny pinchers this is great advice. However, for the majority of Americans, who generally live beyond their means, this advice is probably not helpful. If they think that by overspending they are displaying an abundance mentality, but they forget to generate the additional income streams that makes the time/income trade off possible, then they will be even worse off than before.

  20. Chris Newman

    I wanted to share an experience that I had today that’s right on point for Brandon’s thesis that over-frugality can be a losing philosophy.

    I just returned from touring a closed 52 acre dairy farm in Snohomish county, WA, about 45 minutes north of Seattle, and I was thinking about this article while inspecting.

    My first impression is that this place is BIG! You need a 4X4 truck just to go from one end to the other. But, it’s a sweet piece of mixed terrain land that includes about 1/3 mile of country road frontage, a couple of nice ponds (former manure ponds now gone to nature with many resident ducks), a boarded-up 2/1 house, a double-wide mobile home two driveways down and a bunch of sheds and outbuildings. Also, there’s reportedly preliminary platting and septic approval for 19 more homes.

    All for $280,000 (asking), in an area where unfinished building lots are worth about $55,000 each. I’ll let the reader do the math (19 X $55k), because it would sound like a lie if I stated it.

    But, I can make even more profit by not developing the lots and instead harvesting/transferring the development rights to an urban growth area. This option is part of a new resource land conservation program.

    Not only will it make at least the same profits without the trouble and cost of developing the lots, but when these rights are sold, I’ll still get to keep the entire 52 acres for myself, with no pesky neighbors or debt, plus a nice chunk of play cash. (If I can swing it, I’ll probably start building a destination bamboo plant nursery here as a retirement business – bamboo in the ground is money in the bank.)

    The important thing for this discussion is that this place wasn’t just foreclosed, it was in flat-out receivership arising from the owner’s bankruptcy. If the owners had set up a small artisan cheesery, for instance, instead of just selling bulk milk, they’d have done very well and not lost their home and livelihood.

    But, one thing that I noticed throughout the property was that everything was built as inexpensively as possible, with cheap materials that don’t last long. For instance, most of the sheds were originally sheathed with OSB “chip board” instead of honest plywood. Now, it’s all falling apart and will need to be replaced, essentially rebuilding the sheds. Some of the posts for the metal sheds should have been pressure-treated, but were obviously locally cut small trees that were rotting at the base and will need replacing. Some of the sheds have rather funky engineering, too. That kind of stuff. I haven’t even seen the inside of the house.

    There was a lot of time and work invested here, but they just pinched pennies on materials and however else they could squeeze their budget a little tighter. Needless to say, the place looks like a shanty town of its own. If there was any effort to outgrow their challenges, it’s not apparent.

    The bottom line is the the people went bankrupt and lost everything. Sad, but they did it to themselves by keeping their minds closed to new possibilities beyond pinching their pennies even harder. I can’t help but believe that it was their too-frugal life philosophy was what ultimately did them in, instead of looking for a way to grow, like adding value to their milk by turning it into high-priced artisan cheese.

    One moral here for me, again, is that thrift makes a wonderful servant, but a terrible master. Another is that, in the long run, quality doesn’t cost, it pays.

    BTW, since this is a real estate investment education community, I’ll share that I’m planning to offer the Receiver’s agents “double your asking price, if you can work with me.” This will be with no cash out of my pocket.

    One of the more difficult challenges with the development rights transfer program is that the mortgage- holder needs to release the development rights, which puts a permanent “conservation easement” on the property’s title to prevent all further residential development. So, they’ll need to agree to release their interest (with proper equity protection etc.) and let me sell the credits to urban developers. With the first $280k from sales, they release title to me and I own the land. The next $280k also goes to them, and I keep the rest, which should be around equal to the doubled price that I paid. Everyone wins.

    The worst that can happen is that they’ll turn me down, in which case I’ll make a similar offer for an investor through the BP Marketplace. It will cost me more profits, but I’ll still end up well to the good.

    The only way that this could be a better deal would be if I had the $280k already and didn’t have to share the development rights harvest. I have more deals like this lined up, though, including farmland of my own, so it will get even better next time.

    If you want to follow the progress of this deal, set “Snohomish” as one of your key words.

    Or, Follow me. Questions and ideas are always welcomed.

  21. Steve Ramer

    Wow, I just found this, and you wrote it back in April?! Anyway, great article! I wanted to share my experience, because it’s something you might run into someday when you have a family. You’re miles ahead of me in your investing experience though!

    I have a wife and four kids. I had no buy and hold real estate until last year. Here’s why that changed. Last year was really tough on us. We had two kids just finishing up phase one of the orthodontic treatment, and 5(!) visits to the ER. I had some Health Reimbursement Account savings built up over the years I’ve been with my employer, but it wasn’t nearly enough to cover all the bills. While I did have savings in other places like an Employee Stock Purchase Plan (yes, I have a 401(K), but with younger kids I need more liquidity, so mostly investing in that ESPP now), I decided to defer the bill payments rather than pay them all off immediately.

    Using that time, I started looking for locations I could invest in that would provide me with some positive cash flow if I bought with the savings I had. Luckily I had enough to pay all cash, and the guy I bought from knew someone who was willing to offer owner financing on another property that also cash flows well. I bought these two properties, already tenant occupied, and used the money from that to pay off the hospital bills. Now, instead of being out all that extra money with nothing to show for it, I’m fully paid up and still have cash flow. There have already been ups and downs with those investments, but all in all it has been a good learning experience.

    So for me, even though I had been researching real estate investing most of my adult life, it took a major disastrous event for me to realize I needed to take action. To purchase assets rather than only save money. That’s when the definition of frugality shifted for me. There may come a time when you are forced to live outside your means/W2 income, and if you haven’t been building passive income, that may not be possible. So there–I’m living proof that saving and investing in passive income complement each other nicely. Both fit well within the definition of “frugal.”

    I wonder if it’s like this for most people? Do they just sit on the sidelines until something happens because of fear that something may go wrong? Admittedly that was my problem, and things did go wrong, but not enough so that I wouldn’t do it all over again. I’d just start sooner.

    I’m now looking forward to using the equity in those properties to purchase more sensible cash flowing assets. Now if I can just figure out how to get that portfolio loan…

    • Brandon Hall

      Hey Steve – awesome story! Sorry for just now replying too, our email alerts have been disabled for some odd reason.

      Do people sit on the sideline until they are forced to take action? Yes I’d say this is true for the majority of people. But even then, only the smart ones DO take action. I know plenty of people who simply wallow in their self-pity. It’s sad because opportunities are literally all around us. You just have to reach out and take what’s yours, and it sounds like you have done an excellent job at that.

      Best of luck to you and your future endeavors!

  22. Jeff M.

    Hi Brandon:

    As a frugal person this is a helpful article. I sometimes wait line at Home Depot to save a few bucks, but this is when I enjoy it or am learning something (usually the same thing). Lately I have been spending more time in acquisition mode while living well within my means. This article helps guys like me, because my discipline of frugality, helpful though it was, can become an anchor on growth once a certain point is reached. As you and others say, it is all about knowing yourself, balance, and enjoying the ride. None of us are taking any of this stuff with us when we go. Thanks.

  23. Brandon Phillips

    To me Frugality = Opportunity cost. Driving 10 miles to save $.04 on gas is stupid, not frugal. Commuting 2hrs a day to save a few bucks on rent is stupid, not frugal. I look at every purchase and decision and wonder if there is a better way. Is waiting in line for 4 hours on black friday to save $40 bucks a good decision, not if you can make more money in that same time frame; or just not buy the thing in the first place.

    A good example in my life that relates to being Frugal and to Real Estate is that I recently hired a property manager to run a 4-plex about 40 minutes from my house. In the first 9 months I made, or saved depending on how you think of it, about $1400 by managing the property split with my partner. After I added up my driving time, time spent on the phone with the terrible tenants that came with the property, time spent finding new tenants and time spent on maintenance I figured out I was making around $10/hr at best. I hired the management company and now I freed up a few extra hours per week to find more properties.

    To me that is Frugal.

  24. Cindi Anderson

    Brandon Phillips: While I agree those examples are stupid, I object to your use of the word frugal to describe them. The dictionary definition of Frugal is “the quality of being economical with money or food.” The definitions for economical are “giving good VALUE or service IN RELATION to the amount of money, time, or effort SP{ENT” and “careful not to WASTE money or resources.” None of those definitions apply to the things you wrote about. Those are simply bad uses of time and money..

    Perhaps it’s an interesting note on our society that people like yourself equate frugality with stupidity, when in fact it is just about the exact opposite. It is the SMART use of resources.

  25. I whole-heartedly agree with this. Thank you for sharing!! Frugality only gets you so far, and, quite frankly, life is short and should be enjoyed! I love Starbucks coffee and decorating my home, for example. I would much rather earn more money to justify these expenses (and save even more since I’m earning more!) than never experience the things that I like! Of course, there are plenty of activities that are free, but there are also plenty that aren’t. Why not have both!

  26. Vanessa Vandervalk

    Great article and great comments. I was just speaking with someone who has the frugality mindset, and I was trying to convince her that she could make more money and have an easier life by doing something that we were discussing. She was too focused on counting the dollars she would be spending to see the possibilities. I don’t know how to explain to her that her mindset is limiting her resources and her ability to provide for her family. I may send her this article. It doesn’t mean you should be wasteful or impractical in your spending, but where you focus your time and energy over the long run is the key. Thanks!

  27. “if a person makes $50k after taxes, the most that person can ever save in any given year is $50k. They can’t save a penny more because they haven’t earned a penny more.”

    False. If a person makes $50k after taxes when they’re 25 years old, the most they can ever save in that year is $748,723 assuming a 7% rate of return if they withdraw it at age 65.

  28. Cory Binsfield

    Too many people are tripping over dollars trying to pick pennies. I happily spend a fortune on Starbucks while analyzing deals to increase my net worth. I’d rather focus on the big drivers of wealth and the freedom that it entails then constantly looking for ways to scrimp and save. The big drivers of wealth are prudently leveraging assets, people and resources. This is the essence of Warren Buffet. He leverages the insurance float from his vast empire and invests the money in private companies with outstanding attributes. He doesn’t skimp on life’s simple pleasures as seen by his penchant for steaks at Gorat’s steak house and cherry Cokes at Dairy Queen.

    • For Buffett, those steaks and cokes are extremely frugal. Most Americans would have an entourage cooking and taking care of them at that level of worth. Buffett is frugal to the extreme if you really look at him.

      French press is way better than Starbucks, but in a pinch I’ll take em.

  29. Most millionaires are frugal, according to one study. “The Millionaire Next door” is a book that expounds that principle.

    I think Americans (and real estate investors in particular) are trained and trained to use leverage. Some own $4 million in investment property (well not them, but the bank) and don’t have any cash in the bank. This to me is not wise. Yet this is held up as the pinnacle of success.

    Not sure we need to encourage a lack of frugality. Frugality is not synonymous with stupidity or miserly either

    Let’s talk net worth, then let’s see how free your life is, and let’s see what good you do with your wealth.

  30. Rob Letterman

    Frugality in and of itself won’t bring weath, What brings wealth is frugality WITH a high savings rate. If you can save 70% of your income you’ll be able to retire in 10 years. It isn’t necessary to have a super successful business or make millions in real estate. You just need a decent income a high savings rate and time and you be wealthy enough to have to never work again.


  31. Darnell Kramer

    I like what you wrote, and wanted to add that the book I am reading now is well written and eloquently illustrates the point.

    Killing Sacred Cows
    by Garret Gunderson.

    He writes about the scarcity vs abundance mind set. He does a great job of taking the talking points in this article and really bringing an alternative view point to the thoughts many of us promote, without actually thinking about them.

    I think it is a great read for anyone that is here on BP. Anyone that is really changing their lives and contribution to society and others.

    Great Article.

  32. Kurt K.

    “Don’t get me wrong, I’m all for “living within your means” and not financing your entire lifestyle to simply keep up with the Joneses. I also like the definition of frugal: “economical in use or expenditure.” The ability to make smart or “economical” decisions in managing one’s finances is key to generating substantial wealth; however, I disagree that pinching pennies is the best way to live your life and build that substantial wealth.”

    Frugality isn’t “penny pinching” being cheap nor miserly. Being frugal is simply what the definition says.
    Frugality and thriftiness ARE the way to wealth.
    Warren Buffett’s license plate was “thrifty” for many years (maybe still is).

  33. Connor Dunham

    Too many comments(tldr)! Here is another one to stoke the fire.
    There are two measures I track when trying to build wealth: savings rate (percentage of gross income) and net worth growth over time. I would say: optimize your frugality first by tracking savings rate. This can be down over about 6 months. Once you’ve reached a point of diminishing returns on your time invested (not much effect on your savings rate), then concentrate on maximizing your net worth gain per month (or any unit of time that makes sense) while keeping the same level of expenses.

  34. Kahnica Cole

    I really enjoyed this article. I think many of us get into real estate investing for financial freedom. What freedom means to each individual is different. I understand frugality to a point, however, why do what we do in investing to just to minimize the enjoyment in this one life that we have? Stop telling yourself, “I can’t have this because…” Make more money, and figure out how to have the “this” you want. Let’s not put ourselves in a box, but learn how to spend money the smart way, while sometimes reaching outside that box. Great article! Thank you for it!

  35. eally enjoyed this article. I think many of us get into real estate investing for financial freedom. What freedom means to each individual is different. I understand frugality to a point, however, why do what we do in investing to just to minimize the enjoyment in this one life that we have? Stop telling yourself, “I can’t have this because…” Make more money, and figure out how to have the “this” you want. Let’s not put ourselves in a box, but learn how to spend money the smart way, while sometimes reaching outside that box. Great article! Thank you for it!

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