How to Apply Marginal Thinking to Financial Independence and Frugality

10.01 marvao walk small
A Portuguese cat looking down on us

Maybe in 2018 I took my eye off our financial ball.  Maybe I thought I had got the hang of being frugal, I was complacent and we ended up with a higher spending year than our budget allowed.  I thought we were in the frugal groove, I relaxed and wasn’t frugal 100% of the time.  Some people suggest you can’t take time out and that it is better to be frugal every minute of every day, staying in control and never allowing any marginal spending that will be the start of the path to profligacy!

Clayton Christensen tells his readers:

“It’s easier to hold your principles 100 percent of the time than it is to hold them 98 percent of the time.” 

He argues that if you follow your rules 98% of the time and make the assumption that doing something ‘just this once’ is a marginal action and negligible in the bigger picture, in the long run you will pay a higher cost.

An example … There are times when – in some particular extenuating circumstances – you might think of breaking the law with a small-time low-level crime that doesn’t hurt anyone.  Analysing your action based on the marginal cost, you figure the chances of being caught and going to jail are low.  But then small lies or wrong-doings can lead to further covering up and more lies, quickly snowballing and very soon the price doesn’t seem so low.  Hold your moral boundaries 100% of the time and you can be happy with who you are.

It is only human to use this marginal-cost analysis.  I am certainly guilty of occasionally buying just this one thing on the spur of the moment, rather than following our think-about-it-for-a-month policy.  Is this a slippery slope?  Will that one purchase snowball and lead to extravagance?

I am not totally convinced with this argument and think I might be happy with achieving frugality 98% of the time; however, I recognise that being aware of what is happening is a useful first step in considering your action, acknowledging it and finding strategies to avoid it in the future.

And yet … If I do buy something on the spur of the moment it is something I do with a full picture of our finances.  Everything we spend is noted, a manual process I find gives me time to thoroughly examine our outgoings.  It gives me the opportunity to question if any spur-of-the-moment purchase, however marginal, really did bring contentment or meet a need.  The process also means I will spot trends early enough to make changes.  A small just-because purchase doesn’t necessarily throw everything out of kilter.

I don’t think I did take my eye off the ball in 2018, my own way through a frugal life continues.  In 2018 one of the main reasons we over-spent was because of maintenance and repairs on our campervan.  These were in no way marginal costs, they weren’t negotiable and I don’t see them as an extravagant trend.

We all have our own ways of being frugal, some people continue to enjoy restaurant meals, others still want to spend money on looking good or have expensive holidays.  Everyone works it out for themselves.  Being frugal 100% of the time, avoiding unnecessary purchases and avoiding any marginal spending might be an ideal … but then again I am only human!

 

Author: memorialbenchstories

I am interested in the stories behind the people commemorated in memorial benches. I come across these benches in different places and they always make me wonder. Do get in touch if you have any stories.

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