Why Frugal is About Living

by David@MoneyNing.com · 16 comments

Meet Mr Hiroshi, who makes $600k a year and is much farther from financial freedom than you and me.

Mr Hiroshi lives in Tokyo, and is currently married with two kids. When Lehman failed, he was one of the the employees who lost his job. He made $600k a year, but with Lehman stock being worthless and his high expenses, he wasn’t as wealthy as you might think.

You see, our new friend is living the high life. His apartment is in the heart of Tokyo and cost $27,000 a month. His two kids are both in private school and tuition is also sky high. He was making lots of money alright, but he wasn’t really saving much either.

It took him about a year to find another job, which wasn’t too bad given that many of his former colleagues are still unemployed. The new job will utilize many of the skills he’s learned over the years, and the salary is comparable to what he was making before. Problem? The new firm needs him to relocate to Hong Kong, which is at least a three hour plane ride away, not to mention that it’s a different country speaking a foreign language.

He didn’t feel like he had a choice, so he took the offer and is currently contemplating about uprooting his family to a new country, where they have to learn a new language, make new friends and readjust.

The Choice is Yours

Given the state of the economy, many of us may feel like making more money is in the distant future. But eventually, the main street recession will be over. Eventually, the economy will pick up and eventually, the raises and bonuses will be back.

Are you going to inflate your lifestyle in lockstep with your income when the time comes? It’s up to you of course, and only you can decide.

Those who have embraced frugal living know that:

  • Frugality enables you to rely less on products and more on living a loving life.
  • Frugality enables you to say no to a job that asks you to severely affect your kids’ childhood.
  • Frugality enables you to be brave enough to take the that opportunity to do what you love. For some of the luckier ones, the passion may turn into a very profitable venture. Do what you love and make a boatload of money doing it. Now that’s living.

The new year is coming. While you are thinking about your goals, why not add frugal living in there too.

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{ read the comments below or add one }

  • Cd Phi says:

    Wow. He does indeed live a high lifestyle. It surely is important to have an emergency fund because if he hadn’t found a job or taken a longer period of time to find a job, I’m sure that cushion would’ve helped.

  • Financial Samurai says:

    David, I can understand 600K/yr, but I can’t understand 27k/month in rent. You sure about that?

    B/c 600k/yr after tax is about 30K/month. You’re telling me he spend 90% of of his after tax income on a rental property, and left the remaining 3K/month for food, clothing etc?

    Doesn’t sound right to me. There must be a missing link here. Do you mind shooting Mr. Hiroshi an e-mail and asking him? He’s probably making much much more than 600K/yr to afford 27k/month in rent, and private school etc.

    Nobody really knows someone’s finances, but I would venture to guess he has at least million bucks in liquid assets as well.

    At any rate, life style creep is dangerous, and moderation is key.

    Best, Sam

    • MoneyNing says:

      That’s what I’m told, and I feel uneasy to poke deeper.

      However, he worked in Tokyo, and perhaps the tax structure is a little more lenient there. My sister works in Hong Kong and I think the top tax rate is like 15% or so there. Not to mention that there’s none of the social securities, medicare and other taxes either.

      America is a great country, but if you can work elsewhere for a similar salary, you can most likely take home more pay.

      • Financial Samurai says:

        He probably had some company stipend if he’s not a local Japanese. The first 80K you earn as an American citizen abroad is basically tax free.

        You can see where I’m getting at though regarding his post income and rent though. It would be irrational to spend 27K on rent, so he either is making much more than he alludes too, or the rent is much less. Everything is rational.

        You’re right that HK employs a flat tax system, the best system in the world.

        • MoneyNing says:

          Oh I forgot that Americans have to pay taxes on overseas earnings even if you don’t live there. I’m not sure if the guy is an American though, but either way, $27k on rent is WAY TOO MUCH even if he earns $2 million a year. It’s not even a question of affordability anymore.

          Anyway, have a happy new year.

  • George says:

    Yes, it’s true. It doesn’t matter how much money we make. It is more important how we think about money, and how we use the money that we do make.

    This sounds similar to the story I heard about an executive at Sony that made $900K/year. Guess what? His net worth was $0. He spent most of his money on stuff that he didn’t need, and the remainder he invested in a long series of terrible investments. He knew how to make an huge salary. But he had not idea how to manage his money, or how to invest it.

    Financial freedom comes from passive income, and nobody learns how to generate passive income by working at a job. That’s why I think everyone should have their own businesses or other source of income (such as a blog.).

  • KateMTP says:

    Luckily I have not been affected salary wise or bonus wise in the recession. However, when I moved home and took a new job – I took a huge hit in pay. That really stung at first, but I have gotten some raises and I am slowly working my way back. The best part? I LOVE my job. So having to adjust my spending habits is fine with me and I am going to keep trying to live frugally. Taking lunches, eating at home and not going out as frequently is fine – time to start saving.

  • Mark says:

    I completely agree, my most enjoyable memories are of the kids in nature. I’m so against materiality because it’s such a dead end. Family, friends, and nature is where happiness truly is. Good post.

  • Sandy says:

    Holy geez. $600k a year and still struggling? I’d be living happily ever after after just a few short years. (maybe 3, then I’m set for life)

  • Craig says:

    Being frugal allows you to hopefully live the life you want, spend on items you want. It gives you more flexibility.

  • marci says:

    After making $600,000 in one year in salary, I would have flat retired. Geez – it takes some people a LOT. WOW. I’d have probably spent under 2% during the year and invested the rest, and lived off the interest income happily ever after 🙂 (ok, that’s provided I could get at least 2% right now in interest income 🙂 )

    Different standards of living, for sure 🙂

    • MoneyNing says:

      This is a true story btw. It wonder how common something like this is…

      To his credit though, I’m sure he needs to pay taxes on that $600k so it’s not a full $50,000 every month that he gets to spend on.

      Of course, even half of that is still A LOT of money.

  • 2 Cents says:

    We have been looking for places to trim our budget, but it’s already pretty lean. Lately, we have been trying to figure out a way to cut our cable TV costs, but have been unable to figure out a way to do it. We only watch a few channels, but the plans are structured so that we still end up paying for hundreds of channels that we never watch. I wish we could pay a per channel fee instead.

    • Sandy says:

      Have you tried Hulu or Netflix? I think David mentioned this before in one of his posts that people are canceling their TV cables all together.

    • MoneyNing says:

      Sandy is pointing to the Netflix free trial offer I wrote about a few weeks back. (Click Here for the Netflix free trial offer).

      I also see some commercials and flyers about the dish network and others. At $19.99, they seem like a better deal if your house can support it.

    • Steven says:

      My Wife, Son and I cancel our TV cable service one year ago. We now are able to save $800.00 more per year, and we don’t miss the ads to sell us more junk.
      Nor do we miss the shows… we get better news quality using the internet.
      We watch TV dvds that we buy online at cheaper prices.
      Also, our son viewpoint of life has improve greatly.

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