Guest Post: The Only Leverage We Have Is Extreme Frugality

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Debt is serfdom, capital in all its forms is freedom. The only leverage available to all is extreme frugality in service of accumulating productive capital.

There are only three ways to better oneself financially: marry someone with money, inherit money or accumulate capital/savings and invest it in productive assets. (We'll leave out lobbying the Federal government for a fat contract, faking disability, selling derivatives designed to default and other criminal activities.)

The only way to accumulate capital to invest is to spend considerably less than you earn. For a variety of reasons, humans seem predisposed to spend more as their income rises. Thus the person making $30,000 a year imagines that if only they could earn $100,000 a year, they could save half of their net income. Yet when that happy day arrives, they generally find their expenses have risen in tandem with their income, and the anticipated ease of saving large chunks of money never materializes.

What qualifies as extreme frugality? Saving a third of one's net income is a good start, though putting aside half of one's net income is even better.

The lower one's income, the more creative one has to be to save a significant percentage of one's net income. On the plus side, the income tax burden for lower-income workers is low, so relatively little of gross income is lost to taxes.

The second half of the job is investing the accumulated capital in productive assets and/or enterprises. The root of capitalism is capital, and that includes not just financial capital (cash) but social capital (the value of one's networks and associations) and human capital (one's skills and experience and ability to master new knowledge and skills).

Cash invested in tools and new skills and collaborative networks can leverage a relatively modest sum of cash capital into a significant income stream, something that cannot be said of financial investments in a zero-interest rate world.

We hear a lot about the rising cost of college and the impossibility of getting a degree without loans or tens of thousands of dollars contributed by parents. I think my own experience is instructive, as there is another path: extreme frugality.

At 19, my two sets of parents were unable to provide me with more than a rust-bucket old car. My father sent me an airline ticket to visit him, but nobody ponied up any cash for tuition, books, or living expenses.

Step One was eliminating housing costs until I earned enough to pay rent. By good fortune, I was able to secure a work-trade housing situation: I was given a room filled with boxes of accounting records, and a path through the boxes to a bathroom and tiny kitchenette in trade for yard work.

Step Two: cut all other expenses to the bone. Since I was working for a remodeling contractor, I needed the car to get to the various jobsites, but I bicycled whenever possible to save on gasoline. I prepared all my own meals and avoided buying snacks, drinks, etc. until my income rose enough to swing such luxuries. I can count the number of drinks or meals I bought on campus in four years on one hand.

Music purchased: none. (We played our own music or listened to the radio on the jobsite.) Clothes purchased new: none. (That's what church jumble sales/bazaars are for: $1 shirts, etc.) And so on.

Step Three: find a job with upside earnings and skills. I'd worked in snack bars and mowed lawns, but construction opened up opportunities to advance my skills and gain sufficient proficiency to deserve a raise in pay.

Since I wasn't guaranteed any opportunity for advancement, I volunteered to work Saturdays for my bosses or anyone else on the crew who had sidework on the weekends. I volunteered my construction services to community groups to gain experience (there's nothing like being responsible for the project, as opposed to just following orders) and open access to new networks of productive, accomplished people.

For example, I rebuilt the rotted redwood rear steps to the historic Agee House in the back of Manoa Valley for free. (Sadly, this wonderful building burned down a few years later.)

In business, the word "hustle" has the negative connotation of high pressure sales or a scam. In sports, it has a positive connotation of devoting more energy and effort as a means of compensating for lower skills or physical size. Step Three requires hustle: when you don't have any advantages of capital, connections or skills, you have to acquire those by hustle and initiative.

Step Four: apply for obscure, small-sum scholarships. $500 may not sound like a lot, but it means competition will be lower and if you get it, that's $500 you don't have to earn. As you build your networks in the community, put the word out you're looking for small scholarships for next semester's tuition. In general, people tend to respond more positively to helping you with a specific goal rather than an open-ended or undefined goal such as "I need money for college."

Step Five: work productively and ambitiously, i.e. work a lot but work smart. It never occurred to me that working 25+ hours a week and taking a full load of classes (4-5 classes and 15+ credits a semester) was something to bemoan--I was having a great time, and earned a 3.5 grade point average and my B.A. in four years.

60-hour work weeks should be considered the minimum effort necessary--but only if those hours are 100% productive work, not hours interrupted with games, phone calls, goofing off, etc. Those 60 hours are flat-out, power-out-the-work hours, not hours diluted by half-effort, distractions, etc.

Step Six: learn to do things yourself that cost money, such as maintaining your car. It's not that hard to change the oil and other basics of maintenance.

If you push yourself and maintain a disciplined life, huge amounts of work can be ground through in a few hours. This is as true of digging a ditch as it is of plowing through texts and writing papers.

Tuition at the state university I attended (the University of Hawaii at Manoa) has risen enormously in the decades since I worked my way through college (roughly $9,000 a year now), but it's still possible to work one's way through if the student pursues all six steps assiduously and with perseverance and hustle and secures full-time work in summers.

One reason I did not bemoan working long hours and practicing extreme frugality was that this was still the default setting in a few dwindling enclaves of our culture and economy. The idea that you could borrow money for everything you wanted had not yet conquered the culture and economy: thrift in service of big goals was still a cultural norm.

In other words, what I did wasn't heroic or unusual; it was the norm.

I should mention that my university years overlapped with the deepest recession (at that time) since the Great Depression: 1973-74. Work was hard to come by, gasoline skyrocketed in price, and inflation started to outpace wages, especially in the low-wage jobs typically available to college students.

It was not a cakewalk by any means.

The upside of relentlessly pursuing Steps One - Six is tremendous: personal integrity, financial independence, and the other powerful freedoms that accrue to these foundations. Measured by income and things I owned, I was "poor." But measured by independence and by skills and networks gained, I was wealthy in many important ways.

Extreme frugality enabled me to not just finish college in four years but to buy a (cheap) parcel of land while still a student with cash and have a substantial savings account by graduation day.

I don't look back on those years of voluntary deprivation in service of independence, freedom, knowledge, and social and human capital as "poor me:" I see them as the extremely positive, productive template that I have followed in the decades since. I never did marry or inherit money, and so whatever I have now is the direct result of extreme frugality in service of integrity, independence and the accrual of capital that can be productively invested.

The only leverage available to all is extreme frugality in service of accumulating savings that can be productively invested in building human, social and financial capital.

Debt is serfdom, capital in all its forms is freedom.

Debt = Serfdom (April 2, 2013)

How Frugal Are You? (August 7, 2010)

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Catch-22's picture



There are two rules for success…


1.      Never reveal everything you know.

falak pema's picture

And always use invisible ink for the rest! 

max2205's picture

What's in your wallet? 

Hulk's picture

Spawn of Karl Malden...

SafelyGraze's picture

the problem with this "be frugal and save for your old age" mentality is this:

if everyone were to adopt this behavior, nobody would buy and sell.

that would deprive the state of much-needed taxes.

taxes for projects like roads and bridges.

we all need roads and bridges.

taxes for projects like helping the needy.

one day, we will all be needy.

taxes for projects like defending our state.

we all need defense.

taxes for projects like colonizing mars.

we all need mars.

so rather than being "frugal" and storing up "savings", it is much wiser, and much better for the economy and the state and the community at large, if you let others provide your needs through their various efficiencies.

that way you can concentrate on your own effiency and be the most productive employee you can be.



WeeWilly's picture

I get the sarc about taxes to help the needy. However, the author and most of my ZH bretheren are missing the necessity of charity in one's life. There are truly needy people who require financial help. I disagree with the state taking over the role of "helper", but as individuals, we bear responsibility for assisting those less fortunate.

Apply Force's picture

Disagree - very few if any need financial help.  It seems you are stuck inside the "money is help" box, when really any soft/fiat currency only serves to enslave you further.

Some neighbors and friends might need help with gardening, housing, clothing - all forms of help that one can offer through their time and experience in days gone by... If we weren't chained to the dot gov company store, working 50% of our time to "earn" in our fake-money system, neighbor-to-neighbor charity would again be the norm.  Charity NEVER comes from dot gov - - only chains and propaganda from them.

WeeWilly's picture

Interesting point Apply, thanks. I might agree with you at some point in the future. However, in my area the utilities are still stuck inside the "money box" as well. Using fiat to help with an old lady's power bill works out fine for her. Helping a hard working kid pay his community college tuition with fiat works as well. We're heading the way your post espouses, but we're not there yet.

Apply Force's picture

IMO the ride will be like a roller coaster.  We rode up the first big hill nice, steady and slow to the peak of (energy, humanity, complexity) and the ride down will be much quicker.  Perhaps some smaller ups and downs and maybe a loop or two, but the first car is over the edge of that first hill.  Do what you can to keep you and yours on the rails - no one knows for sure how many cars are hooked together and how long it will take for drop speed to go exponential.

falak pema's picture

Well as the doomers WANT ASSET DEFLATION while the OLIGARCHY wants monetary deflation of $ reserve to write down debt but NOT assets; all the world believes in frugality.

The OLigarchs want frugality of Asset deflation and conservation of their bandit treasures; all WS paper denominated.

THe Sheeple want frugality of $ Deflation and conservation of their pensions, salaries and buying power. 

So frugality is a universal theme; its just not about the same things! 

My concern is frugality of DEBASEMENT of our environment and energy threads; but there nobody cares! 

Its the crux of the APex of  debt/asset mountain conservation mania but which destroys the essential.

Who cares about the non essential : $ hegemony or WS asset spiking to eternity! 

What says the Lord Byron of our ZH star gazing guest posters on that front???

Ghordius's picture

well said. btw, I "did it" in the fourth way: build up enterprises. I find it amusing that CHS does not mention that. a sign of his environment?

falak pema's picture

Ghordius, OT /

I posted this earlier; care to comment it ?

Manifest of 11 German Economists to reinforce the governance of the <Eurozone. 

A very forceful and realistic view of the troubled BAnking sector of EZ and its fall out on EZ economic growth.

It condemns the current complacency reigning in German government circles today post Mutti coalition. 

Vers une Union de l'euro

Question to our friend Ghordius :

Do you know of these eleven signatories ? 

What do you think of this eleventh hour common sense?

2014 will be a crucial year in EU as the parliament and Commission Heads of EU change. 

Oracle 911's picture

Either you forgot the /sarc tag or made the gay coming out on twitter/facebook after account hack.

Muddy1's picture

"Debt is serfdom"

A wise person said long ago, "The borrower is slave to the lender."

augustusgloop's picture

Unless the borrower is a corporation or private equity. in which case the borrower is the master of the universe.

dick cheneys ghost's picture

banks are borrowers.........NOT lenders.

Banks only exist to steal your labor thru interest and inflation

Stuck on Zero's picture

If you borrow $10,000 from the bank they control you.  If you borrow $10,000,000 from the bank you control them.


Colonel Klink's picture

Apparently 4 people didn't get the joke.  ROFL

Canoe Driver's picture

Hey CHS, first of all, when you were 20 you looked like a 13-year old Grace Kelly pretending to wait for the Hamptons Jitney. (I bet you were glad to never be sent to prison!) Second, did it ever occur to you that the main problem with opportunity is its frequent and total absence, not people's lack of "initiative?" Third, try imagining how your coming of age would have been different had you been,, or oh, I dunno, maybe Hispanic, or perhaps a homely female.

wisehiney's picture

Coasting down hills in neutral gear with engine shut down to save on gas.

Coffee and Nabs for lunch.

Becoming an expert at imitating nightclub "PAID" stamps on the back of your hand.

Throwing parties at the old shack you lived in every weekend instead of nightclubbing.

Hooking up with rich chicks.

Finding jobs that allowed one to study while being paid.

Back to work, more later.

hedgeless_horseman's picture



Show up for work.

Buy low and sell high.

Be honest.

Do not whine.

Live in the present.

If it is down 10%, then sell it.

If it doubles, then sell half.

brewing's picture

Finish the sentence - I'm so cheap...

wisehiney's picture

WAS. For YEARS. Not so much now. That's the thing. Meet you in Sun Valley. Bring a good bottle.

Abbie Normal's picture

I just reused the same Tazo tea k-cup five times and it still has flavor.

barroter's picture

...that I use razors till I bleed.

As far as honestly goes and being humble. I hate to say the the little twerp in the movie Syriana was right.  "Corruption is why we win."

wisehiney's picture

...that my gold is tungsten plated!

new game's picture

what i've been saying all along



falak pema's picture

CHS at Twenty looked like Lord Byron in Athens, lost in rebellious transfixion of Ottoman despotism.

At least CHS survived unlike Byron to become Little Lord Fauntleroy of American dystopia. 

overmedicatedundersexed's picture

if you are an honest man, you remain poor, unless you marry well or inherit. by honest i mean you do things against your own self interest, because they are the right thing to do. corzine is not a honest man, but he is also very very wealthy. the elite have created an economy where honest men dare not go.

NoDebt's picture

Live below your means.  Don't go in debt.  If you do, get out of it as quickly as possible.

My neighbors might have better cars and bigger houses than mine, but what they don't know is I own everything outright and my monthly expenses are minimal.

I don't earn what I used to, but then again, I don't need to.  I still clear more than they do (if they clear anything at all).

czardas's picture

My dad always said up to the week he died, "Live beyond your means at the first, then you can live beyond them later.  The reverse is also true."   The tendency to overspend is cultural.  I volunteered for some time teaching immigrants English.  What I noticed was the packrat mentality and voracious savings of these folks.   They'd save at least 50%, buying a shirt or shoes only a religious holiday, eating at home, carefully driving an older car.  Needless to say, their kids developed a tremendous work ethic and excelled in school when their peers were screwing around - literally and figuratively.  They took academics seriously!   

Years later, they are successful and far happier than those who mindlessly buy cheap crap for no other reason than it makes them feel good. The next generation will struggle less and consequently, not work as hard.  It's ingrained in the fabric of our culture. 

barroter's picture

"better cars and bigger houses."   Well, anyone can live large on credit!

Papasmurf's picture

This is stupid stuff.  Go to an Ivy school, daytrade for the squid, move into government, then circulate back to the squid for the payoff.

new game's picture

only dick you have to run up their ass is the no debt dick...

CheapBastard's picture

Some call me a Cheap Bastard but I prefer, "Frugal Bastard."

Too bad the savings yield is 0.01%. Traditionally this was a safe haven of sorts for the Middle Class. 0.01% really distorts the economy and forces even more frugality on wrong people.

Be Smart, Be Cheap [aka, Frugal] and absolutely stay out of Debt!

eddiebe's picture

You can do what the author says to do but that is working for peanuts. What you do to make real money is: Get born into the right family, sell your soul and work for the masters of the universe a la Jamie or Loyd.

i-dog's picture

Fucking class envy bullshit! I retired in my 30's with real 'fuck you money' without any of your nonsense prerequisites and without working in the FIRE sector. Get off your ass.

czardas's picture

You are describing a miniscule percent of wealth people.  The dirty little secret is that almost all worked HARD to obtain their wealth.  They didn't show up at 8, run out at 5 and call in sick with a hangover.  They weren't satisfied to do the same damn thing day after day while bitching about the "big guys". They took chances, met other like-minded souls and if they failed they tried again.  I came here as a kid from the USSR and depended on the charity of Americans - the most generous folks on the planet bar none.  But we were all working immediately, pooling resources, saving literally every dime and now I've retired early because we lived below our means.  This did not mean depiravation - it meant using common sense. 

withglee's picture

Debt is serfdom, capital in all its forms is freedom.

Pick your model.

1) A properly managed Medium of Exchange (MOE) where you have free certification of trading promises and inflation is guaranteed to be zero at all times everywhere. You make a trading promise to exchange 100 equal monthly payments for a house. This trade is certified (i.e. money is created); you exchange the money for the house now; you return 1/100th of the money each month which is extinguished. You have use of the house for the full 100 months. You have owned it all along because you made a trading promise to own it. Making such a promise is this ugly thing they call DEBT.

2). An improperly managed MOE where inflation averages 4% per year. You make a trading promise to buy a house in 360 equal monthly payments. This trade is certified by a capitalist who creates money and you exchange the money for the house now. In the first 20+ years you put a tiny fraction of your payment toward the house ... the majority goes to the capital supplier and is called interest. After 25 years of doing this you have still paid mostly interest to the capitalist. In reality, he owns the house all that time. A very small fraction of your payments have gone the house. It's not until the last 5 years you actually buy the house. In the end, you've taken 3 times as long to complete your promise, and you have paid for the house twice ... once to the builder, and once to the capital supplier. With 4% inflation you are tricked into thinking the house after 25 years is worth 2-1/2 times what you paid for it so you are happy with this arrangement. And the capitalist who created the money and collected, he loses ... right? Well, not exactly. He collects 6% interest while losing 4% to inflation making 2%, right? Well, yes, but he has 10 to 20 times leverage. So his 2% is actually 20% or 40%. Where your house doubled in a little more than 20 years, his so-called capital doubled in 1-1/2 to 4 years.

Frankly, I think this so-called capitalism stinks ... and with the high leverage we see in CDOs and derivatives, the leverage is enormous, and the level of actual CAPITALISM becomes infinitesimal.

Number 1 is the only reasonable, viable, fair, and sustainable environment.

Todd Marshall
Plantersville, TX

nodhannum's picture

One thing that immediately caught my eye was the authors comment on never marrying.

Many of the educated folks that I went to the university with are broke in their retirement because of two things that were under their control and one that was not. The one thing not under their control is having a set of nuts a in a society that is gynocentric. The two things that were under their control we're a) getting married and b) making bad choices in a mate if they did marry (they all did). Never, ever, step into a family court in the US if you have an X and Y chromosome.

I had a similar upbringing to the author, making less than almost all my friends that I knew from my university days but live quite well now in retirement. How I lived is strangely similar to CHS.

czardas's picture

There is an evoutionary reason our species developed the tradition of marriage - it allows individuals to focus on other things besides sex and impressing others, acts that compose an incredible percentage of our time.  Marriage provided a "back up" for injury and sickness and raising children.  It aided food production and allowed some folks the freedom to experiment with technology or new ideas. I married late and it was the best thing I ever did.  My wife serve as a rudder, a calming agent who redirected all my energy into productive pathways.

Also, two CAN leave cheaper than one - lots cheaper - if both are of the same financial mindset.

MachoMan's picture

If you want a chance at getting into or staying in the middle class, then you'll almost certainly need a solid marriage or similar partnership arrangement... 

Sean7k's picture

The reason we marry is because the Catholic church wanted to keep young men working and more responsible instead of buggering each other in their youth. You might want to read some history before you try to explain culture.

kareninca's picture

I think that you (reasonably) misread the sentence, nodhannum:  
"I never did marry or inherit money . . ."

I think CHS is saying that he never did marry money.

From reading his posts, and googling around, I am pretty certain that he is married to a Japanese-American woman from Hawaii, and that they have been together for many years.

He listed "marrying money" as a route, and then at the end he mentions that he did not take that route.

barroter's picture

Heard plenty of divorce court horror stories and know a few guys staying in un happy marriages to avoid divorce.  Stay single and bop 24 yr olds if you can.

20834A's picture

I would add: treat your family well. Encourage them to think like a 'tribe'. Because even if they can't help you with money, they can help with knowledge, volunteer services (car repairs, babysitting, etc.), and their contacts.

whoopsing's picture

Great post full of sound advice. Sadly as a nation we are bombarded mercilessly by the PTB on a daily basis to act counter to this model.