When we hear the word “bubble†we generally think of greed, speculation, and inflated prices. It brings to mind the dot-com bubble of 2000; which decimated the NASDAQ and bankrupted a large majority of technology companies. It reminds us of the market crash of 2008; which butchered our 401k’s and stock portfolios, left us underwater on our mortgages, and forced taxpayers to bail out large financial institutions. It makes us think of speculators in the oil market driving the price of gas at the pump higher.
Yes, hearing the word “bubble†actually annoys me because when these bubbles pop it’s usually at the expense of people like you and I.
There’s new bubbles forming all around us, which can be evidenced by looking at the Real Estate market, the stock market, the American consumer, and big businesses. But there’s a major theme behind all of these smaller bubbles; one larger bubble.
This larger bubble is frugality.
It’s understandable that people are becoming more frugal
A sense of fear has returned to households around the world. People are once again worried about losing their jobs, their houses, and their businesses. For many, being frugal is not an option, it’s a survival tactic.
It’s simple – people save more money when they have less of it.
Some of us have been using frugal tactics for quite a while, and it’s a little exciting to see the rest of the country finally catching on. But most of these new frugal transferees are likely to go back to their old habits once the economy gets back on track. They’ll go right back to buying $10 lattes, living on credit, and driving around town in their large SUV’s. It’s the American way!
We also see evidence of this frugality in businesses and the financial markets. Businesses aren’t hiring and employees are becoming more productive to keep their jobs. In some cases these employees are doing two to three times the amount of work for the same pay.
The employment numbers aren’t improving, and unemployment forces more people to live on less. Businesses don’t feel comfortable hiring until the consumer starts spending, and without businesses hiring the consumer doesn’t feel comfortable spending – it’s a vicious cycle. Being frugal can greatly improve your own personal finances, but when practiced by businesses, it keeps the economy from growing.
In the financial markets we see gold, silver, and other commodity prices are spiking higher. We see stock likes Family Dollar; which operates a chain of self-service retail discount stores, primarily for low and middle income consumers, and TJ Max and ROSS stores; each with a huge presence in the discount retail market, flying higher. In fact, as I write this most of these stocks are near their 52 week highs. Business is on fire for these companies!
This new frugal bubble has spurred TV shows like TLC’s extreme couponing, which takes clipping coupons to a completely different level. In this show we look at people who have chosen to devote their lives to clipping coupons. In some cases, they are spending 40 hours a week, and diving through dumpsters to find deals. Stupid? Absolutely! Would this show have done as well in 2006? It’s doubtful.
While coupons and other money savings strategies are useful, they shouldn’t be your entire financial plan. I feel that devoting 40 hours a week to clipping coupons is quite exuberant.
Another place we’re seeing evidence of this “frugal bubble†is in the blogosphere. When I started this website I knew there was going to be competition, but I had no idea how many personal finance blogs existed. Everyone and their mother has their own PF blog! Being a newer blog, I guess I am guilty of wanting to jump on that bandwagon. Don’t get me wrong, there are some great blogs out there, but I would say the majority are loaded with advertisements, and regurgitate the same redundant crappy money saving tips.
What’s the lesson?
Growing up I always thought my Grandma was the cheapest person in the world! She was the poster child for frugality. She would eat leftovers that were on the verge of spoiling just to make sure she wasn’t wasting food. Everyone would tell me it was because she went through the great depression. Since I was young, I didn’t understand what a depression was, but now I can fully respect it. I’m not saying I’m going to start eating spoiled leftovers, but I can see where she is coming from. It’s good to learn these financial lessons at a young age like my grandmother, and now I have. I’ve totally changed the way I handle money and I think this is something that will always stick with me.
The two most important lessons I’ve learned are:
- Build an emergency fund – One of the first steps to protecting you and your family in the event of an emergency is to fund a savings account with at least six months’ worth of expenses. This keeps cash liquid to help pay for necessary items during an unforeseen loss of income.
- Spend less than you earn – Many people over the past couple years have found themselves in situations where they are forced to take lower paying jobs. You need to adapt to this new lifestyle, and live within your means. Anyone who doesn’t follow this rule will eventually find themselves in debt.
So when does the rubber band break? When does the bubble burst? When do we start to grow at a faster pace? When can people start buying $10 lattes, loading up the SUV, going on vacations, and living on credit again? Well it’s anyone’s guess, but there’s one thing that’s for sure; bubbles don’t last, although they can go on for quite some time. When it does pop, hopefully people are able take with them the lessons that they’ve learned.
