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Ketsugami raised some interesting points in response to my last article. Specifically, he pointed out that I failed to take into account opportunity cost in my calculations of my true cost for washing a car by hand.

A few points we discussed re: frugality vs. opportunity cost:

  • Many frugality guides make the assumption that everyone has infinite time. When considering the value of a particular frugality strategy, it’s important to consider that this is not true Instead, consider what the opportunity cost of that action is–what you save relative what you could be doing with that time instead.
  • Your opportunity cost depends on what else is valuable in your life. If you work, your time is worth more, as your amount of available time is decreased. Ketsugami argues that for this reason, a lot of these frugality tips are most optimal to those who don’t work–I think this is probably true.
  • If you work, you can conveniently think of your time cost in terms of salary. If you’re a white collar professional, this is roughly equivalent to $20-$30 an hour. However, if you’re working minimum wage, your time cost is much lower.
  • Education and location make your time more or less valuable. If you’re highly educated, you can be employed for a greater sum of money, leading to a higher time value. Similarly, if you live in a region with fewer good jobs, your time cost would be less. Think of it this way: if you spend an hour clipping coupons, and save $10, are you saving less than you would be making working for that amount of time? If you work for minimum wage in an area with few jobs (i.e. a rural area), then it may be worth it. For us urban types in white collar jobs, not so much. This is not to knock rural, mimimum wage folks–but there is a reason this type of frugality conjures up scenes from The Waltons.
  • This whole equation is complicated by the fact that time and money are not on linear scales, nor are they 100% correlated. For example: you want to give your dying grandmother a gift. Likely the time you put into it is worth more than the money you spend!
  • If being frugal is really important to you–for intangible reasons having nothing to do with time or cost–then ignore this. For example, Trent at The Simple Dollar makes his own laundry detergent. From what I can tell, he does this in part because he enjoys making green goo in the kitchen–he has pointed out that you could save about as much money buying detergent from a wholesale club.

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