Sunday, January 31, 2016

Two Frugality Meters

These days, my frugality is a pretty big part of my identity. After all, I write about personal finance and smart shopping for Money Crashers and ConsumerSearch during the week, and then I come here on the weekend to post about my thrift shopping adventures and DIY projects. When someone asks me, "What do you do?" the most honest answer I could give would probably be, "I tell people how to save money."

So on those rare occasions when I do spend a large chunk of money, it kind of throws me for a loop. Yesterday, for instance, I went on a bit of a shoe-shopping spree. As I've noted before, it's very hard for me to find shoes that fit both my oddly shaped feet and my vegetarian lifestyle, so any time I see a pair that looks like it could possibly be suitable, it's very tempting to snap it up—even if I know I might end up just having to return it. Last year, in fact, I ended up buying and returning several pairs of shoes in quick succession, spending about $20 in shipping fees and still having no shoes to show for it. After that, I started refusing on principle to buy shoes online unless both shipping and returns were free, so at least I wouldn't have to pay just to try the shoes on.

This time, however, I found a way around that problem. After discovering an attractive, comfortable-looking, leather-free pair of three-season shoes on a website that did not offer free returns, I did a little investigation and found that the same shoes were also available online at Kohl's—so if they didn't fit, I could return them to a Kohl's store at no charge. And since several reviewers on the site said the shoes run large, I decided to order them in both my usual 6 1/2 wide and a 6 wide, figuring I could keep whichever pair fits and return the other. While I was at it, I decided to check the same site for a nice pair of boots—and when I didn't find any, I surfed over to Payless and took advantage of a sale there to buy two pairs of boots, a dressy pair and a sturdy snow boot.

So altogether, I spent about $140 on shoes in one day—something that's extremely out of character for me. Admittedly, no single pair cost more than $60...and I was able to use coupon codes on both purchases to knock an additional 15 to 30 percent off...and I know I'm going to return at least one of the four pairs. But even so, it kind of shook my self-image. Could anyone who spends that much on footwear, I asked myself, really describe herself as frugal?

Fortunately, I knew just how to set my mind at ease on this point. There are two different tools available online that prove I'm frugal—at least compared to other Americans of my income level.

The first one, called the Frugal Meter, lives on the Shnugi Personal Finance website (a name I swear I am not making up). It's incredibly simple to use: you just punch in your monthly expenses, based on your household budget, and then list the income range to which you want to compare yourself. When I tried it, the site told us we spend "a bit less than average" compared to others in our income range: however, by "a bit less," it means "for every 100 people there are about 7 who spend less or the same." To me, that sounds like a lot less, but I guess it's the number that really matters.

Unfortunately, after looking at the comments on the article, I started wondering whether the number itself was all that useful. For instance, one commenter asked whether the figure for expenses was supposed to include taxes and got the reply "Expenses include all taxes." Well, my household budget doesn't cover taxes as an expense, so I had to go consult last year's tax returns to figure out how much we actually pay in taxes per month—and when I tacked those on, our household expenses jumped from the 7th to the 21st percentile. But then I realized the numbers still weren't right, because the site also says expenses should not include "your retirement saving contributions (pension, SS, 401k or IRA)," and the figure I was using for taxes included Social Security taxes. And trying to sift out how much of last year's tax payment was for Social Security, while allowing for all the various deductions we take, was just too tangled a task to be worth the effort.

So, since this simple little calculator proved so complicated in practice, I moved on to the Frugalometer on the Frugal Fringe site, which looked a little more sophisticated. This one asks for three numbers—your annual pre-tax income, your annual expenses ("excluding social security and pension payments"), and your annual state and federal taxes—and gives specific instructions on how to calculate each one. Once you enter them all in, it compares the numbers to data from the Bureau of Labor's annual Consumer Expenditure Survey (CES) and gives you a "Frugalometer score" to show how you stack up.

When I punched in our numbers on this one, it gave me a score of 251 (as compared to the average of 100) and a grade of A+++. However, I quickly realized that this calculator, too, had one serious flaw. I was already familiar enough with the CES to know that it includes health care costs as part of "annual household expenses"—but our biggest health care expense is the insurance premiums that get deducted directly from Brian's paycheck, and thus never make it into our household budget at all. Frugal Fringe's instructions for calculating your annual expenses don't account for this; they just say to figure out how much you charge to each of your credit cards in a year, how much you pay in checks and online bill payments, and so on, and add it all together. A pre-tax premium that never makes it into your bank account obviously doesn't come out of it. Given that the average "consumer unit" spends $2,868 a year on health insurance, and the average couple spends $4,040, that's a pretty big expense to leave out.

So, once again, I turned to our records, using Brian's final paystub for 2015 to figure out how much we'd spent in pre-tax dollars on health and dental expenses. That came to about $5,840, which I tacked on to our income in box 2. Our Frugalometer score instantly dropped from 251 to 209—still good, but not nearly as outstanding as it looked at first blush. (I wrote a comment on the Frugal Fringe site to point out the flaw in the Frugalometer's formula and proposed adding a fourth box for health expenses, but so far my comment hasn't showed up on the site.)

The good news, though, is that even our modified Frugalometer score is high enough to earn us an A+++ grade. So as far as A. Noonan Moose, the blogger at Frugal Fringe, is concerned (this is another name I swear I am not making up), we're doing great—my latest shoe-buying binge notwithstanding. And after all, even if I end up keeping three of the four pairs, that's about $100 for what should be at least a year's worth of shoes—not so bad when you consider that, according to the CES, the average couple spends $367 on footwear each year. If I can manage to make even one of my new pairs of shoes last for two years or more, I should be way ahead of the game.
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