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Income Power Parity Rules Everything Around Me

By Frugaling 6 Comments

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University of Iowa Old Capitol Building

How does your dollar in Colorado equal another in South Carolina? Will your dollar always be a dollar? What does a dollar equal in Russia? What will that dollar afford you in one place, but not another?

These questions are at the center of something called “purchasing power parity” or PPP. This theory allows economists to compare different currencies, along with changing relative costs. Your dollar tends to go further in more economically disenfranchised countries, and shorter in the higher economic zones. To put it simply, prepare for a tiny dollar in Europe, and a hefty one in sub-Saharan Africa.

With this statistic, we can actually understand purchasing power. Whenever we change locations, our power changes. Our relative expenditures fluctuate in tow. Sometimes it’s in our favor – other times we aren’t so lucky.

Purchasing power emphasizes the potential of a dollar spent, but what about a dollar earned?

Let me explain.

In 2015, the average American college student will graduate with more than $35,000 in loans. A horrific 71% of students will graduate with loans, too. These statistics are just the beginning for many hopeful grads.

Bankers and shockingly, the federal government, line up their coffers and wait for that beautiful “cha-ching” sound. Those students will pay for years; heck, likely decades. The interest-bearing loans will build more and more debt over time. And if they pursue a higher education – say a masters, Ph.D., M.D., or J.D. – it’ll mean thousands more.

Here’s an example: pretend “Benny” goes to undergrad for four years, and graduates with $35,000 in debt. He was a good student – some even called him great. His grades were strong, and he decided to apply to counseling psychology Ph.D. programs. Benny researched all the ins and outs about psychology. He decided that it was right for him. Benny would be able to study topics that interest him, practice counseling, and develop a teaching ability. It seemed like a win-win-win.

Years go by, and Benny has been going further into debt. By now, four years into his Ph.D. program, he has about $150,000 in student loans. But Benny has also settled on what he wants to do: practice counseling psychology as a clinician.

This much in the hole, the world appears rather bleak. But for Benny, he self-soothes by calmly reciting, “This is an investment in my future.” At least, that’s what everyone keeps telling him.

Then, he graduates and steps out into the bustling world of career opportunities! Solid five-figure salaries shine, and he gets ready to start a new future, pay off his debt, and maybe buy a new car. He finds a starting counselor position at $55,000 a year and gets the job. Now, he thinks, the good life can begin.

Remember how I started talking about PPP? Well, there’s a parallel version for income, too. I’ve never read it anywhere, though. I’ll call it “income power parity” or IPP.

IPP would represent the relative value of a salary, when you account for student debt, car loans, and other regular financial obligations. For Benny, his $55,000 salary hardly equals $55,000. Between paying the tax man, loans (car and student debt), and potentially starting a new family, buying a house, etc., his money dwindles.

It will take years to pay off these atmospheric amounts of debt. And every day that goes by, the interest ticks on. More money will be owed and/or paid off over time.

Here’s where income parity comes into play. Benny is a counselor, getting paid an average starting salary for someone with his education. If he had gone a different route and become a social worker, he would’ve graduated faster; thus, lowering his amount of possible debt. While the average salary for a social worker is less than a counseling psychologist, would it have been worth it for Benny to choose this route instead?

Effectively, social workers and counseling psychologists (clinicians) do the same work. One gets paid less than the other. But if one has to collect more debt than the other in the educational process, who actually gets paid more? Who can save, invest, and collect more than the other in the long run?

These questions get at the heart of income parity concerns. With more than a trillion dollars in total debt, students are burdened with one of the toughest economic questions ever. They need to stare at salaries and ask, like no generation before them, “Yeah but, how much am I really going to make?”

Filed Under: Make Money, Social Justice Tagged With: car, Career, debt, Income, power parity, purchasing power, Salary, Student Loans, Yeah

Will Ad Blockers Kill The Internet?

By Frugaling 14 Comments

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Technology iPad and iPhone

It’s been nearly a month since I deleted all the ads from my site. Instead of pasting targeted distractions to my readers, I opted for simplicity. If readers wanted to support me, they could buy my book, donate, or share my work. Since then, an explosive dialogue surrounding the ethics and use of ad blockers has ensued. I decided to share my two cents on advertisers, marketing, and the “death of the web.”

Advertisers want us to believe that their commercials and banner ads inform us. They need us to consider their arguments, and think we’re making rational decisions in response. And they implant a picture of perfection – of what life could look like – with their products.

We’re supposed accept this bombardment of stimuli as the cost of accessing and reading websites. Go to The New York Times, and a slurry of ads feast over your metadata to predict what you might purchase next and serve up a healthy dose of consumerism. Behind the scenes, trackers surreptitiously soak up your browsing history, location, and personal data.

This is the cost of being a content consumer in the 21st century, and for years, we’ve accepted it. Until recently, when the entire Internet exploded in euphoria and vitriol over Apple’s new mobile operating system (iOS). It’s most recent update empowered users to install “content blockers,” which would effectively eliminate advertisements in the mobile browser.

These ad blockers allow users to surf the web cleanly. The busy and distracting pages disappear – suddenly the content comes into focus. Trackers suffer and people’s profiles can’t be built as easily. Now, companies struggle to personalize ads via privacy infractions.

As the browsing experience improves, profit revenue decreases. It’s a perfect inverse correlation. The web feels calmer without ads. I don’t have to be defensive and avert my eyes.

Over the last few weeks, publishers worldwide have clambered to their keyboards, predicting apocalypses. The Verge conducted a poll of its users, which found that 78% said “Yes” they will use an ad blocker. Without ad revenue, how will they survive?! If everyone turns off the ads, how will companies make money?

Publishers are already predicting that companies will cease to exist. One quote from PC Mag highlights the hyperbolic language: “With this move, users will eventually wonder why their favorite website died before finding another set of content to plunder.” Supposedly, a content pirate will kill sites left and right because of their ad blocker use.

Wired highlighted the plight of Google’s profits in an almost sympathetic tone: “Google depends almost entirely on ads for revenue. By one estimate, the giant may be losing billions of dollars from these kind of browser blocking extensions.” What will the massive, multinational corporation do without its record-breaking ad revenue?

Adding to the publisher outcries is The Verge’s Nilay Patel, who said ad blockers could mean the “Death of the web.” Then he added that “taking money and attention away from the web means that web innovation will slow to a crawl.” Wow! Death, as in ceasing to exist. That’s pretty extreme, right? Without ads, your computer literally would cease to surf – browsers would be pointless.

The problem with all this fear mongering is that it’s flawed. The web was not invented by corporate interests; rather, it was a governmental invention that became a public good. Advertising wasn’t part of the equation. Profit wasn’t the sole motivator to those who innovated in the early days of the Internet.

Even today, much of the web exists because of volunteers, governments, and public grants. Open source projects like Wikipedia, Ubuntu, and Firefox are perfect examples of how third-party ads needn’t be the sole source of innovation or income.

Interestingly, in this ad-infested web, major publishers have grown to bloated proportions. Many recycle other news outlets’ content and repackage it as their own. Companies like The Verge, Wired, and PC Mag occasionally publish top-notch journalistic pieces, but they’re most often caught up in quasi-advertisement “product reviews” and republishing. It’s lazy work to draw eyeballs, not critical thinking. To lose these companies would be awful, as I must admit I enjoy them, but we’d move on.

We’ve come to a crossroads as publishers and consumers. Should we put up with ads or use ad blockers? Should we accept distraction or simplicity? Should we keep the status quo or demand an alternative?

Some suggest paywalls, which force readers to subscribe for content. I can guarantee that circulation will drop immensely and many won’t pay (here’s looking at one of them). If it’s news, it’ll be printed somewhere else in a non-subscription form. And if it’s not reprinted, then it can’t be that important, can it? So, that idea’s gone.

Others promote the concept of paid articles. Many publishers have already experimented with advertiser-paid articles such as The New York Times and The Verge. Instead of reading a non-biased, semi-objective piece of journalism, readers have the distinct privilege of reading a lengthy advertisement. Again, everyone loses if the web destroys objectivity in journalism.

We live at a time of immense progress; ironically, technology is contending with these advances. Ad blockers censor and clean the web of the dirty bits. You no longer need to continually feel compelled to buy, buy, buy. Nor do pages deliver 20, 30, or 40+ trackers to your computer.

The rationale is clear: the web is better when it’s simpler. But questions remain about the sustainability of any company once their ad revenue dries up.

Here’s where I must be slightly callous. Frankly, capitalism is said to be flexible and adaptive. The invisible hand is supposed to morph and move with demand. There are companies constantly winning and losing in this roulette wheel of life – not everyone wins all the time. The companies that can successfully adapt to changing market forces… They’re the winners in this game.

Either way, the web is here to stay.

Filed Under: Minimalism, Social Justice Tagged With: ads, advertisements, advertising, Apple, internet, Marketing, News, Technology, web

5 Ways Frugality Reduces Entitlement

By Frugaling 17 Comments

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Glacier Mountain in Colorado

When I used to drive, the roads seemed chaotic. Drivers would cut each other off, give a finger, and visually seethe with anger. Driving wasn’t my favorite activity, but I rationalized a “need” for a car. It would take me to work, school, and play. I had “real” reasons to have one.

I clutched onto this idea and would frequently feel deserving of a car, place on the road, and conscientious, obedient drivers. I’d get furious when someone stopped at a light for a moment too long or was slowly moving in a passing lane. Others were blocking my ability to drive swiftly, effortlessly, and calmly. They were the problem!

Embarrassingly, it wasn’t the only area where I felt a sense of entitlement. A few years ago, I remember complaining that making lunches was an inconvenient task. It took too long. I expressed a desire to be able to afford and not feel guilty about eating out more often.

And then there were all the times where I convinced myself that I deserved something special. My mind of would casually drift into complacency and I’d think, “Because of all my hard work I deserve a treat.” But did was I really entitled something extra, more, or sweet?

Sometimes these thoughts would border on narcissism. I was a special, important person – better than the rest. I’d expect others to conform to my norms and settle into my expectations. I was looking out for number one. I struggled to see what others were experiencing. Like a sudden smack over the head, frugality was a departure from entitlement. Over time, it helped me see my blindspots and grow. Here are five takeaways:

1. Learning to live modestly

As I pursued frugality, life became simpler and more modest. Slowly I built more savings, cooked more meals at home, and made more donations to others. I brewed coffee at home and found ways to get it free on campus. My shoes became more beat up and shirts developed frays. I learned to patch things and upcycle. I sold my car, and bought a bike.

2. Opportunities for self-reflection and growth

With every shift, I realized a different side of my personality. The whole world got a facelift – a beautiful reframe. My bike empowered me to see the city with a fresh pair of eyes. Without the normal trappings of “success” I could reflect on who I want to be as a person. In time, I realized great fulfillment in helping others.

3. Exploring long-term happiness over short-term “fixes”

By choosing this life, I consciously eschewed the easy routes for long-term happiness. Advertisements market a life of joy through possessions, beer, soda, and cars. Oh, the things you can buy to make yourself better! Finally, those words and images stopped working. I wasn’t compelled to go to the mall after seeing an ad, and I became more hostile when I’d see them.

4. Increasing patience with impatience

Before I changed my life, long lines were infuriating. There was an incompetence to everyone around me. The checkout person wasn’t going fast enough and the shopper had too much in the cart. Over time, lines became an opportunity to breathe and think briefly. Similarly, I developed patience with others’ impatience, anger, and entitlement.

5. Departing the rat race

Entitlement is a nasty, nefarious quality. Unfortunately, it can be very difficult to see. Someone usually has to say it to your face (someone did for me). Frugality has enabled me to look for qualities in myself and others that aren’t about how much they can buy. Another’s worth is no longer tied to net worth.

How have you changed since you embraced frugality?
What did you learn?
How might you grow if you suddenly lived more minimally and mindfully?

Filed Under: Save Money, Social Justice Tagged With: car, entitled, entitlement, Frugal, frugality, Happiness, mindful, minimal, modesty, rat race, Simple Living

Should You Share Your Income And Worth?

By Frugaling 13 Comments

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City Hall, Toronto, Ontario, Canada

Imagine walking down a busy street. You see people you’ve never met hustle to and fro. They’re going to work, school, and social gatherings. Some faces are smiling; others, not so much. You don’t know them and they don’t know you.

Now, imagine seeing digits carefully placed above their heads. When you look at these digits you judge someone beyond their race, ethnicity, age, gender, potential sexual identification. These numbers allow you to see someone’s annual income, and even their net worth. Suddenly, that man with ripped jeans looks a lot more impressive with a staggering 7 digits above his head, doesn’t he? Or, how about the mother with two kids followed along by a 4-digit number?

Would you worry more? Would you care more? How would you evaluate disparities?

Traditionally, annual incomes are closely guarded secrets. Nobody knows what their neighbors make most of the time. Unless you work for a public, governmental organization that requires public disclosures, annual income is between you and your employer.

Even more difficult to ascertain is net worth. As a total of all assets — liquid and non-liquid — it can be challenging to calculate. Net worth represents a total wealth after taxes that’s yours to keep and grow and spend as you see fit.

Aside from the aforementioned exception for public employees, income and net worth tend to stay private. Broaching the subject in certain company can seem gruff, rude, or downright hostile. To talk about these numbers is to admit something… personal.

It’s as if net worth represents our worth.

If you were to ask your neighbors what their incomes and net worth was, how might they react? How about your friends? How about your acquaintances? And perhaps most tellingly, how would your parents react?

Likely, there would be some awkward reactions, defensiveness, shame, and dread about talking in depth about digits. Those in poverty might exhibit the same emotions as those who are wealthy. Talking about money management and worth are inexplicably tied to self-worth and self-identity.

The consequences of this hush-hush mentality have been grave. To publicly acknowledge may seem novel, but silence harbors injustices and prejudices. And that’s why we must throw open the door to personal vaults and share.

Take the gender gap injustice: women make 77 cents for every $1 men make. There’s nothing fair about it. If we treated, understood, and respected women as equals, this pay gap wouldn’t exist. Women also deserve paid maternity leave, child care assistance, and flexible health insurance options should they be single parents. Each of these failures in assistance perpetuate gender inequities.

Another population that suffers greatly for economic privacy are African Americans. In 2011, black workers made an average (median) household income of $39,760. Whites took home a staggering $67,175 in comparison. Racial inequality has been around for hundreds of years, but that doesn’t mean we should accept this status quo. Again, various factors hold African Americans back: high policing in black neighborhoods, judicial policies that prejudicially penalize non-violent drug offenders, and poorer educational opportunities in predominantly minority communities.

Between communities, tremendous per capita incomes exist. You can be born and stay in poverty — all as a consequence of your birthplace. In Washington, D.C., the average per capita income is $45,290. But in poverty stricken post-boom-and-bust Gary, Indiana, each resident makes an average $15,764. While these average incomes help show broader income inequality, they’re depersonalized. You can’t see the individual and how that one person must live.

Annual income and net worth become two of the best measurements for the consequences of these hurtful, unequal policies. By failing to openly discuss these issues, we fail every disadvantaged group.

By opening up our wallets for analysis, we may squirm and squeal. It’s uncomfortable to admit our total salary and savings because we think it says something about who we are; frankly, it does. But there’s a chance that if we admit our incomes and net worth, we’re providing those looking for equality an opportunity to stake their claim.

Oh, lest some commenter call me a hypocrite, I make about $20,000 per year.

Filed Under: Social Justice Tagged With: Annual, gender gap, Income, Income Inequality, net worth, Pay, paycheck, racial gap, Salary, unequal

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