I'm a frugal guy. I'm 31 years old with six figures in the brokerage account and I earn a decent middle class income. Yet I drive a 16 year-old car, live in a modest two bedroom apartment and consider $1 Redbox rentals a great Friday night companion.
Some people then might find it funny that I invest in companies that need to sell abundant products and/or services to people in order to turn a profit and then send me a portion of those profits in the form of dividends. How do I reconcile personal frugality and the necessity for consumption in order to fund my lifestyle?
Well, it's simple. I mainly target my precious capital towards investments in companies that sell products and/or services that even frugal people use. The reason is simple: if frugal people like me use these products and services, then that's surely scalable up the consumer chain.
For instance, one of my larger investments is with PepsiCo, Inc. (PEP). I may be frugal, but I still love to consume the products this company produces. Just today I picked up a 12-pack of Propel grape flavored sports water and a bag of Baked Lay's BBQ chips. A guy's gotta eat, right? I may not like to spend more money than I have to, but drinking water is something I must do if I want to survive and I personally love the great flavor of Propel flavored water. Pepsi and Mountain Dew, health concerns aside, are also both products that I enjoy regularly.
Guess where I bought my Propel and Lay's potato chips today? I shopped at Wal-Mart Stores Inc. (WMT), of course. That's because I know it's much cheaper than any of the smaller grocery stores in my area (namely Publix). I know I can get everything I need in one stop, and at the best possible price. I not only grabbed my groceries for the week there, but also picked up a sweet $4 auxiliary cable so that I can hook up my ancient iPhone 3G to the radio in my new Frugalmobile and listen to some rockin' tunes on the tinny and underwhelming sound system. The kind of product selection that Wal-Mart offers at the available prices is unmatched. Frugal people like me appreciate that.
Although I have a car now, I was living car-free for over two years. I mostly used the bus over that time frame, but also loved to ride my 49cc scooter for local errands and occasional trips to work when the weather allowed. This cheap transportation was fantastic on the wallet, but the bus and the scooter have something in common: they both need fuel to run. If you take a look at my Freedom Fund, you'll notice significant investments in energy companies like Chevron Corporation (CVX),Kinder Morgan Inc. (KMI), Exxon Mobil Corporation (XOM) and ConocoPhillips (COP).
America, like the rest of the world, consumes significant energy resources every single day. And even someone like me, riding the bus and a small scooter, also consumed energy. The bus used fuel to propel me and other passengers down the road, and although my scooter got 100 mpg the fuel tank was not bottomless. I still had to fill up a few times per month. And now that I have a car I'll be consuming more energy than ever. Yeah, I'm frugal. And yes, my little 4-cylinder engine is fuel efficient. But you'll still see me stopping by my local Mobil station to get fuel when my low fuel light comes on.
Frugality is wonderful. I appreciate what the power of a high savings rate has done for my ability to build wealth over the last three years. However, even frugality has its limits in regards to consumption. Frugal people still need to eat, drink, consume energy, talk on the phone, use the internet, bathe and groom themselves, clean their home, brush their teeth, use medicine when they're sick, entertain themselves, etc. I feel great knowing that even if the entire world "went frugal" tomorrow that the majority of the companies I invest with would still be alive and well, and still likely sending me dividends with which I'll be using one day to purchase the products and/or services they provide! It's great knowing that the Propel water I'm drinking as I write this article is paying me as well as refreshing me.
What about you? Enjoy investing in companies that even frugal people need?
Full Disclosure: Long all aforementioned securities.
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