New York Times

Taking Comfort in a New Frugality

December 1, 2002

By ELLYN SPRAGINS

Snip, snip, snip. The sounds of budget trimming are filling the air. With the economy weak and the stock market volatile, it's not exactly news that people are cutting back. What's different is that suddenly, it seems, everyone is talking about it.

One friend, a Manhattan financial consultant in her 50's, says she hasn't watched her pennies like this since she was in her 20's. All she needs these days on her way home to her Park Avenue apartment, she said, are a Snickers bar, a gossip column and a seat on the subway.

Another friend, in South Orange, N.J., welcomed her guests' contributions of hors d'oeuvres for a recent housewarming party in her spacious new home rather than hiring a caterer.

My father, who is 79 and lives and works in Beaufort, S.C., recently sent a little ripple of concern through his five children when he decided to cancel several visits and vacations he had planned in the next nine months.

If you are hard pressed to see these measures as hardships, you're getting the point. Cutting corners has gone mainstream. Even people who have not lost their jobs and are comfortably cushioned by other assets are hunkering down as if they are facing a long siege.

The most recent Anxious Index from the Federal Reserve Bank of Philadelphia - measuring economists' forecasts about whether the economy will start shrinking - says we may be headed for another recession, though it feels as if we haven't fully recovered from the last one.

If there were an Angst Index, however, it would be falling. The embarrassment over being unable to pay bills and the strife over what you and your spouse can afford seem to have peaked earlier in this crash-and-bash economy. Now there's a palpable feeling of relief in taking action, and in knowing that your friends and neighbors are doing the same.

Jack Adams, 62, an independent manufacturer's representative for electronic components to the automotive industry, has seen his business profits fall during the last year. So he and his wife, Melissa, who keeps the business's books, have curtailed entertainment and travel, and they plan to keep Christmas spending minimal.

The Adamses haven't stopped spending, but they weigh expenditures as if they were truffles. Last summer, they installed an expensive patio in the backyard of their home in Farmington Hills, Mich., after protracted budgeting and discussion. "We are together on these decisions," Mr. Adams said. "The things that occurred on Sept. 11 and afterward in the economy have had the effect of bringing us closer together."

Ed Stern, who owns the Stern Agency, an advertising agency in Columbia, Md., with 11 employees, says his 12-year-old son wants a computer in his room. But both his son and his 15-year-old daughter have learned that his company has been affected by smaller marketing budgets and that they need to shoulder some responsibility for getting things they want. Under the current plan, Mr. Stern will pay for half of the computer if his son pays for the other half.

For some people, the urge to wrestle fears to the ground with a no-spending initiative is irresistible, even if unnecessary, said Bert Whitehead, the president of Cambridge Connection, a financial planning firm in Franklin, Mich. Many of his clients suffer from deprivation anxiety. "A couple may have plenty of money for their standard of living," he said, "but they've started to come in to see me, arguing about whether they can afford to buy a new car or take a vacation."

Of course, if income is collapsing, cost-cutting decisions extract pain. Todd Wright, 47, a real estate developer and consultant in Oakland, Calif., whose business was hit by the economic downturn, struggled for four months with a decision he made to sell his four-bedroom, 3,000-square-foot house. "It reached the point where my home and what it meant to me was not as important as the stress I was incurring to keep it," he said.

Now he feels relief that the financial burden is lifting; his business associates approve, too. "They viewed it as a smart choice, given the uncertainty of the environment," he said. He also felt a sense of validation when he learned that the buyer of his house, at just under $1 million, was downscaling from a $2 million home.

A FINANCIAL pinch can set off interesting sequences of events. At first you think money is power, because you believe you need what it can buy. But so long as you are not truly without means, being stretched can also cause money's hold to weaken - because you are forced to be clearer about what you want. Stay stuck in the first stage and scarcity becomes the theme.

Benjamin Dattner, principal of Dattner Consulting in Manhattan, sees that happening in some businesses with which he works. Belt-tightening sets off backbiting, information hoarding, mistrust and blaming among employees.

But for other companies, fiscal stress becomes a crucible that results in a more resilient team with more resolve. What makes the difference? "When you can cast your struggle in a heroic way and understand what's meaningful about it, you can thrive," he said.