What are we doing on this site?

Yes, I read my own posts sometimes.

Anyway, for those of you who haven’t been around since the early days, I wrote that on the day I graduated college in 2005. Check it out.

And happy holidays.

Today’s tip is to spend money on things that will save you money in the long term.

Too many people think that “saving money” is about cutting costs relentlessly until they can cut no more. And then…what? Who wants to live like that? Reading some of the frugality sites, it becomes clear in about 2 minutes that you can’t outfrugal a nutty frugal person. And as they say, if you win the rat race, you’re still a rat.

I’ve been crystal clear that when you buy things you want, you should focus on the value, not the cost. That’s why I bought a new (not used) car. It’s also how I distinguish cheap vs. frugal people.

“Saving money,” as I’ve described in this Challenge, is about cutting costs, earning more, and optimizing your existing spending. Instead of constantly looking for ways to cut your spending, sometimes it’s ok to actually spend more in the short term if you’re saving in the long term. This is a bewildering and frightening thought to many people, most of whom don’t read personal-finance blogs, leaving me free to mock them openly.

A great example of this is something like the Entertainment book (or any coupon book). I bought one a couple weeks ago because I can make the $20 back, guaranteed, plus much more. The key, of course, is actually using the coupons when you would ordinarily be going out anyway.

In this simple example, it’s easy to see that the money you spend will be directly made up. Still, many people don’t even want to spend for something where the ROI is so clear. For many people, buying something to save money down the road is unfathomable, confusing, and just plain weird. Those people are crazy and need to understand that long-term savings are still savings, even if you spend a little money right now.

That’s also why this lady who once sat next to me would have been 100% right to pay $2,000 for a computer class.

A fun example of nutty cheap people
To get myself geared up to write this post, I checked out one of my FAVORITE old posts: Stop Being Cheap and Go Buy Something Valuable Today. I had done an earlier webchat and told people I might be starting a paid podcast service. People freaked out:

person1: don’t charge though
person2: yeah, please don’t charge
person3: I have universtiy debts to pay for… =… O(
person4: It feels punitive
person5: your good karma will come back to you muliplied if you do not charge
person6: because people dont want to pay lol my guess is you will lose many readers if they have to pay
person7: No charge….comeon! you cant ask us to pay to learn saving
person8: one thing that would concern me if you charged is that the quality of material would need to match the fee
person9: i think you should charge. you weed out the ppl who aren’t willing to make basic investments in their investments
person10: dont charge
person11: frankly your latest work hasn’t been great ;(
person12: we cheap don’t charge. we hear to save money here XD
person13: suze orman does not charge for her show
person14: Dude, there are people who CAN’T pay. (Me, for example, here in Bangladesh, I don’t have a way to pay for stuff in the web.)
person15: you’ve been giving out quality information for free, i think i’ve gotten used to it…
person16: Charging is not a succesful business model for editorial content on the web, currently
person17: people dont know what the advice is worth before getting it but you have to pay first
person18: you will NOT attract new audience members by charging….existing ones, maybe
person19: Payment is a barrier between the reader and the important information; I would think you of all people would understand how dangerous it is to erect even minor barriers for people.

You really should check out the entire post.

These are exactly the kind of people who are overly focused on cost, not value. They see something that costs $10 and fail to realize that they could save $500, or $10,000, with the advice inside. Do you think any of them have ever bought a book on personal finance? Or attended a course to learn something after they graduated from college?

Of course not. Because it’s transparently easy to see money going out of your pocket right NOW, but it’s harder to understand that you’re actually investing in yourself. And when you invest in yourself, there’s no upper bound on what your return can be.

Applying this to your life: Paying for something that will save you money
Let’s get tactical. What can you buy that will save you money over the long term?

I’ve subscribed to a magazine called Before and After, which gives you great tips/advice on making beautiful designs for websites, graphic design, etc. It’s helped me take some drab stuff that I came up with on my own and make it look a lot better. And based on the rates I pay professional designers, I’ve saved over $800 for the work I’ve been able to do.

What books have you bought to help you save money? Have you picked up something from Suze Orman? Here’s an entire list of books I recommend. Or maybe a book on your job. Come to think of it, when was the last time you asked your boss to attend a conference or buy you an industry publication? At work, I encourage our employees to ask for any resources that will help them do their job. One person asked to attend a conference, which paid for itself in about 4 days when he presented what he’d learned.

The other day I was at Border’s Books and I bought my first audiobook. I forced myself to skip the business section (my friends always make fun of me because I have a bookshelf overflowing with business books, which all look the same to them…they just don’t understand). I bought Madeleine Albright’s Memo to the President Elect CD: How We Can Restore America’s Reputation and Leadership to try to learn from a true leader. It cost $40, which seems outrageously expensive, but there was one line in there that will probably save me tens of thousands of dollars over a lifetime if I apply it. Paraphrased, she said, “It’s sometimes worth trading off efficiency to get others involved and do the right thing.” I had never thought of it like that, and you can bet I’m applying it in business.

Or a trip — when was the last time you invested the money to go meet someone interesting for business? When I was in college, I cold-emailed Seth Godin and told him I wanted to be his intern. I pushed hard to meet him in person and told him I would fly out to New York anytime. He invited me, I bought a ticket, and the rest is history. How much was that $300 plane ticket worth? Over my lifetime, from the things I learned from Seth and the connections I made (including my book agent), it will probably be over $250,000.

Paul from ResultsJunkies puts aside thousands of dollars each year in a “networking budget,” which he uses to meet interesting people, take them out to dinner, etc. This is similar to my idea of The Best $20 You’ll Ever Spend, which is literally the easiest way to invest in yourself.

If it were me starting to think about how to spend money to save money for the first time, this is what I would do:

1. Pick an amount for your “Strategic Spending-to-Save” account. For example, I might start with spending $50 each month on anything that I think will eventually help me save (books, courses, taking someone else out to lunch).

I logged into Mint and added a category: “Spend to Save”

2. Spend the money! Do it each month. At the end of the month, you should end up with $0 in that account. Don’t let the money accumulate. In fact, just like hitting on a girl in a bar, if you don’t do it in the first minutes, you probably won’t do it at all. In the first 5 days of each month, commit where you’re going to spend that money.

I set up a budget for $50/month:

Ironically, unlike the rest of your budget, if you are under your target of $50 for the “Spend to Save” category, you’re doing something wrong. Spend the money to save!

You can open a Mint account here.

3. Come up with a crisp list of things you will spend on. Not sure where to start? Check out the Personal MBA list of 2008 books and the I Will Teach You To Be Rich bookstore.

3. Don’t lie to yourself. Don’t rationalize that buying jeans is going to save you money because you’ll hold it for the long term. No you won’t. You bought those Sevens last year and here you are buying new jeans. Buy something that you could show to your mom, dad, or high-school teacher and say, “I’m buying this to invest in myself and save money.” If you can look them in the eye and say that, it’s probably a pretty good purchase. Books are always a good bet. Courses too. If you have other ideas, leave them in the comments!

4. Apply what you learned. There are millions of people who buy self-help book after self-help book and never apply what they learn. If you do one thing, do this step. Apply just one thing and you will win.

Total savings: Unknown at first, but $50 to $1,000 per month once you start applying it.

Last thing to do
1. Check out the other tips in the Save $1,000 in 30 Days Challenge
2. Leave a comment on this post describing how much you’re saving with this tip and any unusual techniques you use to make this tip work.
3. Want to submit your own savings tip? Submit a money tip here. Most of the tips you guys submit are absolutely horrible, so if I use your tip, I’ll send you something cool.

Today’s tip is to use a featured called “price protection” whenever possible, which lets you protect yourself from price drops. In plain terms: If you buy something and the price goes down, the company will refund you the difference.

Price protection is something you hardly ever hear about, but it tends to be applicable to very expensive purchases…meaning you can save a lot. Here’s how it works: When you make a purchase, occasionally the price will drop shortly thereafter. (For example, on flights, or if you bought the original iPhone and the new 3G iPhone came out a few days later.)

The trick is, many times you can often get refunded the difference. If you imagine a flight dropping $200 (which is very possible), or a new computer dropping $100, that can add up quickly. Let’s take a look at some examples.

Purchases on your credit card
Your credit card will often offer price protection guarantees(more about unusual credit cards rewards).

Here’s an example from Amex:

And my own credit card, the Citi Premier Pass Elite, offers this:

Retail Purchase Protection2
Most items purchased with your card are eligible for protection against accidental damage or theft for up to 90 days from the date of purchase.

Price Protection
If you buy something with your Citi card and then see it advertised in print for less within 60 days, you will receive a refund for the difference up to $250 (excludes Internet purchases and certain items).

Since I am a huge nerd and make virtually 99% of my purchases online, I haven’t used the price protection offer yet. But one day, I have a bright dream that I will purchase something offline and avail myself of the generosity of the corporate automatons at Citibank.

Price protection for travel
Orbitz has an automatic price guarantee that most people don’t know about. You don’t even have to do anything — they’ll just mail you a check if the price drops. (However, I book a lot of flights and I’ve never gotten a check…so can anyone verify this?)

A new travel site on the block is Yapta, which also monitors flights and will refund you the difference in a price drop.

As a sidenote, my favorite travel sites are Mobissimo and Kayak, which give me awesome travel deals.

I don’t really like that ad showing up right above this line but I’m too lazy to crop the photo.

Price protection for general retail purchases
Whenever you make major purchases (say, over $200), you should have a checklist of things to do. Check for discounts, add it to your auto-monitoring for price protection, etc. I’ll talk more about this in another post.

But for now, check out PriceProtectr, which lets you enter your purchases from 150 stores (Costco, Apple, BestBuy…) and automatically monitors the prices to see if you’re eligible for price-protection refunds. Check carefully, though: They still list Amazon as one of the stores they monitor, but Amazon doesn’t do price protection anymore.

Note: Don’t do this for $20 purchases. Don’t waste your time. Just focus on the big 5-10 purchases you make per year and optimize those.

Total savings: $10 to $30 per month

Last thing to do
1. Check out the other tips in the Save $1,000 in 30 Days Challenge
2. Leave a comment on this post describing how much you’re saving with this tip and any unusual techniques you use to make this tip work.
3. Want to submit your own savings tip? Submit a money tip here. Most of the tips you guys submit are absolutely horrible, so if I use your tip, I’ll send you something cool.

You can read the details at the scholarship site, but I want to take a few minutes to talk about giving back.

Why wait for a mythical day?
When I first launched this scholarship in 2006, people thought it was ridiculous for a 24-year old to start my own scholarship. My friends said stuff like, “Wow, I wish I could do that.” They said that while wearing $100 jeans and eating a $20 dinner.

One thing I never understood was the idea that “I’m just doing this for now, but later I’ll do what I really love.” I always get suspicious when people defer what they “really” want to do until later — whether it’s finding the job they love (”I’ll just work in investment banking for a few years”) or giving back to the community that helped raise them.

In a depressing yet bitingly honest post, Philip Greenspun writes:

Ask a wage slave what he’d like to accomplish. Chances are the response will be something like “I’d start every day at the gym and work out for two hours until I was as buff as Brad Pitt. Then I’d practice the piano for three hours. I’d become fluent in Mandarin so that I could be prepared to understand the largest transformation of our time. I’d really learn how to handle a polo pony. I’d learn to fly a helicopter. I’d finish the screenplay that I’ve been writing and direct a production of it in HDTV.”

Why hasn’t he accomplished all of those things? “Because I’m chained to this desk 50 hours per week at this horrible [insurance|programming|government|administrative|whatever] job.

So he has no doubt that he would get all these things done if he didn’t have to work? “Absolutely none. If I didn’t have the job, I would be out there living the dream.”

Suppose that the guy cashes in his investments and does retire. What do we find? He is waking up at 9:30 am, surfing the Web, sorting out the cable TV bill, watching DVDs, talking about going to the gym, eating Doritos, and maybe accomplishing one of his stated goals.

Retirement forces you to stop thinking that it is your job that holds you back. For most people the depressing truth is that they aren’t that organized, disciplined, or motivated.

I’m not sure I would take it that far, but there’s a definite element of truth about how we defer our dreams for a mythical day in the future when we’ll have more money and time. There’s a better way.

The 85% Solution for Giving Back
Earlier this week, I was reading an online discussion about what people would do if they were rich. People talked about traveling, starting a charity, and teaching…all GREAT causes. But why don’t we do it today? We don’t have to quit our jobs to travel — we can do it 4 Hour Workweek style. We can teach little kids by doing one-off seminars or tutoring or help inner-city women manage their finances or find local volunteering opportunities in our neighborhood.

You don’t have to quit your job and become a monk to give back. You don’t have to stop going out every weekend. We can be successful by going 85% of the way there.

My point is, we don’t need to wait for tomorrow.

If you want to give back, you can do it in a thousand ways.

It doesn’t have to be a scholarship. Never before in history have we been able to help so many people with so little. We have tools like Kiva and DonorsChoose and Youtube that allow us to scale our social entrepreneurship to millions of people. And with so many talented people reading this blog, I’m SURE I can find someone who’s the right fit to give back.

About the Scholarship
The I Will Teach You To Be Rich Scholarship for Social Innovation is a $2,500 one-time award for someone with an entrepreneurial background who has a specific plan for a socially innovative project. I’ll fund your idea for $2,500 and provide mentorship and introductions.

The key is that it must scale. Instead of helping one child (which is great by itself), I’m looking for someone who can take that interaction and apply it to 100, 1,000, or 10,000 people. For example, if you were really ambitious, you could fly to another country and donate your time. But if you wanted to make it scale, you could use your video skills videos like this or this. Or your teaching skills. Or your programming skills. How many more people would that affect? How could you measure it?

I’d love to see you apply for the scholarship.

Read the details here.

And please tell your friends.

Links you may be interested in:

• My bookmarks on philanthropy

• My articles about personal entrepreneurship (which is intimately tied with making a disproportionate change in the world — whether through business or charity)
• Kiva.org and my Friday Entrepreneurs interview with Kiva’s president

More than 200 people watched (for 2 hours!), and in exchange for them showing up on a Saturday morning, I said I’d give away a free book to anyone who left me an awesome comment on this post.

Here are the winners:

Dave
EmilyS
Gabriana
Jonathan
Laura
Stephanie
Violetta

NEXT STEPS: I’ve arranged to send you a book for free. You should get an email from Charlie Hoehn (who is great — if you are looking for someone to hire for video/marketing, he’s your man) who will help send you the book. Here’s a list of books to choose from.

• @AndieSpeak I dunno, I just use MyFico for $10. Or try CreditKarma.com. It’s about the price of 1 lunch! 12:24 PM Dec 5th from web in reply to AndieSpeak

• Search term that just brought someone to my site: “elasticity of toilet paper” 1:05 PM Dec 2nd from web
• ramit Other emails I love: “Sure, I can do that” & “Yep, done” 5 minutes ago from web
• ramit Just got an email from my researcher that started with “Okay, this should be right.” I LOVE THAT INTRO 6 minutes ago from web
• How did freecreditreport get on my list of advertisers? I hate freecreditreport — superscammy. Just canceled the advertising relationship. 9:34 AM Nov 19th from web
• If you decided to skip www.nochristmasgiftsthisyear.com, check out Kiva.org gift certificates: http://tinyurl.com/yulqkm about 3 hours ago from web
• Seeing Bond movie tonight in SF…but first, Indian food. I just tell my friends to shut up and let me order for everyone 2:13 PM Nov 14th from web
• Btw, I don’t want to use Amex. I don’t care how good the rewards are, if I can’t use it at 100% of places, I’d rather have a Mastercard/Visa about 23 hours ago from web
• Looking for someone to review personal-finance books on iwillteachyoutoberich.com. Anyone interested? 5:51 PM Nov 17th from web
• Will be volunteering at http://tinyurl.com/5dkj3f today. If you’re around, drop by 11:33 AM Nov 16th from web
• What’s the best business credit card? Any recommendations? about 24 hours ago from web
• Heysan is a piece of garbage (http://tinyurl.com/6ow957). Despite praise, it auto-spams your AIM list if you click 1 button. Never use it. 3:56 PM Nov 14th

  People get really mad when you tell them to sell their pets 9:13 PM Nov 12th from web

• OMFG http://www.bigskinny.net I WANT TO BUY A WALLET FROM YOU BUT YOUR HORRIFIC SITE IS SO BAD THAT I CAN’T FIGURE OUT WHAT TO BUY 4:31 PM Dec 5th from web
• Do you guys tip for takeout? 10:10 PM Dec 8th from twitterrific

Get my Twitter updates: http://twitter.com/ramit

I just wanted to let you know that I MADE $156 last week thanks to your advice. I have been on the frugality stuff for a while now, but your words that at some point, you just need to make more money finally echoed in my head enough to urge me to apply for a part-time job…after my full-time job.

I’m not making much per hour at the side job, but it’s more than I was making just sitting at home. It was tiring to race from my regular job to the side job, but I still have enough time to sleep (and read blogs, apparently).

Lots of frugality people complain that they can’t cut costs any more. They’re right, of course. When you’ve cut to the bone, there’s only one thing to do: Earn more money. Take a part-time job. Freelance. Babysit. Whatever it takes.

The tough part? There are no pithy to-dos on how to earn more. You just have to think hard and try different things. A very unsatisfying answer…but also true.

Edit: Here’s a great blog post with ideas on earning more

Today’s tip is to use barriers strategically to save money.

It comes from Liz Steihart of Los Angeles, CA:

With regard to all emails from retailers or etailers: remove yourself from their daily or weekly email lists. I don’t care if you love the shopbop.com emails, or the updates from Old Navy. Remove yourself and you won’t be tempted to internet shop impulsively because there is a new collection out, it is a new season, there is a sale.

Liz’s key insight is to use barriers to prevent yourself from spending money.

In my original article on barriers, I defined them in two ways:

Active barriers, the kind that stop you from doing something, and passive barriers, whose absence actually stops you from getting things done.

* Active barriers are physical things like the plastic wrap on my food, or someone telling me that it’ll never work, etc. These are hard to identify, but easy to fix. I usually just make them go away.
* Passive barriers are things that don’t exist, so they make your job harder. A trivial example is not having a stapler at your desk; imagine how many times a day that gets frustrating. For me, these are harder to identify and also harder to fix. I might rearrange my room to be more productive, or get myself a better pen to write with, etc.

Read the entire article and check out some examples of barriers.

How to apply barriers to your personal finances
1. When I wrote about how I track credit card receipts, I mentioned that I keep a folder on my desk that I check once a week. This is incredibly useful when it comes to actually managing my receipts. If I kept the receipts all around my house — or even in a folder in the next room — I wouldn’t bother checking the receipts. The barrier and activation energy to locate, gather, and sort the receipts would be too high.
2. Lots of people talk about freezing their credit card in a block of ice, or hiding it with a friend. If you have a problem with self-control, make something as difficult as possible to reach. Watch too much TV? Smash your remote control with a hammer (send me the video, I’ll post it). Eat out too much? Stock your fridge with perishable goods and force yourself to eat at least 50% of them before they go rotten. Your food goes rotten too fast? As soon as you get home, cut everything up and put it into bags that are ready to consume (more about packing lunches here).
3. Liz’s specific point is great: If you find yourself spending too much on shopping, make it harder for yourself to shop! Unsubscribe from all magazines and email lists you’re on. The simple fact is, if things are automatic, you will do them. And as the excellent book Nudge demonstrates, you can engineer whether these automatic things are good or bad.

Key point: Don’t just look for where you’re spending today. That’s surface-level. Look deeper to see what’s causing you to spend, and if you decide you don’t want to continue, then eliminate those causes.

Total savings: $10 to $200 per month

Last thing to do
1. Check out the other tips in the Save $1,000 in 30 Days Challenge
2. Leave a comment on this post describing how much you’re saving with this tip and any unusual techniques you use to make this tip work.
3. Want to submit your own savings tip? Submit a money tip here. Most of the tips you guys submit are absolutely horrible, so if I use your tip, I’ll send you something cool.

Today’s tip is to get rid of one service provider you’re currently using (a housecleaner, dog groomer, etc.) and learn to do it yourself instead. This is a small step to take that can amount to huge savings over the long run. And yes, it’s targeted at people who may be using a cleaning lady, gardener, etc. If you’re not, there are plenty of other tips for you.

This tip was submitted by Kris from Franklin Park, NJ who writes:

Stop using one service vendor, and come up with a plan to do it yourself. We fired the cleaning lady, and made it a family project to get the job done ourselves. It takes the family only 2 hours collectively. Even though the kids do very little, we got them involved and and we make it a contest with the kids to see who can vacuum faster. This same trick might work with the dry cleaner, dog groomer and probably many more.

The average American household spends $10,000 on local services like home improvement, entertainment and personal care.

To apply this tip, think about all of the things you’re paying someone else to do that you might be able to do on your own. For example, instead of paying to get your oil changed, learn some auto maintenance and do it yourself. Or:

• Cut your own hair or do your own nails.
• Cook your own meals.
• Get rid of your personal trainer or gym membership altogether - run or bike instead.

By the way, as a trick to make this actually work, I’d suggest just picking one provider and cutting costs deeply, rather than cutting costs 10% across a few different providers. This can be either quitting cold-turkey, or extending the time between visits.

Total Saved: $20-$100 / month.

* * *

Last thing to do
1. Leave a comment on this post describing how much you’re saving with this tip and any unusual techniques you use to make this tip work.
2. Want to submit your own savings tip? Submit a money tip here. If I use your tip, I’ll send you something cool.

Update: The webcast is over, but the comments below are the next-best thing to being there…

Here’s one of my favorite quotes:

Didn’t think it was gonna be 2 hours long but I’m listening to the recording I made and it’s awesome. Time to get off my lazy ass and set up my accounts without trying to find the best rates, automate my life or whatever. No barriers right? Really can’t wait for the next one(if there is one… PLEASE?) cuz I like this format just as much as you. Actual words sink in better than text apparently since I already signed up for scrooge, ing, and i’ve got my napkin with all kinds of math outlining my spending/saving plans

Live video by Ustream

If you want to ask questions or see what others are asking, join the full chat room + video here.

While you’re watching, here’s a link to my:

• Popular posts (including the Save $1,000 in 30 Days Challenge)

• Finance bookmarks
• My Twitter (micro-blog posts, multiple times/day)
• My speaking page (hire me to speak at your company/university/organization)
• Ramit’s Guide to Kicking Ass (ebook)
• Press articles written about I Will Teach You To Be Rich
• The I Will Teach You To Be Rich forums