Today, I’m going to share a strategy I’ve used to get regularly featured in The Wall Street Journal and extremely high-traffic blogs like Lifehacker.

You can skip right to the detailed writeup (includes examples & screenshots), but I hope the story below is useful.

This advice can be useful for getting thousands of new readers to your blog, customers to your new startup, or to get your dream freelance job. And you can start using it tomorrow morning.

So, back to the question: Why do some bloggers get the lion’s share of attention, while others toil endlessly to write posts that virtually nobody will ever read?

On a recent forum where both new and experienced bloggers share tips for getting traffic, SEO, etc, most of the discussions were debating minutiae about meaningless changes they could make to their blog to get more readers. “What SEO plugin should I use?” one asked. “Does anyone think I should change my blog’s name???” another wondered. After 20 minutes of reading, I had to close the window because I was getting so frustrated.

Look, here’s a simple chart of what matters for getting traffic for your site.

The Guest Post Strategy

Besides writing really good content, the easiest way to get traffic to your blog is to write something interesting for another blogger who has more traffic than you.

It’s funny — when you point this out to many new bloggers by saying, “Hey, why don’t you write up something really good and send it to a bigger blogger as a guest post?” — many of them quickly make up a bunch of excuses. “Well, uh…I am really busy this weekend” or “I’m in the middle of this really interesting post on how HSBC interest rates changed!” Yes, okay.

But it’s not just as simple as deciding to write a guest post. When it comes to high-traffic bloggers, there are very specific ways to approach them so they’ll accept your pitch.

Before we get to the tactics…

Who could apply this strategy? 3 examples

Like I said, this works for bloggers and many other areas of business:

1. You’re a new blogger who wants more traffic: If you’re a blogger and you’re looking to grow traffic, put yourself in the mind of bloggers with large readerships: They’re busy, they have huge egos, and they need to constantly post new, interesting stuff to satisfy their readers’ voracious appetites for content. Could you write one piece of excellent content for them?

   As an example, here were the results of Nora Dunn’s travel post earlier this week, which drove nearly 100,000 pageviews in 72 hours. I’ve already invited her to have a regular guest spot on I Will Teach You To Be Rich.

   
2. You want to break into the fashion industry: Or let’s say you read fashion magazines and really want to break into the industry. The magazine needs fresh perspectives, especially things that haven’t been done (think Money Diaries for a magazine, for example). How could you help them?
3. You just started a new company and need customers: How about if you’re starting a business on Christmas ornaments, and you aren’t sure how to get traffic to your website. The first thing I would do is record some interesting videos for other Christmas sites and give them away for free.

How to get hundreds of thousands of new visitors using the Guest Post strategy

I’ve written up a detailed post with the tactics for writing successful guest posts for high-traffic bloggers. This post and the writeup took me over 9 hours to write, which gives you a sense of how much time these take. But when you do it, you can get hundreds of thousands of new readers and many thousands of new customers for your business.

1. Read how: Tactics for writing winning guest posts for high-traffic bloggers (includes examples & screenshots)
2. Save money: If you like the kind of tactical tips I’m giving you, check out Scrooge Strategy, where I send out one highly tactical savings tip per week. You’ll get super-detailed tips on big wins for saving money that really work (not stupid tips on saving money on $3 lattes). Many of my customers save hundreds of dollars within the first 30 days, and there’s a 100% money-back guarantee.
   
   * Kristin Stromberg, Total savings: $2,500
   * Stacy Miller, Total savings: $660.60 by making only two changes
   * Matthew Earle: “It’s like having a smart, articulate, and inexpensive financial advisor that calls you all the time to check in.”
   
   See how you can save hundreds at http://www.scroogestrategy.com

I know I’ve been guilty of this.

Today, I’ve asked Nora Dunn, a professional world traveler, to write up a detailed post with her tips on traveling affordably. What I love about this article is how Nora has used money to do what she wants– instead of waiting around for a mythical day where she’ll be able to travel.

Below, you’ll find a few sites you’ve heard of, some you haven’t…and the overall message: Once you remove the barrier of money, what’s your excuse?

(Note: This is part of the new book, 10,001 Ways to Live Large on a Small Budget.)

Travel full-time for less than $14,000 per year

I “retired” from the rat race at the tender age of 30 to embrace my life-long dream of traveling the world, before life had a chance to get in the way.

So far, I have frolicked in the Rocky Mountains, fallen off the grid in Hawaii, managed tropical hostels, survived Australia’s worst-ever natural disaster, led eco-treks on Llamas, and nearly froze to death in a camper van. (The traveling life is rarely a dull one.)

I am not rich. I am not a trust child, nor do I have rich parents, a sugar daddy, or a stream of income that allows me to live the high life on the road. Full time travel doesn’t have to be expensive, and after two years on the road, I’ve learned plenty of tricks to travel the world without breaking the bank, and without an end in sight.

Here are my secrets (click to jump to the 11 tips below or just keep scrolling):

1. Save 80% on Airfare
2. Work for Accommodation
3. Get Free Accommodation
4. Work While Traveling
5. Learn the Truth About Volunteering
6. Become a Part of a Community
7. Avoid the Biggest Trap
8. Be Food Wise
9. Roll with the Punches
10. Rethink Travel Expenses
11. Travel Slowly

Tip #1 – Save 80% on Airfare

If you solely use the big online search engines to book your flights, there is a good chance that you are overpaying – sometimes dramatically. I will demonstrate with a case study.

For the purposes of this case study, I arbitrarily decided to fly one-way from Paris to Madrid on June 15th, 2009.

In performing my search on Orbitz, the cheapest fare came from Air Brussels for $249US. At first blush this seems like a terrific deal, considering the next highest price came in at $939US.

But before I got all excited and booked the flight, I checked a few other sites, the first of which is called Which Budget. By simply plugging in my starting point and destination, I was given a listing of all the budget airlines that fly this route – many of which are not indexed with the larger search engines.

If no options appear in your Which Budget search, the alternative is to do a series of Internet searches to find other airlines that fly this route. A great starting place is to find the website for your departing or arriving airport, which often lists the airlines it caters to.

In my search, Ryanair was one of the options that came up, and before I knew it, I had found a flight on the same day, direct no less (the Air Brussels option had a stopover), for… drum roll please…. 33 Euros. This works out to a whopping $45US.

Not only did I get a direct flight by doing a little extra research, but I saved more than 80% on the listed fares.

Words of Caution/Wisdom for Saving Airfare

• Be prepared to fly from other terminals or airports entirely. If you are booking connecting flights, ensure that you are arriving at and departing from the same airport, or that there is enough time for you to hustle to your new departure point.

• Watch the luggage rules. Many budget airlines cut their costs by charging for checked-baggage by weight. If you don’t pre-pay for your checked bags, or if you exceed the limit you paid for, you could face some hefty fines.

• Don’t expect to be wined or dined; not feeding guests is a common budget airline tactic. It’s no loss really – just pack some snacks.

Other Flying Tips

• Flying mid-week is usually the cheapest time.

• Picking your seats doesn’t have to be a shot in the dark with Seat Guru.

Tip #2 – Work for Accommodation

One of the biggest expenses for a traveler is accommodation. Working (or rather, volunteering) in trade for accommodation – also known as caretaking – is a great way to meet the locals, learn about the land, and get off the beaten path. All the while saving thousands of dollars on places to sleep.

Although most people think of WWOOFing (Willing Work on Organic Farms – we will discuss this in a minute) as the way to work in trade for accommodation, it is only the tip of the iceberg. There are work-trade gigs available in many countries, for people with a variety of skill sets. Among other things, I have milked goats, painted murals, manned reception, cleaned cottages, and maintained estates in trade for my accommodation.

My accommodation has varied in nature from five-star accommodations, to camper vans, to tiny shared hostel rooms, to Oceanside yurts (photo to the right is the view from my yurt). And you would be surprised at the lack of correlation between quality of accommodation and work expectations. Every position is unique and offers something different to the lucky (sometimes not so lucky) applicant.

Here are six resources that will allow you to find the work-trade arrangement that is perfect for you:

Caretaker’s Gazette – This is one of the most useful resources I have found to date. For the $30 annual fee, you will receive listings from around the world for people who are willing to offer rent-free living (and sometimes food too) in trade for your work. Work situations vary from house-sitting, to caring for the elderly, to farm work, campground maintenance, and beyond.

House Carers – If all you want to do is watch the house and walk the dogs, House Carers is for you. Basic membership is free, and the full meal deal is about $45. A majority of the listings are in Australia and New Zealand.

Organic Volunteers – For a $20 membership, you will find a variety of work-trade opportunities that are not limited to organic farming. It is an easy platform to use, and you can converse with hosts using their system to protect your personal information.

WWOOFing – As the most popular work-trade platform, you will find individual WWOOF membership plans for each country. After paying your fee (which varies from country to country), you will receive a booklet detailing the WWOOF hosts in the area and what they are looking for. It is recommended that you get your WWOOF booklet well in advance of your trip, as some are not fully online and will only mail you their listings.

Help Exchange – With a free basic membership (and a nominal premium membership which allows you to converse with hosts using their online platform), you can browse listings around the world which entail a variety of work-trade duties. The sky is the limit.

Work Away – This platform is very similar to the ones above, and costs €20.

Advantages of Work-Trade Arrangements

• The commute is never very far.
• You will learn many new skills.
• You can travel slowly (more on this later) and live inexpensively.
• Locations are sometimes remote (whether this is an advantage or disadvantage depends on what you want out of your travels).
• You don’t need a working visa, since no money exchanges hands in a work-trade arrangement. Many countries allow volunteer work in exchange for room and board.

Disadvantages of Work-Trade Arrangements

• Sometimes having your boss and your landlord as the same person can be troublesome. If you have a falling-out, you will not only be out of a job, but looking for a new place to live – and fast.
• Privacy (or lack thereof) can be an issue, depending on the situation.
• Sometimes you have to do grunt work. (Hey – if your host liked doing it, they wouldn’t have work-traders.)

Tip #3 – Get Free Accommodation

Using hospitality exchanges, you are a guest in somebody’s home free of charge. The arrangement generally lasts only a few days as opposed to the weeks and even months that a work-trade gig will last, so it is more geared towards active travelers.

What’s in it for the host?

They get to meet you, proudly show their home town to you, and live vicariously through your stories of adventure and travel. (Oh – and if you are nice, you will do the dishes for them too.)

What’s in it for you?

Instead of staying in an expensive and sterile hotel room, you have an “in” with the locals, you get to see how they live, and you have an instant local friend who can show you the ropes.

Although your stay is technically free, common etiquette dictates that you bring a gift for your host, and help out with the household chores and such. So while budgeting your free or almost-free trip, don’t forget to add in this cost.

Here are four resources for you to find the right hospitality exchange:

Couch Surfing – Couch Surfing is arguably the most well-known hospitality exchange, although not the first. Your bed for the night can take the form of a couch, extra bedroom, or chunk of the floor depending on what your host can offer. You can browse online listings, learn about and converse with your potential host online, and make arrangements to meet. Safety checks are in place to ensure no dodgy travelers/hosts ruin it for everybody, but as with all the opportunities listed in this section, please do your due diligence and go with your gut instincts to be safe.

Hospitality Club – I have used Hospitality Club to stay in a few Australian homes and meet new friends in other places in the world. The platform is similar to Couch Surfing with checks and balances, and a wide variety of members can make this site an adventure to surf.

Global Freeloaders – If the platform or profiles on Couch Surfing and Hospitality Club aren’t doing much for you, then check out what Global Freeloaders has to offer. The only stipulation to membership is that you must be able to reciprocate and offer up your home to travelers within six months of signing up. So if you are on a long trip, best to wait until you get home unless you can host travelers before you leave.

Servas – With over 50 years under its belt, Servas is considered to be a pioneer in the hospitality exchange arena, and is recognized by the United Nations. The membership application process is more grueling, and requires a personal interview before acceptance. Fees vary from country to country, and many country listings are not yet available online (instead, they are mailed to you). Although I don’t doubt the quality of candidate screening and such, I find it much easier to use the other three options above.

Tip #4 – Work While Traveling

There are a few ways you can keep the money flowing while traveling long-term, depending on your skills and desires. Here are three:

Freelancing on the Web

With an increasing trend towards telecommuting, the widespread use of social media, and online businesses cropping up everywhere, it is quite possible to make a living online while you travel, with little more than an internet connection. Personally, I make my millions (ha) as a writer, the income of which pays my expenses over and above accommodation (which I usually work in trade for). I know another fellow whose websites and freelance SEO work make him over $3,000/month – a more than adequate long-term traveling income. (You will see shortly that the cost of full-time travel may not be as high as you think).

Reading The 4-Hour Workweek by Tim Ferriss was instrumental in helping me to see the online income, telecommuting, and outsourcing possibilities. Freelancing on the Web is possible in many careers, even if at first it may not seem so. If you are new to the concept of being an Internet business-person, then start slow; subscribe to newsletters, lurk forums, and watch how other people in your line of work are making a go of it. Combine this prep work with an ingenious idea, and you could end up laughing all the way to the bank. (Or at least covering your next dinner out. Either way.)

Working Visas

If you are under the age of 30, you can get a working visa without much drama in many western countries. In this way, you can take your skills on the road and enjoy learning how to do your job on the other side of the planet. Some country-specific resources can be found here on this topic: Australia, New Zealand, Canada, UK. Search for the country name plus “working visa” for the countries you’re interested in.

Additionally, Work Permit and Transitions Abroad both have great resources for those wanting to know more about working abroad.

Other Work

Do you know how to tend bar? Serve tables? Are you a scuba dive master? You would be amazed at the working opportunities that present themselves to you on the road with a little networking and looking under the right rocks.

Now I would never condone working illegally in a foreign country, so if that is your gig, just don’t tell anybody that I suggested it. But depending on where you travel and your ability to communicate with the locals, don’t be surprised if a chance to work for a little extra cash comes your way. With a few nods and winks, you can make enough money to cover off some of your traveling expenses.

Or – as was the case with my travel partner, who used to fight forest fires in Canada and found himself in the middle of the worst bush fire Australia had ever seen – you may find your skills are suddenly in such demand in the country you are traveling to that a working visa will materialize.

A quick cautionary note for anybody planning to travel and work: Be aware of maintaining a balance between work and play. I have more than once entrenched myself so deeply in my work that I have lost sight of why I am on the road in the first place. As with most freelance lifestyles, everything in moderation is a key thing to remember.

Tip #5 – Learn the Truth About Volunteering

Although you would think that volunteering never costs the volunteer any money, you may be surprised. Depending on the organization, you could spend more money for the privilege of volunteering your hard labor than you would to sit on a beach at a luxury all-inclusive resort, being plied all day with tropical drinks bearing umbrellas. So volunteering on vacation is rarely a financial decision, and more likely an altruistic one.

But don’t lose hope if you are on an altruistic travel quest with a minimal budget. There are a number of ways to volunteer inexpensively (or for free) if you are willing to do some research.

In Asia, I met two German girls who were on a world tour, volunteering everywhere they went. In each destination, they found orphanages and refugee camps that were more than happy to have them in each afternoon to play with the kids or help out with some of the chores. They rarely paid for this chance to help, and more often than not got a rewarding grassroots volunteering experience out of it.

If you are looking for something a little more packaged or travel-friendly, there are a number of volunteer travel resources that can help you find the perfect position:

Continental Divide Trail Alliance – A little closer to home, you can work on nature trails in North America with this company. A small membership fee applies, which allows you to volunteer as much as you like. It’s hard work, but satisfying work at that.

Conservation Connect – If you are in Australia or New Zealand, this website will connect you with a myriad of volunteer opportunities, depending on your area of interest. Day trips are free to volunteer for (pack a lunch), and overnight trips work out to $200/week, all expenses in.

Personal Overseas Development – This non-profit organization connects travelers with volunteer opportunities across the world.

Compathos – This organization brings awareness and support to worthwhile international projects and volunteer travel opportunities through film, digital storytelling and grassroots media.

Voluntourism – As a pioneer of the term “voluntourism,” this comprehensive site is a practical and educational resource.

Idealist – This site connects volunteer organizations with supporters and volunteers. It has a great search engine for finding just what you want, where you want.

Transitions Abroad – This is also a fabulous resource for eager volunteers to use.

I have personally found that the most rewarding volunteer opportunities were serendipitous and not organized. While in remote northern Thailand in 2008, Cyclone Nargis (which devastated the neighboring country of Burma) just missed me. Touched by the incident and the amount of suffering that was a stone’s throw from where I was, I dropped my trip and volunteered my help wherever it was needed. My initially simple (and admittedly naïve) plan exploded in 24 hours into the ride of a lifetime. By virtue of this adventure, I now have lifelong friends in Thailand.

Less than a year later, I found myself in the middle of the Victorian Bush Fires: Australia’s worst ever natural disaster. Once again, I rolled up my sleeves to do whatever I could, which involved working for almost a month (full-time) at a warehouse which was accepting donations of supplies for the survivors of the fire from all over the country. It was a heart-warming community-strengthening experience, and one with a happy ending: by virtue of the work that my partner and I did, we were granted 1 year extensions on our Australian visas – and given working rights. (Well, maybe it helped a bit that I ran into the Australian Prime Minister during the relief efforts: see photo to the right.)

You never know what can come out of an earnest and unselfish desire to do good for the world.

And as a Rotarian, I attend local Rotary meetings wherever I go, and am immediately tapped into local volunteer projects. It is a fabulous way to fast-track becoming part of a community.

Tip #6 – Become Part of a Community

Speaking of fast-tracking to becoming part of a community in record time, here are eight ways to help you do just that:

Rotary - Rotary is a service-based organization that works on both community and international levels to improve quality of life for everybody. Almost solely responsible for eradicating polio around the world, and with numerous sponsored student and career exchanges available, attending a meeting abroad is a brilliant way to share some camaraderie with fellow Rotarians around the world.

Toastmasters – As another international organization (this one dedicated to public speaking), you can show up at a Toastmasters meeting anywhere in the world and be welcomed with open arms. (Well, within reason. If you are a female arriving in a Muslim country wearing nothing but a bikini you have made your bed.)

See an Opportunity? Help!

The quickest way I worked my way into a completely foreign community was when I adopted the project to help the Cyclone victims of Burma. By simply rolling up your sleeves and helping where you see a need, locals will see what you are doing and come to help you. It doesn’t have to be a monumental project: start with helping an elderly person with their groceries, and see where that takes you.

Library

At least in developed countries, and even in some lesser-developed areas, libraries are a hub of community information and resources. You will often find access to free or inexpensive seminars, workshops, and special interest groups. Besides which, the library is a great place to research your trip and pass some time for free.

The Pub

In many global circles, enjoying a drink with somebody is the unspoken sign of kinship. Not only that, but who is the best person in town to talk to if you want the latest word on the street? The bartender, of course. So pull up a stool, and just take in the scene at the pub. If you look remotely approachable, you won’t likely leave alone if you don’t want to.

Bulletin Boards

I love bulletin boards. Be they in hostels, libraries, pubs, or supermarkets, you can learn lots about a community by virtue of their bulletin boards. Search the listings – you may find a job opportunity, some gear you want to buy (or a buyer for something you want to sell), a place to stay, or even just a new friend.

Community Newspapers

Although a little less interactive than bulletin boards, a community newspaper will give you a decent sense of what makes the community tick and tap you into the local pulse.

Keep your Eyes Open, and Get Involved!

Be aware of your surroundings, and don’t be shy. In Thailand one evening, my boyfriend and I noticed some elderly people sitting around a radio and listening to the closest thing to Thai-Country music I could imagine. We spent a spontaneous evening enjoying their company and watching all the tourists at the market, almost none of whom looked up from their souvenir shopping long enough to notice that we were having a good time right in front of them.

By becoming part of a community, you will discover new doors opening for jobs, places to stay, and places to eat. You will get to know the local culture better, avoid the tourist traps, and best of all – you will make some amazing friends along the way. Enriching travel involves putting yourself out there, potentially making a few mistakes along the way, but also reaping the benefits of your courage in unimaginable ways.

Tip #7 – Avoid the Biggest Trap

This is an easy tip to learn, but one of the hardest to practice. I still struggle with keeping my travels free or almost-free, given the never-ending temptation to…are you ready for it?…buy souvenirs.

Don’t.

One of the easiest ways to save money while you are traveling is to steer clear of the souvenir shops. Most often, the goods are mass-produced in another country entirely, and lack the authenticity that you are probably looking for. Even if you find yourself coveting a trinket that is “real,” ask yourself these questions:

• Is it an accurate representation of the place I am visiting?
• Will I use it?
• Will I remember this trip by virtue of owning this souvenir?
• Was I planning on buying something like this anyway?

If you even think twice about answering yes to these questions, it is best to reconsider your purchase.

Instead of leaving yourself to chance and impulse, why not put a little purpose into your souvenir shopping? Before leaving for your trip, choose one or two items that for you will encapsulate the trip and the destination, then spend your traveling days searching for the perfect artifact. If the whole family is planning, allow everybody to choose their own souvenir. It gets other family members involved in the trip planning process, and will minimize the kids’ incessant requests for “can I have this…and this…and this?”

I have a pair of blue tanzanite earrings and a mask from South Africa, a silk shirt and painting of Buddha from Thailand, hand-carved wooden salad spoons from Spain, and a hand-crafted Didgeridoo and piece of black opal from Australia, as examples. Not a tacky t-shirt or keychain can be found in my collection of souvenirs from around the world. My wallet thanks me, and I like it this way.

Tip #8 – Be Food Wise

From food selection, to the time of day you eat, to how you eat and socialize – there is a lot of money that can be spent (or alternately saved) by virtue of paying attention to how you eat while traveling. (Don’t worry, I won’t tell you to eat ramen if you don’t like to.)

Case Study: Taco Tuesday

When I lived in Hawaii, I met a lot of travelers at the hostel where I was living (and working in trade for accommodation). Everybody enjoyed sharing and hearing travel tales of adventure and misadventure alike. So when “Taco Tuesday” presented itself as a way to get super cheap beers and tacos, we jumped at the opportunity to enjoy a night on the town all together.

Interestingly, Taco Tuesday became a fascinating study in the spending patterns of people on vacation.

John and Wendy, having nipped over to Hawaii for a quick break before embarking on a major move across the country, didn’t have huge money concerns, but were trying to be frugal knowing that their upcoming move would cost them dearly. Dave and Angie were finishing off a trip around the world, having been on the road for eight months already through countries both expensive and inexpensive.

They played hard during their trip, but their stash of cash was predictably dwindling (an expected bi-product of good budgeting through their long trip). Julie was a very young headstrong woman figuring out where she belonged in the world, and Wayne was an older gentleman on an extended vacation. Rounding out the group (in addition to myself) was Phil, who was something of a nomad, living and working in Hawaii for a bit before moving on to the next locale that tickled his fancy.

I describe each friend’s background in an effort to paint the picture; one of a group of people, all originally from North America, but bringing an entirely different set of experiences, finances, and travel values to the table.

Where things got interesting was in how people indulged on Taco Tuesday.

John & Wendy decided that cheap beer was more appealing than cheap tacos, and so they engineered their budget for the night to partake of the beer (at $2/bottle), and prepared their own full dinner at the hostel prior to going out. Dave & Angie being well-seasoned travelers chose to fill up on some home-made appetizers prior to going out, and each nursed one beer and a taco or two. Julie simply had Coke (not only was she young, but she was broke and underage), and Wayne (who had gads of money) flew under the radar with one beer and two tacos, as did I. And then there’s Phil. Poor Phil.

Phil was definitely out for the party and camaraderie, but didn’t have much money to spare given his lifestyle. This didn’t seem to stop him from indulging though; he managed to order seven tacos, and four beers – not the beers on special though – premium beers.

Phil’s tab ended up being more than everybody else’s tab – combined. No wonder he was constantly broke. He listened to tales of faraway and exotic destinations with drooling enthusiasm – and a bit of melancholy, as he wished he had the ability to travel to these places, but couldn’t scrape together even the airfare if he had to.

Here’s the rub: The amount of money spent on this night was in no way correlated to how much fun each person had. Everybody laughed, shared stories, enjoyed the leisurely walk along the ocean to and from the bar, and came away with great memories. If anybody, Phil seemed the least enthused about the night, spending much of the walk home doing the math about how many hours he would have to work to pay for his tab. At least he had a good buzz on to dull the financial pain.

Despite a range of financial backgrounds and intrinsic values, the people who had the ability to spend a wad of dough that night chose not to. Most people ate something at home prior to going out, so they wouldn’t be starving and end up over-eating at the bar. The tacos were cheap – but they weren’t cheaper than a healthy homemade snack or meal.

Next to accommodation and long-haul flights, food and drinks are going to be the biggest drain on your expense account while you are traveling. So although you don’t want to sacrifice quality of your vacation by limiting yourself, you can decide what is important to you and budget accordingly. If you were at Taco Tuesday, what would you do?

Do you like beer? Then scrimping a bit on food may be a way for you to enjoy a night on the town without wondering if the next beer will put you over-budget.

Do you like food? Then drink water instead of premium drinks, and order that dish that makes your mom’s cooking look like slop.

Here are some more tips for saving money on food:

• If you don’t normally eat breakfast in a restaurant, don’t do it while traveling. Instead, save your money and buy some basic ingredients from the grocery store.

• Want a special meal out? Consider going out for lunch instead of dinner. You often get similar if not identical portions, but for a fraction of the dinner prices.

• Avoid hotel restaurants, especially for breakfast. They tend to be overpriced in the name of convenience.

• Does the restaurant have a beautiful view? If so, chances are you are paying for it with your meal. Instead, go to the restaurant around the corner (for better and cheaper food), and/or take a picnic to where the view is.

Tipping

Don’t carry your 20% American tipping conventions around the world with you – it is unnecessary, and in some cases, you can actually offend locals. Instead, do some research. For example, tipping at bars and restaurants is not expected in Australia, China, and Italy. In Germany, look for the words “Trinkgeld Inbegriffen” on your bill which means a service charge has been included already.

Tip #9 – Roll with the Punches

When I decided to travel full-time, I had aspirations of heading to Costa Rica as part of a broader Central and South American adventure. But before I booked the ticket, an opportunity came to me that took me across Canada instead. When I was ready to re-join my original plans, another opportunity to go to Hawaii cropped up. Then Asia. Then Australia. And so on. I’ve yet to make it to my original destination, but Latin America isn’t going anywhere – it will surely happen yet.

While you are traveling, opportunities of many an ilk will come to you from all directions. Be prepared to adopt and accept these changes as part of your traveling credo. You can’t possibly predict what will happen or how you will feel when you land in India, so cut yourself some slack if you either feel the need to get out of there ahead of plans, or want to extend your stay after accepting the generous and spontaneous hospitality of a local family.

Had I not rolled with the punches and allowed my travel plans to evolve with me, I may never have had a chance to meet Bracken – the kangaroo I lived with for six months nor would I have ever learned to milk goats (hot on the heels of being a very city-oriented business person a mere few months prior).

I might have missed out on meeting the generous people in the tiny town of Lightning Ridge, and I certainly would never have become a part of the local Chiang Mai community if I had continued with my agenda and not helped the Burmese victims of Cyclone Nargis.

Tip #10 – Rethink Travel Expenses

In my first full calendar year abroad, my partner and I spent $20,000 in total. This included a host of miscellaneous and pricey expenditures, such as the purchase of a new laptop, a car, insurance, and numerous long-haul flights. For a single person, I would suggest that the cost of full-time travel could be achieved for $14,000/year. By utilizing the techniques outlined in this article, you can see that travel doesn’t have to break the bank.

Tripbase has some funky widgets for planning your trip, including the handy Trip Cost Calculator, which estimates the cost of lodging and three daily meals in any given destination, according to your selection of a budget, mid-range, or high-end price tag.

Tip #11 – Travel Slowly

The more flights you take, the more money you will spend. The more you have to pack up, hop on a bus, a train, or a taxi, and find a new place to stay, the more money you will spend. Want to keep your travels free or almost-free? Consider traveling slowly.

Think of your trip as a lifestyle and not just a getaway, even if you are only traveling for a short time. Don’t worry about seeing absolutely everything there is to see in Europe – just focus on one or two countries if you don’t have years to see it all.

By staying in one place for a while, you will get to know the people, the language, and the culture. Your new connections and friends will help you to have fun, plan the next stage of your trip, and embrace the place you are visiting. If you are actually living there as a local (even for a month or two) as opposed to actively traveling through, you will get a different perspective of the place entirely.

Traveling slowly is very rewarding. I am about to take a four month trip around the world (yes, I’m already a full-time traveler; it’s a long story). But I’m only choosing to visit a few destinations, which I will explore in depth.

By volunteering for a few weeks here and there, working in trade for accommodation or using hospitality exchanges, watching what (and when) I eat and what I buy, and being savvy in booking flights, I will integrate myself into the local community, see the sights, and make friends. Oh yeah – and I will be traveling for free – or almost-free, anyway.

For more tips on how to explore the world without spending a fortune, check out Nora’s blog and her new book 10,001 Ways to Live Large on a Small Budget. The book includes guest contributions from other great blogs such as Wise Bread, Zen Habits, Get Rich Slowly, The Simple Dollar, Digerati Life, and the Frugal Duchess.

Buy the book today and get a $15 Ebates bonus and a chance to win a Flip Cam.

Photo Credit: Masks by The Wandering Angel and Beach Cabana by Wolfgang Staudt.

I include a call script in Chapters 1 and 2 of my book to do this.

Aaron T. writes:

I was fortunate enough to come out of school with no student loans, but do have $4364.11 in credit card debt over 2 cards. One is $999.03 and the other is 3,365.08. I just started reading your book yesterday, today I called the card with the higher balance to lower my APR from 19.99%. I have had this card for almost 4 years. My Mom had been paying the minimum for a year or so, but since I became full time I took over any other bills my parents were paying. I have paid $200 the last 3 months and my minimum payment is around $89.

Anyways, I just called and asked, (I had to do no negotiating really, I just followed the script you have in your book) and I got my APR lowered from 19.99% to 14.24%, effective immediately.

Basically, the $13.95 my girlfriend paid for your book will more than pay for itself by the time I get my next bill.

See for yourself with full-chapter excerpts of my book.

Then get the book at Amazon or B&N.

The question was, “How many false starts have you had?” but in my response, I mention something I’ve been meaning to write about: The Tripod of Stability.

This basically means that I try to keep the big things in my life ultra-stable — car, where I live, relationships — so I can afford to be ultra-aggressive about other things. This alone has had a huge effect on my ability to take on risky and new projects all the time.

Check out the clip:

More videos

• On Tim’s blog, see 3 more clips on blogging tactics and self-publishing vs. traditional publishers.

• I’ve put up 75+ other videos at youtube.com/ramitsethi.

1. How much money do you spend each month?
2. Where does it go?
3. Where do you want it to go?
4. Are you rich?
5. What does rich mean to you?
6. Hey, how’d you pay for that iPhone?
7. How much do you automatically save each month?
8. Why’d you pull your money out of the stock market?
9. You’re always thinking about cutting down on spending. Ever thought about earning more money?
10. OMFG, are you REALLY planning to buy a house for the tax deduction?
11. If your employer has a 401(k) match, do you max it out?
12. Then pay off debt, invest in your Roth IRA, and — if you still have money left over — max out your 401(k)?
13. Once your money is in those different accounts, have you invested it according to some simple rules of asset allocation?
14. In the next ten years, you’ll have to pay for a wedding, new car, have kids, take vacations, etc. How much are you saving each month for those things? (In last week’s Scrooge Strategy tip, I showed how to do this tactically, along with a pre-built spreadsheet.)
15. 6 months ago, if I had told you the stock market would be on sale for 50% off, would you have invested more, less, or pulled all your money out?
16. You’re always complaining about money, but have you read even one book on personal finance?
17. When was the last time you said “no” when someone asked you to do something that involved spending money?
18. How do your friends handle their money, and how do you think it affects you?
19. What’s the one thing you could do today to start getting rich?
20. Why haven’t you already done it?

[Update]: Download a PDF version of these questions for easier sharing.

0:01 — Intro: We’re going to talk about what’s happening with the economy, asking the right questions, what you can do with your money. PS–It’s my first time doing video for this site, so please cut me some slack!

0:12 — Lots of questions: “What’s happening?” “Who can I blame?” “Why is the government bailing companies out?”

0:45 — Most of the questions are totally irrelevant!.

What do we know?
1:11 — Your money is generally safe: Money in savings accounts is insured up to $100,000 per account, and money in brokerage accounts is insured up to $500,000 (with some nuances). However, this doesn’t mean money in your portfolio is insured against losses in the stock market — if your portfolio is down 20%, it’s really down 20%. That’s why investing is “investing,” not “picking a sure thing and profiting a lot.” SIPC insurance means it’s insured against the brokerage firm going belly-up. Learn more by reading this article.

If you’re looking for a broad-based understanding of what’s going on, The New York Times has been providing excellent coverage, especially this page.

Worry about the things you can control
1:47 — We misjudge risk and worry about stuff in the news — as opposed to the real risk. Let’s say you’re worried about not having enough money. Which is more likely?

1. You’ll run out of money because you lost it all in a tumultuous stock market
2. You’ll run out of money because you didn’t save enough, spent money on stupid stuff (vs. spending consciously), and didn’t properly diversify your assets

OF COURSE it’s the second, but because of the availability heuristic, we tend to overweight what’s easily accessible in our brains (i.e., we’re all worried about what we read in the papers right now).

Remember, we are cognitive misers and can only pay attention to a few things, so take advantage of that. I’d rather focus on the very real risks that have caused millions of people before me to not have enough money to sustain their lifestyle — that is, not saving enough — rather than worry about a macro-economic topic that’s in newspapers. Sure, it’s important, but I can’t control anything at the macro level. At the micro level, I can control everything. (Note: Here’s a good book on judging risk.)

What you should focus on
2:12 — Save more — single-best thing you can do to mitigate risk

(No time stamp.) I forgot to mention this in the video, but please don’t fall prey to the myth of financial expertise: Nobody has The Answer about how bad this will get and how long it will go. Experts have been trying to predict this for years — remember in 2007 when they said it would “probably be fine by the end of the year?” — and they’re still trying. And failingDon’t try to time the market. You’ll fail too. Just pick a regular, consistent investing strategy and optimize for the long term.

2:23 — Tweak your asset allocation

2:42 — Stop asking stupid questions!

2:52 — Best things you can do: Forget about macro-stuff and focus on your own finances. Save more, do a kick-ass job at work and get a raise, or even start a side business.

Hey, what did you guys think of the video? Should I do more? Let me know if you have any suggestions or questions for other stuff you want me to talk about.

She looked at me and, without a hint of arrogance, said, “Oh, I’ll check it out. I actually talked to my family and we have an unlimited budget for the wedding.” With one sentence, I was rendered speechless. She didn’t brag. She just said it matter-of-factly: Her wedding could cost anything and it was ok.

She comes from a very wealthy family, so this isn’t such an unusual thing. What is unusual, however, is that so many people will scoff at the above story — and then proceed to spend ungodly amounts on large purchases like a new home or a wedding while steadfastly insisting how absurd “most” people are. Today, I want to write about how to plan for these large life events. But be prepared — you’re going to have to confront the hypocrisy that we all have when it comes to these purchases.

Of course your wedding will be simple
When my first sister called me to tell me that she’d gotten engaged earlier this year, I was out with my friends. I ordered champagne for everyone. When my other sister told me she was getting married a few months later, I told all my friends again. Then I found out they were having an East coast wedding and a West coast wedding — each — for a total of four weddings in a few months. I ordered a round of cyanide and made mine a double.

That’s what got me started thinking about weddings recently. The average American wedding costs almost $28,000, which, the Wall Street Journal notes, is “well over half the median annual income in U.S. households.” Hold on: just wait a second before you start rolling your eyes. It’s easy to say, “These people should just realize a wedding is about having a special day, not about putting yourselves in crippling debt.”

But guess what? When it’s your wedding, you’re going to want everything to be perfect. Yes, you. So will I. It’ll be your special day, so why not spend some extra money to get the extra-long roses or the filet mignon?

My point isn’t to judge people for having expensive weddings. Quite the opposite: The very same people who spend $28,000 on their weddings are the ones who, a few years earlier, said the same thing you’re saying right now: “I just want a simple wedding. It’s ridiculous to go into debt for just one day.” And yet, little by little, they spend more than they had planned — more than they can afford — on their special day. Why is that?

The spending for weddings increases year after year. Yet we insist that we will be different: Of course we won’t spend that much. Of course we’ll have a budget. Of course we’ll have a small simple wedding. Sure we will.

So what should we do?
So knowing the astonishingly high costs of weddings, what can we do?

I see three choices:

Cut costs and have a simpler wedding. Most people, frankly, are not discplined enough to do this. I don’t say this pejoratively, but statistically: Most people will have a wedding that costs tens of thousands of dollars. (If you want to debate the difference between the average or median amount, see here or below for a simulated wedding budget.)

Do nothing and figure it out later. Most people do this. I spoke to a recently married person I know who spent the last 8 months planning her wedding, which became a very expensive day. Now, months later, he and his wife don’t know how to deal with the debt resulting from the wedding. If you do this, you are a moron. But you are in good company since almost everybody else does it, too.

Budget and plan for the wedding. Ask 10 people which of these choices they’ll do, and every single one of them will pick this one. Then ask them how much money they’re saving every month for their wedding (whether they’re engaged or not). I guarantee the sputtering and silence will be worth it. (Leave a comment describing what happens!) This is a great idea in theory, but is almost never followed in practice.

We actually have all the information we need: The average age at marriage is about 27 for men and 26 for women. We know that the average amount of a wedding is about $28,000. So, if you agree with this choice — and you don’t want to go into debt for your wedding — here’s how much you should be saving (RSS readers, click here):

Most of us haven’t even thought about saving this amount for our weddings. Why not? What do we do instead?

We say things like,

• “Wow, that’s a lot. There’s no way I can save that. Maybe my parents will help…”
• “My wedding won’t be like that. It’ll be simple and elegant”
• “I’ll think about it when I get engaged”
• “Luckily, I won’t have to pay for it.” (Who will? Is your future spouse thinking like this?)
• “I have to marry a rich guy” (I’ve heard people say this and and they were only half-joking)

More commonly, though, we don’t think about this at all: one of the most major expenditures of our lifetimes, which will almost certainly arrive in the next few years, and we don’t even sit down for 10 minutes to think about it. Something’s broken here.

Here’s a sample expense sheet of a wedding. Try playing around with it (RSS readers, click here):

(Figures taken from my dad, recent wedding-planning expert, and partially combined with these figures and these figures.)

Note how changing the amount of guests doesn’t really change the cost very much: Reducing the headcount 50% only reduces the cost 15%. Creating a simple, affordable wedding, it turns out, is surprisingly hard.

It’s not just weddings
Weddings are just one example. We don’t plan out our largest expenses, like houses, cars, and even kids. This is what I call conscious spending but, honestly, it’s much easier to simply ignore these looming purchases and think about them later.

The problem is, if you don’t plan ahead, it becomes much, much more expensive. From the example above, a 25-year old who starts saving for his wedding will have to save 3.5 times the monthly amount a 20-year old will. The alternative is to simply finance it, which makes it even more expensive because of interest. This is especially true of long-term loans for houses.

Some recommendations
1. Be realistic. Even though you’re reading personal-finance blogs like iwillteachyoutoberich and are probably better at your finances than 99% of other people, you’re still human. Your wedding (and mine) will be more expensive than we plan. The head-in-the-sand approach, however, is the worst thing we can do. Sit down and make a realistic budget of how much your big purchases will cost you in the next ten years. Do it on a napkin — it doesn’t have to be perfect! Just spend 20 minutes and see what you come up with.

2. Set up an automatic savings plan. Since the last recommendation to make a budget was completely unrealistic and almost nobody will do it, I suggest just taking a shortcut and setting up an automatic savings plan. Assume you’ll spend $25,000 on your wedding, $20,000 on a car, and (however much) on a down payment for a house. “But Ramit,” you might say in an annoying perfectionist voice, “that’s almost $3,000 per month. I can’t afford that!” Can you afford $300? If so, that’s $300 better than you were doing yesterday. Now that you’ve read this, your preparation — or debt — is a choice.

3. You can’t have the best of everything, so use the P word. Prioritization is such an important concept. Like I said, it’s human nature to want the best for our wedding day or first house, and we need to be realistic about acknowledging that. With that said, we simply can’t have the best of everything. Do you want the better food or an open bar at your wedding? If you have the costs on paper, you’ll know exactly which tradeoffs you can make to keep within your budget. If you haven’t written anything down, there will appear to be no tradeoffs necessary. And that’s how people get into staggering amounts of debt. For the things you de-prioritize, beg, borrow, and steal to save money: Use a public park instead of a ballroom, ask your baker friend to make the cake, and ask relatives to help with cleanup. This is where, if you plan ahead, time can take the place of money.

Ideally, you do #1 (simplify) and #3 (plan). But even if you can’t simplify, at least you can plan.

The result — and what to do today
Today, sit down and plan out the major purchases you’ll have in the next ten years — whether or not you’re engaged or have any plans to buy a house soon. This is really important: Planning before you need to separates rich people from everyone else. Plan out how much you’ll reasonably need. Plan out how much you can save. Then go into your savings account and set up an automatic deposit plan. (I use ING bank — set up an ING account in about 15 minutes.) Starting tomorrow, your savings account should have virtual buckets of money for upcoming items (e.g., 30% for your down payment, 25% for your wedding…).

The result: A wedding where you know all the costs and prioritize for what’s important for you. A wedding where, the day after, you’re debt-free and can start your lives together. And the ability to control your spending, instead of having it control you. Sort of like the point of this entire site.

I’ll write more about the logistics setting up automatic savings plan in my upcoming book, I Will Teach You To Be Rich. To get early excerpts and the chance to be featured in the book, sign up for my free newsletter (sample newsletter here):

If this is your first time to iwillteachyoutoberich.com, the blog on personal finance and entrepreneurship, here’s a quick guide to get started.

See, every single day I write on here, I try my hardest to communicate the idea that personal finance is not very hard to get started with. There are a few strategies that time and research have proven work for making money. Yes, there are endless strategies to optimize, but for most of us, they’re irrelevant: The largest, most important problems are that we don’t get started early enough and we’re not disciplined enough. Unfortunately, that message isn’t sexy enough to sell magazines or satisfy kooks who want to wring their hands about the current state of affairs. As a result, we see people confusing global geopolitics with personal finance. They worry about how the oil shortage in Chechnya (or whatever) will affect the currency crisis that will affect their country’s immigration policy that will affect the unemployment numbers that, somehow, will affect the amount of money they’re able to save.

I hear these kooky tales and they infuriate me. Today made me rise out of my PBwiki cave and write this because we have half the financial pundits on TV freaking out about yesterday’s drop in the stock market.

Minor stock-market drops like this amuse me because we see these crazies come out in full force. On the Reddit page describing yesterday’s stock-market decline, for example, we see some very good comments (towards the top) and then many idiotic ones like these:

• “The 10% return myth is nothing but Wall Street propaganda”
• “500 points on teh dow in one day is a big deal. If that continutes for 1-3 more days it will melt down”
• “Equities only got really good returns when most people were scared of them”
• “The real history of US equities is just that there were three really big bull markets: in the 20s, in the 60s, and in the 80s/90s. Outside of those periods broadly investing in stocks has been a lousy plan, and for most of the 19th century it got you soaked.”

Here’s a tip: If someone starts using words that sound really big combined with accusing somebody of a Very Large Conspiracy, chances are they don’t know what they’re talking about. Also, you’ll notice that kooks use qualifying words like “broadly” and “in general” and “melt down” (what does that mean, exactly?). It’s hard to be wrong when you can’t be pinned down.

I have a serious problem with people using wide-eyed, handwavy geopolitical logic to explain what’s going to happen with their money. But one thing these short-sighted pundits forget to remember is that a market goes up and it goes down. YESTERDAY IT WENT DOWN. ALL DATA WE HAVE INDICATES IT WILL GO UP SOMETIME SOON.

A couple months ago, a friend of mine called me and started telling me about her personal finances. This girl goes to a Very Good Law School, so don’t dismiss her for being unintelligent. But I couldn’t help but feel rage as she started telling me the following things:

• ”I’m not going to invest in the stock market because it’s not safe. The current crisis means our money will be worth less and less every day. When you factor in the immigration crisis, it’s virtually untenable.” I have to give her credit, though: It was a good use of the word “untenable.”
• ”I really want to start my own company doing something I love. I think entrepreneurship is safer than investing.”
• ”I want to stop working in 5 years and support my family financially (even though I’ll stay at home to raise the kids). So I have to start something successful.”
• ”I don’t think 401(k)s are the way to go because there is a lot of risk and you can’t control your choices.”

We see someone here who doesn’t really know what she’s talking about. She’s not stupid, just misinformed. I told her that, too. These are not the reasonable conclusions of someone who’s informed about personal finance, but someone who’s cobbled together a shaky theoretical framework that ties personal finance, global politics, and entrepreneurship together. I wanted to die.

I probed a little bit. “Where did you learn this stuff?” I asked. She hemmed and hawed and finally said that she’d read “part of” Donald Trump and Robert Kiyosaki’s book (read some thoughts on the book here).

This made me so mad. Here we have someone who’s getting bad information—and then, only reading part of the book—and not comparing it to any information. While she was misinformed, she needs to take some responsibility for actually learning this stuff. Think how much time we spend on things like our email, our problem sets, or even reading US Weekly. Then think how much time we spend seriously learning about personal finances. Which affects us more? Which one will you complain about more for the rest of your life?

I was doubly frustrated that she was using one book as her gospel. Listen, if you use one place as your only source of information, you are a moron. I don’t care if it’s iwillteachyoutoberich or the Wall Street Journal. One source is not enough. You need to be reading multiple, research-based sources so you can compare what is actually happening, not just discussion groups on the Internet where people share their opinions about what’s going on.

If you do read sources that only confirm each other, you get something like this. Here’s an email I got recently that just blew my mind. This iwillteachyoutoberich reader uses the shakiest logic I have ever seen to paint the most dire picture of personal finances in America. Take a look:

“The blogs on personal finance have exploded since then. Good way to tell we’re at the cusp of a serious recession now, not that half-asssed one when the stock market dot-bombed.

Of course, that mini-recession hurt me badly, because there was a state budget crisis nationwide and I work in government. I couldn’t find a job. I’m working now so I guess I’m better off now than I was then. So, we’ll see.”

This is all I asked:

“Why do you think we’re coming up on a recession?”

And the handwaviness began:

“The housing bubble peaked in mid-2005, and construction jobs are dropping. The government picked up some of the slack in the 2000-2005 period by hiring people in defense, and of course many of the construction workers were illegals who are now leaving in droves. So unemployment isn’t bad right now. What’s on the horizon now is weaker consumer spending because the HELOC ATM is closed for business. Also, as the subprime lenders fail, a lot of money in the system is starting to vanish.

Loans are on the books for much more than the house (asset) is worth, especially in today’s dead housing market (huge inventories from overbuilding, houses spend months on the market). Debt was sold and resold, leading to a chain of insolvency that could bring us back to an S&L crisis type disaster. Check out the Mortgage Lender
Implode-o-Meter:

http://ml-implode.com/

Also, we have an inverted yield curve and the dollar has lost a lot of value in the last two years. This by itself doesn’t mean much but it could lead to government actions with a recessionary outcome–or (as many fear) stagflation.

With any recession, not all sectors are affected, and, from my reading about the Great Depression, even in a deflationary era those who were accustomed to hustling for their living–artists, musicians, insurance salesmen–continued to make a living, while those who expected a job to just be there for them ended up destitute.

Right now the warning signs are all in place, and the housing bust is beginning its drunken walk to the bottom. Vast amounts of wealth, as held in RE, are vanishing. Prices of certain commodities are dropping (=weak building/production/jobs outlook), while the price of food, which everyone needs to buy, is looking to go up, which will squeeze out the market for everything else.

Look at Ford. Look at SoCal real estate. Interesting times are ahead…”

I asked this:

“Out of curiosity, do you have any specific, measurable factors that you predict? Something you could be held to in 3 months, 6 months, etc?”

The response:

“Wow, put my money where my mouth is? Well, I’m not an economist, and I’m relying on other people’s analysis. I expect that this coming spring real estate season is going to be very painful for a lot of people, with the median sale price finally dropping as the cash-back lending scam is exposed to the light of day. (It’s already being exposed in AZ, which had one of the worst bubbles in the country in Phoenix.) But this is all old news–my mother tells me that home valuations in Massachusetts are already at 1997 levels.

In six months? Seriously, that is so short term. A lot could happen depending on whether Bernanke raises or lowers the Fed rate in the short term. Also, many major players are continuing to prop up the dollar. Japan wants a strong dollar so they can sell Sony and Toyota products, China wants a pegged dollars so they can sell cheap crap, and even Germany has a vested interest in a strongish dollar (look at where their trade surplus is coming from). Central banks won’t be able to keep this house of cards up forever, but they should be able to manage the next 6 months. So far (last year), there were some times went the dollar softened a lot, and certain central banks rushed in to prop it up. Hence the dollar see-saw.

Here is a pretty hard-and-fast prediction: food prices are going up. Wheat production has dropped in favor of corn for ethanol, there was a freeze in California and a freeze is coming Florida, ravaging vegetable crops. In the mean time, with the savings rate flat instead of negative, as HELOCs go away, there are going to be a lot of Americans who look at the high price of eating out and just say no (or seek bargains). Some restaurant chains (eg Don Pablo’s) are already in trouble; I expect more to be in trouble in 6 months as higher food costs (traditionally the cheapest part of the equation), and increasing wage demands run smack into lighter wallets. Middle class, keep-up-with-the-Joneses America is being squeezed here. Just look at the woes of Target last year. Look at 2006 holiday shopping (flat, YOY). Multiple middle/upper middle chains are in trouble; discount chains are also in trouble. High end had a great year, with all the huge profits from hedge funds and private capital lbo’s (legal thievery) and huge bonuses on Wall Street.

Some expect Toyota, Honda and other Japanese car makers to do well this year because foreigners do not like the new Japanese gov’t and are discounting the yen as a result. I don’t really know much about this, though.

Wall street: insiders say that everyone is in lalala denial mode, trying to get another quarter or year of profit before the shit hits the fan. For example, Bernanke right now has the power to unleash a bloodbath in the bond market (which is in bubble mode), but so far has hung back… However, that may be out of his hands by the time 2007 is over if Congress becomes deeply involved in credit tightening due to failed banks and Joe Sixpack anger over liar loans, suicide loans, rising ARMs, etc.

The stock market is a sleeping Cthulhu right now. Everyone is hoping that nothing will wake it. Many pin their hopes on high inflation, which will keep nominal values high even if true values plummet. Since there are contrary indicators out there (both inflationary and deflationary), but a strong gov’t bias towards inflation (helps the taxman and reduces the debt), betting on high inflation is probably the most rational course of action.”

By this point I was mentally exhausted.

“Ok–thanks for clarifying. I completely disagree but I was/am very curious to hear your reasoning, so I appreciate your thoughts.”

Her final response:

“They say that optimists do better in the end (in investing and in life), and your real asset is your entrepreneurial skills, not whatever stocks you own. For you, dumping money in a cheap index and forgetting about it will probably be fine because your earning power will only grow with time.

As for myself, I have lousy networking/leadership skills and I work in local gov’t which doesn’t pay so well (but the bennies are okay). I have inherited money which I need to preserve and grow to ensure I have a decent retirement (as traditional pension plans are in big trouble these days). I have a more pessimistic outlook anyway, hence
the extreme risk aversion.

Worries about the US stock market were keeping me up at night, so I had to do something. You have to do what works for you.

PS–I know I sound like a granny but I’m only 27.”

Ok…take a deep breath.

Can you imagine me saying something like that at work? “Hey guys,” I might say, “I really think the color blue makes people upgrade more often. No, seriously. You look at the sky and note the reflections of the moon off the ocean and the thousands of years of the Egyptian pyramid-makers causing sand to be blown hundreds of feet in the air, and you can understand that the long-term consequences make us cognitively wired to respond to the color blue. So I think we should make our upgrade text blue.” If I ever said that, David and Nathan, the other two PBwiki co-founders, would just put their hands in their pockets, stare at me, and blink. Then I would immediately commit seppuku in front of them.

PLEASE STOP MAKING STUPID GRAND GEOPOLITICAL ANALYSES THAT YOU THINK WILL AFFECT YOUR MONEY. PLEASE!!!

There are more important things to worry about. Are you saving enough? I’m willing to bet $100 right now that the people who make these handwavy arguments haven’t maxed out their retirement accounts, properly allocated their portfolio, and diversified. In fact, I bet these arguments are simply a misguided excuse to do nothing.

There is a simple way to point this out: ask them what they’re doing instead. This is where two things will happen: First, they will start talking about grandiose “alternative investments” like hedge funds, commercial real estate, and venture capital. Second, when you point out that most people can’t invest in hedge funds and venture capital, and that the stock market generally returns better than some of their other asset classes (“municipal bonds!!!”), they will start stuttering. Oh, there’s a third thing. You will want to kill yourself.

The people who make these kind of broad, sweeping statements (”The looming currency crisis will render retirement accounts worthless!!!”) are so far off base that I don’t even try to educate them. But they’re dangerous because they know enough buzzwords to convince novices that they might possibly be right–so, of course, they better hoard their money and do nothing because it’s too unsafe to invest!!!

If there’s one thing I really hate, it’s people taking advantage of others financially. (As a sidenote, there are over 30,000 words of Things I Hate on my other blog.) In any case, this post today is a plea to you: If you hear this kind of stupid, kooky reasoning from someone, call them out on it. If they think investing is so risky, what are they doing instead? What evidence do they have that their strategy will work? How do they explain away the last 70+ years of success in the stock market? What about the benefits of tax-free and tax-deferred growth (i.e., through Roth IRAs and 401(k)s?). How about the thousands of peer-reviewed research articles and hard data supporting sensible, long-term investing? Press them hard and watch their arguments fall apart. And remember: You can worry about the world’s political situation and the commodity price of salt in Hong Kong, or you can be constructively concerned with how to maximize your savings rate, how to live below your means, and how to invest for long-term growth to achieve your goals. Which one is more manageable?

Related:

• Oh my god! A “global correction” is underway!
• The worst financial advice from around the web

Huh? Why wouldn’t I approve?

I thought about this in a pensive stare for many moments, taking the form of Rodin’s Thinking Man and wishing that I had a pipe and perhaps a tweed jacket. Then I figured it out. Apparently, I’m the personal-finance guy to some people. And, I realized with a sinking feeling, to many people, “the personal-finance guy” means “the guy who tells me I can’t do stuff because it costs too much money.”

Nothing could be further from the truth. Now, I will call your ass out when you’re being stupid about money. But I’m not the finger-wagging parent who tells you not to spend money on lattes. Instead of taking a simplistic “don’t spend money on expensive things!!!” view, I believe there’s a nuanced approach to spending. Today, I’m going to tell you about 3 friends who are spending lots and lots of money on things you might consider frivolous–like shoes and going out–but I’m going to tell you exactly why I think they’re perfectly justified.

But first, let’s talk about a couple of things.

Frugality. There are plenty of blogs on frugality. This is not one of them. I think you can have lots of fun debating the minutiae about which grain of rice is cheaper, but it doesn’t really get you much further towards your goals. Also, most Americans are not brought up with the idea of frugality. I’ve been in a car with friends who were so hungry that they had to pull over and get food even though we were only 5 minutes from home.

For me, writing a blog on frugality would be like trying to convince an ankylosaurus to dance a god damn jig. As a result, I don’t believe that frugality is very sustainable for a lot of people. Yes, maybe we’ll stop buying those lattes (or whatever), but something else will take its place. In my opinion, unless there’s a fundamental mindset from a young age, it’s hard to change the I-want-it-now habits. Whether you agree with me or not, that’s why I don’t write a blog based on where to find the cheapest laundry detergent.

Finally, and this is the most important, frugality alone doesn’t get you to your goals. It’s a helpful but not sufficient condition. So I take another approach of trying to write about money holistically, while urging you to make your own decisions about what’s important enough to spend a lot on, and what’s not.

2007 is the year of conscious spending. THE PROBLEM IS HARDLY ANYONE IS DECIDING WHAT’S IMPORTANT AND WHAT’S NOT! DAMNIT! That’s why 2007 is the year of conscious spending, in which I want you to consciously decide what you’re going to spend on. No more “I guess I spent that much” when you see your credit card statements.

The simple fact is that as young people, most of us are not spending consciously. We’re spending on whatever, then reactively feeling good or bad about it. Every time I meet someone who has a prescriptive budget (aka, “Here’s how much I want to spend on X this month), I’m so enchanted that my love rivals Shah Jahan’s for his wife Mumtaz Mahal (look it up).

Today I’m going to write about people who spend a lot on things that most people consider absurd. This article is not a rationalization for absurd spending habits. PLEASE. If you walk away from this article with your hands triumphantly over your head saying “I’M PERFECT!!!” then you are a moron and your parents are probably very sad. But if you look at the idea of conscious spending–of people who have paid themselves first, then used the money they have left over to do what they want with it–then your parents will be very happy and probably live longer. Man, I can’t believe I just used your parents’ longevity to convince you to read.

Ok, let’s get to it.

My three friends

The shoe lover. My first friend is a girl who spends about $5,000/year on shoes. Since expensive shoes cost about $300-$500 each, this is around 10 or 15 shoes annually. “THAT’S RIDICULOUS!!!” you might be saying. And on the surface, that number is indeed large. But I think iwillteachyoutoberich readers can look a little deeper. This girl makes a very healthy six-figure salary. She has a roommate, eats for free at work, and doesn’t spend much on fancy electronics, gym, etc. In fact, her job provides many of the amenities other people pay for.

She loves shoes. A lot. And so, after funding her 401(k) and a taxable investment account (she makes too much for a Roth), she has money left over. Now here’s where it’s interesting. “But Ramit,” you might say, “it doesn’t matter. $500 shoes are ridiculous. Nobody needs to spend that much on shoes! You’re just saying it’s ok because…well, I don’t know. But it’s too much!!!”

I see eloquence does not reign rule today. But I want to take that statement apart. First, I bet most people who are astounded at the price of her shoes haven’t even done what she’s done. To the people who would criticize someone for spending $5,000/year on shoes: Have you funded your 401(k) and started outside investment accounts? Do you keep a strict budget of how much you spend? Second, when you have extra money lying around (extra = after reasonably maxing out your investment options), what’s better: Making a strategic decision to spend on what you love? Or just spending it on random things here or there and eventually watching your money trickle out?

This girl loves shoes. And after planning for her long-term and short-term goals, she has money left over. This is why it’s so surprising that people pass judgment when they see others buying things like expensive shoes. This girl has her shit together. And I think she’s right on.

The partier. My second friend spends over $21,000/year going out. “OH MY GOD, THAT’S SO MUCH*#%(#%(#%!” a couple people said yesterday. Let’s break it down, though. Let’s say you go out 4x/week–to dinners and bars–and spend an average of $100/night. I’m being conservative with the numbers here, since a dinner can run $60/person and drinks could be $12 each. I’m not including bottle service, which might cost $800 or $1,000. (He lives in a big city.) That’s easily $400/week.

Now, this guy also makes a healthy six-figure salary, and he’s similarly invested quite a bit in his 401(k) and outside investments (including real estate). The key here is that he works such long hours that he’s only really free Friday and Saturday nights. And so he goes out. Hard.

In just a couple years, this guy has saved more than almost any of my friends. He’s also spent more on going out than anybody I know. And although $21,000 sounds outrageous on the surface, you have to take context into consideration. For example, look at his spending by percentage: Just for easy calculations, if we assume that this guy makes $210,000/year net, his going-out budget is roughly 10% of his income. For my friends who make $35,000/year, you can be damn sure that they’re spending more than $3,500/year ($67/week) on going out.

The subscription nut. The third friend is a tech guy who has a Tivo subscription, Rhapsody subscription, cable/Internet connection, gym membership, Netflix account, magazine subscriptions, and a couple of monthly online accounts. Now, when I wrote Guess How Much Your Subscriptions Cost?, the point was to highlight how we systematically discount the cumulative effect of our subscriptions. In other words, we forget to add them all up to see the total amount–which is usually a LOT. That’s why companies love, love, love subscriptions.

Anyway, I showed my friend my article, and he just shrugged. I started to get angry and use a line I’ve always wanted to use–”Do you know who I am?”–but he then explained that his subscriptions came out of his entertainment budget, which he’d carefully thought about and revised every few months. And, not surprisingly, he has a savings plan that is automatically deducted from his paycheck.

The point here is that, whether or not I agree with his subscriptions, he’d thought about it. He’d sat down, considered what he wanted to spend on, and was executing on a plan. That’s doing more than 99% of the young people I’ve talked to. Shit, if he had decided he wanted to spend $8,000/year on furry donkey costumes and Faberge eggs, that would have been great. At least he has a plan.

An analysis
I know a lot of people are going to start screaming at me for things they disagree with, so I want to try to take it step by step. Then you can send your criticisms to youarestupid!!!@iwillteachyoutoberich.com.

Most of us are not consciously thinking about our spending. By that, I mean we’re not being proactive about planning where our money should go. We’re going through our 20s doing whatever, and inferring our spending patterns from the bills we get at the end of the month. We not only lack a prescriptive budget (”I want to spend 20% on my retirement account, 10% on savings, 20% on going out…”), we even lack a descriptive budget (”where the hell is my money going?”). (More about budgets and asset allocation.) And so I completely understand the sickening feeling we get when we see our bills, or the guilty feeling we have when going out to a dinner with friends.

We’re also looking at surface characteristics and making stupid judgments. ‘You spent $300 on jeans!’ ‘Why do you shop at Whole Foods?’ ‘Why did you decide to live in that expensive area?’ I know we all wonder these things about our friends because I do, too. And, in fact, most of our judgments are right: Because young people are not carefully considering their financial choices in the context of their long-term goals–e.g., we’re not paying ourselves first and we’re not developing an investment/savings plan–when you think your friend can’t afford those $300 jeans, you’re probably right. I’ve tried to be less judgmental about this. I’m not always successful, but I’m trying to work on the fact that the sticker price doesn’t matter–it’s the context around it. You want to buy a $1,000 bottle of wine? And you already saved $50,000 this year at age 25? Great! But if your friends are going out four times a week on a $25,000 salary, I bet they’re not consciously spending.

The friends I wrote about above are an exception to most people our age.

They have a plan. Instead of frivolously spending money without a holistic goal, they took a few hours, wrote down where each % of every $ should go, and then built an infrastructure to do it automatically. They spend less time worrying about money than most people! These are people who already know about ING and their credit cards and basic asset allocation. They’re not experts, but they got started a while ago.

To me, this is an enviable position to be in, and it’s exactly what iwillteachyoutoberich is about: cutting costs on what you don’t care about, and spending extravagantly on the things you do. The problem is, we all want to have it now, so we make short-term decisions. We also use simplistic goals like “Oh, fine, no more lattes!” I hate when people say that, because (1) it’s usually thought of as a panacea, and (2) for the people who have to make that pledge, it’s usually such a part of their routine that hoping for long-term behavioral change is hopeless. What if I suggested that you could be doing what one of these friends are–spending whatever you planned without thinking twice–and it would make perfect financial sense? And you wouldn’t feel guilty about it?

I know that sounds good. But the catch is, there are no stupid, simple secrets like “no Starbucks.” You need to work to change your spending habits for a year, or maybe 2 or 3. Would you be prepared to work that long to get to a place where you knew exactly what you’re spending, and you could spend extravagantly on the things you value?

You can. It takes a plan. And it’s really as simple as that.

“But Ramit…”

“These people probably spend hours every day managing their money”
Nope. I asked them how much time they spent, and not surprisingly, it’s just a few hours a month. Two of them set up an automatic infrastructure so that money is automatically moved from one accout to another as paychecks come in. Once you set your infrastructure up, you’ll spend less time managing your money than most people do. And you’ll have more of it, too. The simplest way to do this is to set up a high-interest savings account (more about ING/setting up your accounts) and automatically deduct money from each paycheck.

“I’ll never make six figures in my early 20s”
THAT’S NOT THE POINT!! PLEASE DO ME A FAVOR AND DON’T GET CAUGHT IN THE DETAILS. That’s exactly what I wrote about in The Shrug Effect. Here are some better suggestions:

• Think about it by percentage (”what percentage of my income am I spending going out?”).
• Think about it in terms of goals (”how much do I need to save for a down payment on a house in 5 years?”).
• Just look at yourself and say, what am I already spending a huge amount on? And what would I really like to be spending on? A good way to do this is to say, If I had all the money in the world, what would I like to do? Then figure out how to do it. But remember, pay yourself first instead of just spending on things you want.

Still, there is some truth to what you said. If you’re making $40,000, your lifestyle is just going to be different than someone making $190,000. That’s just a fact. But whatever your income is, I guarantee you can live better on it by having a spending plan.

“Yesterday, you wrote that you just moved to San Francisco and you’re paying 2x the rent. Why would you do that? Shouldn’t you live beneath your means?”
Good question. I still am. In my 2007 resolutions post, I wrote that in 2007, I’ll make more, save more, and spend more than ever before this year. I created an asset allocation to save and invest more money (both in the stock market and in my own businesses), and then I looked at what I had left over. And I consciously decided that the higher rent, parking, eating costs, etc, was worth it.

One additional point is that money isn’t just here to be saved and scrimped and pinched. It’s here for us to enjoy. And I love living in SF. When you consciously spend, you can say “it’s worth it” after having actually considered the alternatives using numbers, not foofy emotions.

“I have identified a fatal flaw in your reasoning. Yes, your friends may have maxed out their 401(k)s, but they could still invest more. And since every dollar we save now is worth a lot later, your dumb friends are actually losing tons of money!! HAHA!!”
Touche. Yes, technically you could always save more. But when your money becomes oppressive to you, that’s when you stop respecting it. If I were saving 95% of everything I was earning and not enjoying any of it, would I really have an incentive to respect my own self-set goals? As someone commented earlier today, personal finance has a lot more to do with “personal” than with “finance.”

And so, as a personal example of my finances and decision-making for moving to SF, I definitely could have taken the extra money and put it towards more investments. But after making my asset allocation, I’m happy with how much money I’m putting away. I don’t want to blindly just save more and more with no good reason. Conscious spending is about putting your money in the best places that make the most sense for you.

I think the comments on this post are going to be very interesting. I want my major takeaway points to be very clear:

1. Conscious spending is about making a plan on how you want to spend your money.
2. Most of us are not spending consciously–we’re just spending whatever and then getting the bills at the end of the month.
3. Why should we spend consciously? If your plan is forward-thinking, you’ll be able to pay yourself first by automatically saving/investing part of each dollar that comes in. You also won’t feel guilty when you go out, or buy shoes, or whatever, because it will be an explicit part of your goals. And if you structure your system to pay yourself first, in a few months, you’ll start to see it add up. Imagine where you’ll be one year from now.

Thanks for reading. And please tell your friends.

If you had a life-threatening illness, would you take your medication? “Of course,” you might say. Not the average patient, though: Even when facing death, a surprisingly high percentage of patients don’t take the medication prescribed to save their lives. This is called patient compliance and last night, I was thinking about it in terms of behavioral change.

When I was studying social influence and persuasion in college, I learned about social psychologists’ and medical practitioners’ attempts to effect behavioral change for good things like washing hands, eating healthier, staying in touch with family, etc–and how hard it really is. “But Ramit,” you might say, “if someone’s going to die, you just give someone their medication and they’ll take it! If they don’t, they’re stupid!” Ah, I might reply, I see we have brought the wit and grace of Shakespeare to the debate today. Jackass. But in truth, getting people to change their behavior–whether it’s going to vote, clicking a button to buy something, or taking life-saving medication–is far more complicated than just giving someone the appropriate information and trusting them to do it (”information influence is the least effective form of influence,” we learned over and over). So I’m interested when I hear of people attempting to change their own behaviors.

Last year, a friend of mine who was entering college started getting really into fitness. I think was due to his laudable goal of “getting some girls.” Kudos, sir. Anyway, he started working out more than I would have expected: in the morning, running during the day, then working out again at night. I told him how ridiculous I found that. Do you know people who get so into their idea du jour that they go completely overboard and burn out? For me, I would rather do less, but make it sustainable. The problem is, that’s rarely sexy. Instead, if you’re working out for 5 hours a day, you can point at your effort (often just to yourself) and say, ‘Look, I’m doing it!’ But would you rather feel satisfied at your efforts, or would you rather get results through a methodical process?

This idea of sustainble change is core to personal finance. Sometimes I get emails from people who say things like, “Ramit! I read your entire site and I started managing my money! Before, I was spending $500 a week! Now I’m saving $495 of it and putting it into a bank account!”

I read this and just sigh. While you might expect me to get really excited about someone contributing $495/month to their savings, I’ve come to realize that when someone goes from one extreme to another, the behavioral change rarely lasts.

In my experience, this is true in personal finance, fitness, studying, and a bunch of other areas. When I make a change, I almost always make the most incremental change of all and work iteratively from there. This is why I just shake my head when I see personal-finance pundits giving families advice to go from a 0% savings rate to a 25% savings rate (”you can do it!!!”). Giving that kind of advice to someone is not useful if their habits have been set for years. That’s why you find articles like 8 lottery winners who lost their millions. Habits don’t change overnight, and if they do, chances are it won’t be sustainable.

For example, if I started keeping a budget and discovered I was spending $6,000/month, I’d do two things: First, make a plan for getting my budget down to something reasonable. Second, I’d immediately cut 10%. 10% isn’t too high or too low, but is does add up to something concrete. Then, a month later, I’d say ‘Hey, this isn’t so bad’ and cut another 10% off. And so on, according to my own plan.

The other way to do it is to look at your $6,000/month, freak out, and cut half your spending. Then, you’re suddenly in a completely different spending behavior without the means to cope. How long do you think your ambitious budget will last?

How many friends do you hear saying, “I’m not going to drink for a month” or “I’m going to study for 4 hours a day”? For me, the next month isn’t really important, and I don’t understand the point of short-term things like that. A month from now, okay, you only spent 50% of what you normally do.

And…now what? If you can reasonably expect that you’ll bounce right back to your normal spending, what did you really learn? “I can do it!” you might say. Well, I’m glad, but I’d rather have people cut their spending by 10% for 30 years instead of 50% for one month.

A ghetto graph I drew this morning

Did you know that 95% of diets fail? As Randi Cardonick, a nutritionist at the Penn Health for Women, notes, “If 95 percent of all diets fail, we have to assume it’s the diet that’s failing, not the dieter.”

Right on. So when you’re deciding what to change about your personal finances, eating habits, exercise plan, or whatever…try making the smallest change today. Something you won’t even notice. And follow your own plan for gradually increasing it. In this way, time is your friend because each month gets better than the one before it, instead of the other way around.

Update: My old title (”How to make a sustainable change by being less ambitious”) sucked, so I changed it.

Update: Also see a related article, The Best Decision vs. The Financially Smart One

Update: If you’re a new reader, here’s a list of popular iwillteachyoutoberich posts and my RSS feed.