Tip #6: Use gas prices to become your own hedge fund

November 6 90 Comments latest by Jen

This is Tip #6 of the Save $1,000 in 30 Days Challenge

Today is one of my favorite tips: To take the money you’re saving on gas and automatically hedge against any future increase in fuel prices.

The term “fuel hedging” refers to airline companies’ tendency to try to protect themselves by estimating the price of jet fuel and locking in prices to protect themselves if prices go way up. The world’s best airline in fuel hedging is Southwest Airlines:

“Using some simple and some complex investment strategies, Southwest has for a decade locked in the prices it pays for large amounts of jet fuel months and even years ahead of time. Its success at that has protected it from run-ups in crude oil prices and dramatically cut its fuel expenses. Since 1998, it has saved $3.5 billion over what it would have spent if it had paid the industry’s average price for jet fuel. That’s equal to about 83% of the company’s profits over the last 9½ years.”

We can use a similar technique for our own personal finances — and my favorite part is, you can apply this to anything where the prices is variable. Here’s how to do it.

How to use hedging for your personal finances
When gas prices were at their highest in San Francisco, I was paying about $4.60/gallon, which was costing me about $60/week. But now, with a combination of lower gas prices and working at home once a week, I’m saving about $15/week off the peak.

It’s really easy to ignore that and let the money stay in your checking account, where it will be inevitably spent on something useless. Instead, because gas prices have dropped, all of us are saving money compared to a few months ago. Now, you can create an automatic transfer of the money you’re saving and put it in a “fuel hedge” account to protect you when prices go higher.

Here’s how I do it.

1. I set up a high-interest ING savings account, which lets me set up automatic transfers and create sub-accounts within my savings account. I use these sub-accounts for anything major I’m saving for (including a wedding, even though I’m not engaged — see why).

To set up a sub-account, log into your account >> Open an account >> Orange Savings Account >> Orange Savings Account (from the drop-down). Create the nickname, etc, and you’re done.

2. I know I’m saving about $15/week, so I transfer that amount to my fuel hedge account.

3. If gas prices go up, you’ll have this money saved to use to hedge against the new higher gas prices. It will also give you time to either cut your costs or earn more to account for the higher gas prices.

4. I set a calendar reminder every 3 months to re-evaluate the price of gas and adjust my weekly savings amount.

The reason I love this is you can apply it to anything you buy that gets more or less expensive. If you pay $100/month for heat in the winter and $20/month in the summer, can you pretend that you’re still paying $100/month in every month of the year and save $80/month during the summer months? Give it a shot — there’s a lot to be done with this tip.

Tools I use
I use a high-interest ING savings account to manage my savings and sub-savings accounts. It’s free to open, high-interest, and they don’t send me a bunch of crappy junk mail. It just works.

I also use Mint to track my spending and get averages for my spending.

I use Google Calendar to set reminders for myself in the future.

Total savings: $20 to $120 per month

Last thing to do
1. Leave a comment on this post describing how much you’re saving with this tip. Each day, I’ll ask you to post how much you’ve saved cumulatively. Use this as a way to track your own progress (it will also encourage others to join)
2. Want to submit your own savings tip? Submit a money tip here.

(42 votes, average: 2.98 out of 5)

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90 Comments latest by Jen

Tip #5: Optimize your cellphone bill

November 5 79 Comments latest by Asti

This is tip #5 of the Save $1,000 in 30 Days Challenge.

Today’s tip is to optimize your cellphone bill. Many of us (including me) pick a cellphone plan, then never check to see if it’s the right one for us based on our usage. Because the average cellphone bill is about $50, that’s $600 per year of money you can optimize. Perfect.

Today, I’m going to show you two ways to cut your cellphone bill: one easy, one hard. And remember, this tip doesn’t just apply to cellphones: You can optimize your spending on nearly any other subscription you’ve got.

Optimizing your cellphone bill — the easy way
First let me say, if you still have a landline, the easiest tip is to call your wireless company and bundle it all into one plan — or get rid of your landline altogether.

Anyway, when I went to buy a new cellphone a couple months ago, I picked the unlimited everything plan — unlimited voice, unlimited data, unlimited text. I also set a 3-month check-in on my calendar to go back and analyze my spending patterns so I could cut back on my plan if needed. This is a technique I use a lot: With any usage-based services (e.g., web apps or cell plans), I’ll pay a little more up front so I can monitor my usage, then downgrade to the appropriate plan after 3 months.

Analyzing your usage can be a pretty laborious task, but I use a site called Billshrink to do it for me automatically. (Can’t see the slideshow below? Click here.)

You’ll see from that slideshow that the top savings would net me $600+ per year. Pretty good.

You should also know that, according to a recent survey by J.D. Power and Associates, “people who text message, e-mail, and download files on mobile phones spend $14 a month more than people who don’t.” Do you really need all that stuff? Could you try going a couple months without it?

It pays to look at your actual usage and switch to a plan that better fits your needs. If you’re only using 150 text messages, you can probably downgrade to the “200 text messages/month” plan. As you get used to the new limit, add a calendar reminder to check in on the 15th of each month and make sure you’re not wildly over for the first few months. Check out Billshrink here.

Optimizing your cellphone — the harder (but more rewarding) way
Cellphone companies have this wildly curious business model of acquiring tons of customers through very expensive means (e.g., national advertising), then churning through them by treating them horribly. Yet even they know that it’s cheaper to retain an existing customer than to acquire a new one. You can use this “customer acquisition cost” in your favor. Here’s how:

1. Find comparable plans for your usage on other cellphone networks. For example, I’m with AT&T, so I’ll investigate Verizon, T-Mobile, and Sprint by going to their websites. Write down how much they each cost, how many minutes you get, and any other benefits.
2. Call your current cellphone company. To make it easy, here are the phone numbers:

AT&T: 1-800-331-0500
Verizon: 1-800-922-0204
TMobile: 1-800-T-MOBILE
Sprint: 1-866-866-7509

3. First, be nice. Ask them what better plans they have to offer you.

You: “Hi, I was looking at my plan and it’s getting pretty expensive. Could you tell me what other plans you have that would save me money?”
Them: Blah blah same plans as on the website blah blah
You: “What about any plans not listed on the website?”
Them: No, what we have is listed on the website. Plus, you’re on a contract and have an early cancellation fee of $XXX
You: “Well, I understand that, but I’d be saving $XXX even with that cancellation fee. Look, you know times are tough so I’m thinking of switching to [COMPETITOR COMPANY]. Unless there are any other plans you have…? No? Ok, can you switch me to your cancellation department, please?”

Note: What you really want is to be switched to their “customer retention” department, which is the group that has the ability to retain you by giving you a bunch of free deals. You can either ask to be switched directly to the customer retention department, or play a game and hope that by asking for “cancellation,” you’re actually transferred to retention. Play around with a few phone calls and see what works best.

When you get to the customer-retention department, ask for the same thing. This is when you pull out your competitive intel on the other services being offered. If Verizon is offering something for $10 less, tell them that. That’s $120 savings / year right there. But you can do more.

You: “Listen, you know times are tough and I need to get a better deal to stick with you guys. You know and I know that your customer acquisition cost is hundreds of dollars. It just makes sense to keep me as a customer, so what can you do to offer me this plan for less money?”

Notice that you didn’t say, “Can you give me a cheaper plan?” because yes/no questions always get a “no” answer when speaking to wireless customer-service reps. Ask leading questions. You also invoked the customer-acquisition cost, which is meaningful to retention reps. Finally, it really helps if you’re a valued customer who’s stuck around for a long time and actually deserves to be treated well. If you jump around from carrier to carrier, you’re not a worthwhile customer to carriers.

One final thing: People get scared that if they go to the cancellation department and try to negotiate, they’ll get their account canceled without really wanting to do that. There are two things to remember about negotiating your wireless bill: (1) You have a MUCH stronger position if you’re actually willing to walk away and switch to another plan, and (2) your account will never get canceled until you say the final word. You can negotiate for 3 hours and walk away if you want.

Use this technique on virtually any subscription you’re paying. Businesses want to keep customers and are willing to negotiate — but since most people don’t, they’re leaving money on the table.

Total savings: $20-$600

Additional links
Threatening To Cancel Saves Man $65.52 On AT&T Phone Bill

Last thing to do
1. Leave a comment on this post describing how much you’re saving with this tip. People have already saved thousands of dollars taking the 30 Day Challenge.
2. Want to submit your own savings tip? Submit a money tip here.

(16 votes, average: 4.5 out of 5)

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79 Comments latest by Asti

Tip #4: Involve your friends in your savings challenge

November 4 41 Comments latest by Amy

This is tip #4 of the Save $1,000 in 30 Days Challenge.

Today’s tip is to involve your friends and family in your money saving. Without this, you’ll have a tough time achieving your goals. For more people, the reason they fail to save money is not a lack of money-saving ideas — it’s themselves and their lack of discipline. By involving your friends, you eliminate that lack of discipline and give yourself automatic accountability and a built-in reason to win.

Let’s take a look at this question, which came in from my post about turning the thermostat down:

Anybody have any tips on how to do this with room mates if you and your room mates do not have the same goals? How do you talk them into wanting to put the thermostat down 3 degrees if it is going to possibly make them uncomfortable, or maybe they just do not want to substitute comfort for any dollar amount?

Great question — and it doesn’t just apply to saving money by turning your thermostat down. What about if you want to eat out less this month? Or go out less? How do you enlist the help of your friends?

Why your friends matter
Getting your friends involved is important because your spending is based on your context. A lot of us like to think that we make our financial decisions individually. What an American, determinist perspective! But it’s not true. Our spending depends on those around us. For example, if you make $50,000/year, you probably hang out with others who make similar amounts and have similar spending patterns. If your friends shop a lot, and you’ve been accepted into that group of friends, chances are you shop too. Social influence is extremely powerful

Think about it: When was the last time you spent money because of friends? For me, it was this weekend, when I ate out. It was fun, it was social — but it was also financial.

As you’ve been seeing from my tips over the last few days, the actual financial decisions are only a small part of your spending. A lot of it has to do with the psychology of spending. That’s why enlisting the help of your friends to achieve your goals this month is so important.

I want to point you to an astonishing study that highlights the importance of your social network. In this case, it was for obesity:

Obesity can spread from person to person, much like a virus, researchers are reporting today. When a person gains weight, close friends tend to gain weight, too.

The answer, the researchers report, was that people were most likely to become obese when a friend became obese. That increased a person’s chances of becoming obese by 57 percent.

[…]

“You change your idea of what is an acceptable body type by looking at the people around you,” Dr. Christakis said.

Fascinating. I can’t speak authoritatively to the correlation between obesity and finance, but I’ve seen lots and lots of patterns between the two (e.g., here and here). I think that intuitively, we all recognize that a lot of our spending is a result of our friends and the people in our social network. You think your spending would stay the same if you hung around a bunch of immigrants, or people who make $400,000/year? Not a chance.

How to enlist your friends’ help to save money
We’ve already talked about why it’s important to enlist your friends’ help to save money. Without their help, you’ll still have the constant pressure to go out, buy new stuff, spend, or whatever your current spending patterns are. In other words, it will be you against the world. To help change that, there are two approaches you can take:

1. Enlist your friends to join the Challenge (cooperative approach)
2. Bet your friends you can hit your goals (adversarial approach)

Enlist your friends to join the Challenge.
For the person above who wanted to know how to get his roommates to be cool with turning the thermostat down, this is the approach I would take.

Hey guys,

I read this personal-finance blog iwillteachyoutoberich.com and he just announced a Save $1,000 in 30 Days Challenge. I don’t know about you guys, but I’m down to save $1,000. (Realistically, I think I can save $700 this month.)

Would you guys be interested in joining in?

If we can each participate, it would be a lot easier (e.g., we save on heat a little, clean the house ourselves, cook a little, and that saves hundreds right there). I took his first 3 days of tips and I’m already saving [$XXX].

What do you think?

Check out the 30 day challenge here:
http://www.iwillteachyoutoberich.com/blog/announcing-the-save-1000-in-30-days-challenge

-[NAME]

The chief benefits of this is that you get (1) social support and (2) economies of scale. If you’re all saving towards a common goal, you can eat rice and beans, and you’ll also be more likely to turn down the heat, not go out as much, etc. Personally, I’m doing this approach.

Bet your friends you can hit your goals
You guys know I love bets. Sites like Stickk.com are great because they give you an easy way to motivate yourself by publicly committing to a goal. There are thousands of psychology studies about commitment — specifically, public commitment — which is highly persuasive. If you tell a group of people that you’re going to stop smoking, or lose weight, or save money, you’re highly motivated to save face and hit that goal.

I used this strategy successfully last year when I ran a weight challenge to gain weight. I’ve always been a slim guy so I decided to bulk up a little. I emailed my friends and got them involved: I bet that I would GAIN the weight, while I encouraged them to bet against me. I describe all the details in How I Gained 5 Pounds in One Week (check it out), but here’s the initial email I used to get my friends involved:

The text I’d use for the Challenge is something like:

Hey guys,

I read this personal-finance blog iwillteachyoutoberich.com and he just announced a Save $1,000 in 30 Days Challenge. I’m taking the Challenge and trying to save $700 this month.

Now, who wants to bet me I can’t do it?

You can try anything you want — inviting me out to free meals, sending me sales, asking if I want to grab a drink. Whatever it is — do it. But you have to bet me $25, $50, or $75 that I won’t be able to hit my goal of saving $700 this month.

In other words: I bet you that I can save $700. You bet $25, $50, or $75 that I CANNOT save that much money. I’ll provide weekly updates so you can track my spending.

Let me know if you’re in by this Friday, November 7th.

-[NAME]

The key is to get your friends involved, whether they join the Challenge or bet against you. Get your co-workers involved, too: At PBwiki, we’ve done a hot-sauce-eating contest and a Biggest Weight Loser challenge.

The result of getting your friends involved
For my weight-gain challenge, once I bet my friends, I actually started caring less about my weight-gain bet itself, and more about showing my friends that I could do it. Whenever I felt like I couldn’t do it (not ANOTHER glass of milk), I knew I had to or I would lose to my friends — and that wasn’t gonna happen. Finally, by having weekly check-ins, I knew I had to hold myself accountable each Sunday.

The same is true of saving money. For the challenge, my friends know I’m running this challenge, which means they’re open to hanging out at free places instead of expensive bars/restaurants this month. Plus, there’s the motivation aspect: If you set a goal of saving $300, or $500, or $1,000 this month, and you bet your friends publicly, you are GOING to find a way to make it happen. Don’t do this alone. Get others to help you and you’ll be even more successful. Start by leaving a public comment with your goal and name today.

Total savings: $100-$500

Last thing to do
1. Leave a comment on this post describing your name and what your goal is this month. Use this to hold yourself accountable. Each day, I’ll ask you to post how much you’ve saved cumulatively. Use this as a way to track your own progress (it will also encourage others to join)
2. Want to submit your own savings tip? Submit a money tip here.

(18 votes, average: 3.17 out of 5)

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41 Comments latest by Amy

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