Today’s tip is to spend money on things that will save you money in the long term.
Too many people think that “saving money” is about cutting costs relentlessly until they can cut no more. And then…what? Who wants to live like that? Reading some of the frugality sites, it becomes clear in about 2 minutes that you can’t outfrugal a nutty frugal person. And as they say, if you win the rat race, you’re still a rat.
“Saving money,” as I’ve described in this Challenge, is about cutting costs, earning more, and optimizing your existing spending. Instead of constantly looking for ways to cut your spending, sometimes it’s ok to actually spend more in the short term if you’re saving in the long term. This is a bewildering and frightening thought to many people, most of whom don’t read personal-finance blogs, leaving me free to mock them openly.
A great example of this is something like the Entertainment book (or any coupon book). I bought one a couple weeks ago because I can make the $20 back, guaranteed, plus much more. The key, of course, is actually using the coupons when you would ordinarily be going out anyway.
In this simple example, it’s easy to see that the money you spend will be directly made up. Still, many people don’t even want to spend for something where the ROI is so clear. For many people, buying something to save money down the road is unfathomable, confusing, and just plain weird. Those people are crazy and need to understand that long-term savings are still savings, even if you spend a little money right now.
That’s also why this lady who once sat next to me would have been 100% right to pay $2,000 for a computer class.
A fun example of nutty cheap people
To get myself geared up to write this post, I checked out one of my FAVORITE old posts: Stop Being Cheap and Go Buy Something Valuable Today. I had done an earlier webchat and told people I might be starting a paid podcast service. People freaked out:
person1: don’t charge though
person2: yeah, please don’t charge
person3: I have universtiy debts to pay for… =… O(
person4: It feels punitive
person5: your good karma will come back to you muliplied if you do not charge
person6: because people dont want to pay lol my guess is you will lose many readers if they have to pay
person7: No charge….comeon! you cant ask us to pay to learn saving 🙂
person8: one thing that would concern me if you charged is that the quality of material would need to match the fee
person9: i think you should charge. you weed out the ppl who aren’t willing to make basic investments in their investments
person10: dont charge
person11: frankly your latest work hasn’t been great ;(
person12: we cheap 😛 don’t charge. we hear to save money here XD
person13: suze orman does not charge for her show
person14: Dude, there are people who CAN’T pay. (Me, for example, here in Bangladesh, I don’t have a way to pay for stuff in the web.)
person15: you’ve been giving out quality information for free, i think i’ve gotten used to it…
person16: Charging is not a succesful business model for editorial content on the web, currently
person17: people dont know what the advice is worth before getting it but you have to pay first
person18: you will NOT attract new audience members by charging….existing ones, maybe
person19: Payment is a barrier between the reader and the important information; I would think you of all people would understand how dangerous it is to erect even minor barriers for people.
You really should check out the entire post.
These are exactly the kind of people who are overly focused on cost, not value. They see something that costs $10 and fail to realize that they could save $500, or $10,000, with the advice inside. Do you think any of them have ever bought a book on personal finance? Or attended a course to learn something after they graduated from college?
Of course not. Because it’s transparently easy to see money going out of your pocket right NOW, but it’s harder to understand that you’re actually investing in yourself. And when you invest in yourself, there’s no upper bound on what your return can be.
Applying this to your life: Paying for something that will save you money
Let’s get tactical. What can you buy that will save you money over the long term?
I’ve subscribed to a magazine called Before and After, which gives you great tips/advice on making beautiful designs for websites, graphic design, etc. It’s helped me take some drab stuff that I came up with on my own and make it look a lot better. And based on the rates I pay professional designers, I’ve saved over $800 for the work I’ve been able to do.
What books have you bought to help you save money? Have you picked up something from Suze Orman? Here’s an entire list of books I recommend. Or maybe a book on your job. Come to think of it, when was the last time you asked your boss to attend a conference or buy you an industry publication? At work, I encourage our employees to ask for any resources that will help them do their job. One person asked to attend a conference, which paid for itself in about 4 days when he presented what he’d learned.
The other day I was at Border’s Books and I bought my first audiobook. I forced myself to skip the business section (my friends always make fun of me because I have a bookshelf overflowing with business books, which all look the same to them…they just don’t understand). I bought Madeleine Albright’s Memo to the President Elect CD: How We Can Restore America’s Reputation and Leadership to try to learn from a true leader. It cost $40, which seems outrageously expensive, but there was one line in there that will probably save me tens of thousands of dollars over a lifetime if I apply it. Paraphrased, she said, “It’s sometimes worth trading off efficiency to get others involved and do the right thing.” I had never thought of it like that, and you can bet I’m applying it in business.
Or a trip — when was the last time you invested the money to go meet someone interesting for business? When I was in college, I cold-emailed Seth Godin and told him I wanted to be his intern. I pushed hard to meet him in person and told him I would fly out to New York anytime. He invited me, I bought a ticket, and the rest is history. How much was that $300 plane ticket worth? Over my lifetime, from the things I learned from Seth and the connections I made (including my book agent), it will probably be over $250,000.
Paul from ResultsJunkies puts aside thousands of dollars each year in a “networking budget,” which he uses to meet interesting people, take them out to dinner, etc. This is similar to my idea of The Best $20 You’ll Ever Spend, which is literally the easiest way to invest in yourself.
If it were me starting to think about how to spend money to save money for the first time, this is what I would do:
1. Pick an amount for your “Strategic Spending-to-Save” account. For example, I might start with spending $50 each month on anything that I think will eventually help me save (books, courses, taking someone else out to lunch).
I logged into Mint and added a category: “Spend to Save”
2. Spend the money! Do it each month. At the end of the month, you should end up with $0 in that account. Don’t let the money accumulate. In fact, just like hitting on a girl in a bar, if you don’t do it in the first minutes, you probably won’t do it at all. In the first 5 days of each month, commit where you’re going to spend that money.
I set up a budget for $50/month:
Ironically, unlike the rest of your budget, if you are under your target of $50 for the “Spend to Save” category, you’re doing something wrong. Spend the money to save!
You can open a Mint account here.
3. Don’t lie to yourself. Don’t rationalize that buying jeans is going to save you money because you’ll hold it for the long term. No you won’t. You bought those Sevens last year and here you are buying new jeans. Buy something that you could show to your mom, dad, or high-school teacher and say, “I’m buying this to invest in myself and save money.” If you can look them in the eye and say that, it’s probably a pretty good purchase. Books are always a good bet. Courses too. If you have other ideas, leave them in the comments!
4. Apply what you learned. There are millions of people who buy self-help book after self-help book and never apply what they learn. If you do one thing, do this step. Apply just one thing and you will win.
Total savings: Unknown at first, but $50 to $1,000 per month once you start applying it.
Last thing to do
1. Check out the other tips in the Save $1,000 in 30 Days Challenge
2. Leave a comment on this post describing how much you’re saving with this tip and any unusual techniques you use to make this tip work.
If you found this post helpful you’ll probably like my new Ultimate Guide to Personal Finance. This is an excellent place to learn more simple ways to improve your personal finance and money management.