Do you ever wake up in the morning, roll over, and say, “Man, I wonder what my personal finance brethren said about me as I was sleeping?” No? Hm, I guess it’s just me. Anyway, stay with me today as we weave the story of toilet paper, toothpaste, a rudimentary SWOT analysis, and a $1,000 challenge together. It’s really quite compelling.
Yesterday, I woke up to see this Q&A on Trent’s personal-finance blog, The Simple Dollar:
Reader question: “Are you familiar with…Scrooge Strategy? He has a whole different approach to saving money that avoids most frugality tips. Instead he focuses on things like calling to get your cable/phone/insurance/etc. bills lowered and tackling those major spending habits. His argument is that small frugality tips (those that “only” save $5-$10 per month) take too much effort when trying to implement several at a time over a long time; an argument that I believe is completely valid…”
“I think it’s good in concept and attractive for people looking for the big quick fix, but it’s shortsighted.
Let me give you an example. Let’s say I can swap out the incandescent bulbs in my house for CFLs and drop my electric bill about $8 a month. This activity would take me about twenty minutes, just once.
Under the philosophy you describe, such an activity would be a waste of time. Yet, over the course of three years, that activity saves $288 for only 20 minutes worth of effort (actually less than that, since with CFLs you don’t have to change bulbs nearly as often).
There are countless examples like this – little frugal steps that don’t save much money per month, but don’t take much time either. As a result, these efforts pay a huge hourly wage. Ignoring them because the immediate result isn’t splashy is a pretty big mistake, in my opinion.”
First of all, imagine you recently gave birth to a beautiful child, only to hear someone down the street calling it ugly. I hope it’s clear that honor requires me to respond. As a respectable personal-finance blogger, however, my response will take the form of a detailed blog post.
I hope to teach these methods to street criminals later this week.
Now, Trent runs one of the most popular personal-finance blogs on the internet, he is an adviser to Wesabe (as am I), and his blog features many, many excellent tactics for saving money.
But he also caters to a completely different audience than I Will Teach You To Be Rich. He and his readers focus on frugality, on ways to save ever-increasing amounts of money by cutting down on waste, and doing less with what you have. His most popular post of all time is How To Make Your Own Laundry Detergent – And Save Big Money.
I don’t have any issue with frugality, except that I think Americans are horrible at it and, for my audience, it’s a hopeless battle of telling them to say no to things — “no more lattes! no more eating out! no more enjoying life!” — which never lasts.
This is simply basic positioning. Trent has a different focus than I do: He focuses on frugality, and I’ve chosen to focus on helping people define rich and spend extravagantly on the things you love, while cutting costs mercilessly on the things you don’t. I especially focus on psychology and automation because none of us want to be financial “experts” — we just want our money to do the right thing so we can get on with our lives.
So, different strokes for different folks. My tips wouldn’t work very well for Trent’s readers, and his tips wouldn’t work well for mine. We could have just left it at that…
…But then Trent talked about The Scrooge Strategy.
A little bit about The Scrooge Strategy
First of all, to my knowledge, Trent hasn’t tried The Scrooge Strategy, my recently launched premium program for tactical in-depth savings tips. Since he hasn’t tried it, I’m not sure why he dismissed it as “short-sighted.” Especially since I’ve always focused on the long term, and 300+ people are Scrooge members for this very reason.
I could sit here and try to defend the Scrooge Strategy all day, but I’ll let the results from my members speak for me:
“You saved me $600 in interest. I just called American Express yesterday and told them that I just got laid off from work, and they said I can get 0% interest for 6 months, and then about 9% for the next 6 months. Reading your tips definitely gave me the idea to call them and try negotiating. I figured that the worst that could happen was that they would say no, but I would have never expected that American Express would waive interest for 6 months!”
And then there’s Jonathan Bruck’s savings in 2 weeks:
Focus on the 5 big things, rather than 50 little things
The I Will Teach You To Be Rich philosophy has always been to focus on the long-term, and to focus on big wins that matter. If you start investing early, pick a sensible asset allocation with low-cost funds, save for big events in the next 10 years (wedding, down payment on a house, kids, vacations…), focus on having great credit, and cut costs mercilessly on the things you don’t care about. Do these things and you’ll be ahead of 99% of other people.
But by reducing the number of things to focus on — and picking major, important items — you don’t need to worry about that one-off latte or extra $20 you spent on shoes. If you’re handling your major goals, the minor details fall out of that. Whether it’s spending $21,000/year going out or going out to a nice restaurant, you can handle your goals and use your money without feeling guilty.
What happens if you try to save money on everything?
You can’t. Implementing an ethos of frugality is nice, but it just doesn’t work for the vast majority of people. For Trent’s site, it clearly does — but he has a very, very niche audience relative to most Americans (just as I do…maybe even more so). Yes, we “should” be more frugal, but we’re not. And as you guys know, by focusing on big wins, you have gotten some amazing results on this site.
Like I said, Trent and I have very different styles. For instance, these are some of his recent tips: Baking your own bread (save $104 per year*) or making your own laundry detergent ($70/year).
In fact, yesterday, Trent wrote a post, “The Happy Minimum,” that went like this:
“I began to think more carefully… Did I really need to use that much toilet paper?[…]
Take pepper, for starters. I will put a large dose of pepper almost reflexively on anything I eat that isn’t sweet. The pepper grinder is a mainstay on our kitchen table…I tasted it first, added just two grinds of pepper, stirred, tried it again, and found that I liked the taste. Ordinarily, I would have just ground twelve or fourteen times without thinking about it.
What about toothpaste? I usually put a big glob on the brush without thinking about it too much. Instead, I put just a tiny bit on my brush, spread it over the bristles, and started brushing. Almost immediately, I had a nice bit of foam in my mouth and my teeth felt wonderfully clean afterwards.
Instead of grabbing two or three Kleenexes to blow my nose, why not just grab one and use it until I absolutely can’t use it any more, then get another if I need it?”
Toilet paper? Kleenex? Seriously? Even if you saved 50% on these for the next 20 years (which would affect your quality of life pretty dramatically), you’re still debating minutiae. You could save more in 1 phone call to negotiate your bank’s fees.
It’s one thing to criticize my tips. But when you haven’t tried them, I’m not sure it makes sense to call my advice “short-sighted.”
Again, a lot of Trent’s advice is really excellent (or I wouldn’t even bother writing this), it’s just for a different audience. So, to make this fun, I propose The Ramit/Trent Challenge.
At the end, we see which group has saved more — the Scrooge group or the frugality group. And I’m willing to bet, if you are: I suggest the loser pay $1,000 to the charity of their blogs readers’ choice.
Trent — will you take my challenge?
To my readers: Join the Challenge
I’ll wait to hear if Trent accepts, but for you guys, we’ll proceed no matter what.
If you want to join the challenge, follow the instructions below. Whoever signs up today will get the tips and will get to attend the private webcast.
But I’m only taking people who want to win. So if you’re dedicated to following the tips for 1 month (and after that, but ESPECIALLY in the first month), sign up. Otherwise, please don’t ruin my chances at winning this bet in the micro-niche world of personal-finance bloggers. Hey, we all have dreams. Small dreams.
If you want to participate:
1. Sign up at http://www.scroogestrategy.com (all signups include a 60-day money-back guarantee)
2. Once you sign up, email firstname.lastname@example.org with this subject line: “I’m IN for the Ramit/Trent Challenge.”
Whether or not Trent accepts The Challenge, you’ll still get the tips, I’ll invite you to the private webcast, and you guys will save money. And we’ll show the world how much you can save by focusing on the big wins, not every little savings tactic that comes along.[Edit]: Trent’s response is up.
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* Assume buying bread costs $3 while making it yourself costs $1. 1 loaf/week.