I spent more than a few years scrimping to the bone earlier in my twenties. The notion has an intrinsic appeal to me. Just so you know the context when I say:
For what it's worth, if you're a HNer, I'll tell you something Ramit Sethi says often which would have been useful to internalize, oh, five years earlier: it is very hard to cut expenditures in such a meaningful fashion that your financial situation qualitatively changes. (There's only a few big wins there, and lattes or "stop buying books" do not qualify.) By comparison, the amount of impact you can have by moving your salary up is quite substantial indeed, particularly because there's just a crazy dynamic range in our industry and, well, most of us by default do not make choices which tend to land us on the top tiers of that range.
Seriously: I get people who email me on an almost weekly basis saying they got $5k ~ $15k a year just by asking for a raise. You know how many trips to the library it takes to move your financial situation by that much? You won't accomplish it in your lifetime. And that's between a few hours of work or, literally in some cases, minutes.
I think much of the utility of frugal living is the mindset it ingrains in you. It becomes a valuable life skill that has a much wider impact than simple finances. You gain a reflexive ability to determine the true value of a purchase, both in the now and in the future.
Say you have 2 people earning $30k/yr. One is trying to live frugally, the other is not. Suddenly the latter gets a $10k/yr raise "just by asking". I'd wager that the person with the deliberate, frugal mindset will still have more discretionary cash the day before payday than the one who got the raise.
If you want to get that salary raise, at some point it has to be backed by somebody actually buying something.
If everybody becomes super frugal then the economy shrinks and unemployment gets worse. I guess this is because we're at a point where we don't need anything close to 100% employment to cover everybody's 'basic' needs.
If you can get a raise, that's fantastic, and congrats! My experience however is that without asking "why do I buy the things I do", people tend to raise their spending to their new salary level. Why not two or three latte's per day? That's what $15 per day, or about $4000 per year.
It's certainly easier to make an extra couple thousand by asking for a raise than by scrimping on lattes, but I'd argue that a frugal mindset is every bit as important. Unfortunately, spending every cent of $200,000 a year is exactly as easy as spending every cent of $50,000. There are plenty of people whose approach to financial management is to simply... spend their money. Doesn't matter whether that's a little bit of money or lots of money. If they make 50,000 a year, they spend 50,000. If they make 200,000, they spend 200,000. If they come into an inheritance, they spend the inheritance till it's gone.
I'm a student who's never had a full-time job in her life, and I have more money in savings than many well-paid professionals I know, simply because I actually put money into savings.
Just to add to this, I spent roughly the first two years of my career with 80% of my attention on reducing expenses at 20% on earning more. I got about the same amount of money from both. Later on I shifted that ratio, and significantly increased my income over the next two years. I did increase my expenses, but I'm saving much more as both a percentage of my income and as an absolute quantity.
It's also helpful because the same technique that helped me earn an X% raise has worked over and over again, with roughly the same results. So when you learn to negotiate, you're changing the rate at which your income grows, as opposed to a one-time increase in income. That has a massive effect in the long term.
On difficulty of cutting expenditures: It also means it is very painful to shift down to a lower salary and more satifying (or less stressful etc) job. Income lock-in.
"The people who generally have their financial shit together don't usually realize when it's pay day."
Seems like a pretty specious argument. If you pay bills, then you know when bills are due and you know when payday is. That's finance in a nutshell - managing your AR and your AP.
"Do you live within biking distance from work? No? Then move closer to work."
I live in one of the better school districts in the area and pay a premium to do so. Why would I move from a better school district to a worse one?
I realize that this is Hacker News, and that many people here are younger than I am (and I'm young myself), but this person is trying to give advice about something he may not be quite old enough to understand yet.
If you pay bills, then you know when bills are due
USAism because you're still using checks and other old money tech.
In the modern world: My rent, insurance, electricity, heating, phone, mastercard, newspapers, etc are payed automatically every month. Whenever I get a bill, it contains a 'subscription id' which I enter in my online bank, and all following bills are then sent as an electronic invoice to my bank which then automatically performs the requred transfer of money on the due date. I don't even see those bills unless I want to spend time looking at it. I don't receive those bills in the paper mail. Everything is online.
Same with my wage. It just goes into my account after taxes are automatically payed. I don't need to do any work to pay my taxes.
Thus, I don't need to know when it's pay day unless I use too much money.
"Do you live within biking distance from work? No? Then move closer to work." is dubious advice. If you have to pay 2x what you pay now to live closer to work, are you saving enough by not having a longer commute? Better advice is "Use common sense with where you live and work."
"The people who generally have their financial shit together don't usually realize when it's pay day." isn't a specious argument. You would have enough to pay your bills whether or not you got paid for a multiple of months.An emergency fund that covers 6 months of expenses is the first step to having your financial shit in order.If you can manage that it gets easier.
They only time I notice I got paid is when I make a ATM withdrawal and see the balance go up.
That issue isn't age-correlated. I'm over 40 and never had kids, but there are 25-year-olds who are concerned about teacher quality (and during the grades it matters most).
Another thing to take into account is that a lot of jobs tend to be concentrated in specific in particular locations.
This means that property closer to these locations tends to become more expensive which may wipe out a lot of the savings made by an easier commute.
I've always known when bill day is, but in the last years I have never thought about which weeks pay day falls on except for one bad month when property tax and first+last at daycare happened during the same week.
"It goes like this. The people who generally have their financial shit together don't usually realize when it's pay day. Those who live pay-cheque to pay-cheque always know, and will remind you as well! I once received an email from a colleague who signed off with Happy Payday!. It's a very telling test."
I've got my finances setup pretty well and I still know when payday is and enjoy it very much. No, I don't need the money to get through the next two weeks but it's still fun to receive money. I'd almost argue that if you don't know when payday is, and when money is coming in and out of your account, you don't have your financial shit together.
Besides that, this article doesn't really provide any tips or advice that a generic "save more money" article on MSN would offer. Some examples from the authors personal financial "hacks" would have been helpful.
I'd almost argue that if you don't know when payday is, and when money is coming in and out of your account, you don't have your financial shit together.
My impression is that the usual cause of payday unawareness is when people have enough liquid funds that "getting paid" doesn't have any significant effect. There's an argument to be made that such people probably have too much liquidity and should be more aggressive about investing their wealth, but that's certainly a better position to be in than not having enough liquidity.
It's also worth pointing out that for many people, servicing debts is one of their biggest monthly expenses. Credit card debt and car payments especially will sap your ability to save in any meaningful way. If you have debt, the #1 goal should be to pay it down as fast as humanly possible.
Yes, this is what I am doing right now. I find that what helps is to do the math and then mentally mark the price of everything up by the amount that it would cost not to put that money into paying debt instead.
Do you live within biking distance from work? No? Then move closer to work. This has three huge benefits...
It also has one huge downside the article neglects to mention. If your work is in the center of town (as many offices are) you often either have to greatly increase the amount you spend on housing or greatly decrease the 'quality' of the housing.
For disclosure sake I do live in an apartment in the center of town, but in doing so I'm sacrificing things like a garden and a my daughter getting her own room. It's a price I'm willing to pay, but I'm fully understanding of people who aren't.
Does the quality of the housing mean space? Living a more minimalist life also means having less stuff. The reason why we build everincreasing houses is that we need space for our stuff.
If your income exceeds your expenses you're in good shape. For too many people that involves an endless game of chasing more income when the 'expense' side of the equation can usually be brought under control with less effort and right now, not "sometime in the future after my next promotion/job change".
"The people who generally have their financial shit together don't usually realize when it's pay day."
This. I've lived this way for the past 8 years and it's been a breath of fresh air. To me, this is the definition of "living within your means."
Although I think it's not for anyone. Some people actually enjoy pinching pennies or spending frivolously while watching their bank account constantly in either case. I can't really identify with that, and it would drive me crazy.
The text says you should carefully consider all your expenses. It definitely doesn't claim that you should blindly eliminate all of them. You seem to have chosen an extremely hostile reading of the text.
In fact quite a lot of the top-level posts seem to have chosen the same hostile reading of the text. It makes me think perhaps some buttons were pushed and there's some rationalizing going on in at least some of these messages.
The big problem, at least in the UK is that cost of food and other essentials has gone up by a lot while wages have remained stagnant. This can make even a frugal budget fall apart because at the end of the day you still need to put some food in your face.
It's easy enough to stop buying consumer stuff that you don't need, but you do need some way to entertain yourself and if you want any social or family life at all eventually you're probably going to end up in some pretentious bar with overpriced drinks.
I think one should some hard math on how much food costs vs. some of these other expenses that the article says to start cutting _first_. TV is 100$, which is easily 5 days of food in New York City if you live on a budget. A car is 500$, which is a month worth of food. Even if food prices were to go down, it wouldn't be by 50%.
The big problem, at least in the UK is that cost of food and other essentials has gone up by a lot while wages have remained stagnant. This can make even a frugal budget fall apart because at the end of the day you still need to put some food in your face.
This has been happening for 40 years in the United States.
Here is my own piece of financial advice that I learned from a wise man 20 years ago: You have to double your income in order to improve your standard of living by 10%. Many people get a raise or a new job and they think they are now rich and can spend like crazy. You can't. Double your income and you'll honestly only see a 10% lifestyle change. Don't forget it. Keep saving. Limit spending. And give a percentage of your income back to charity.
While it sounds like a compelling anecdote, it's complete bullshit. If you are just squeaking by at 30k, and you get a raise up to 60k, you suddenly have an extra 30k per year to play with.
That can mean many things - for every year you work, you could theoretically retire one year earlier. You could now afford a car that doesn't cost more in maintenance than gas each year. You could now afford to double your extremely tight grocery budget and spend more money on healthier foods.
"Lifestyle" and "standard of living" are unquantifiable, which is why this is a compelling factoid, but the reality is that, ignoring inflation, a 10% increase in salary is a 10% increase in disposable income.
Now obviously if you have more disposable income than you need, a 10% increase doesn't mean much. If I was pulling down 200k I wouldn't move for 220k if I was happy where I was at, but if I was pulling down 40k I would move for 44k in a heartbeat.
Follow what patio11 is saying. But follow what the OP is saying too.
If you are a ordinary working class citizen, you are not likely to make it big unless you save and invest when you are having it good. I've seen a lot of people who didn't save and invest only to be saying later, If at all I had done so...
Saving money cannot increase your income by drastic size. But not saving, can sure decrease it.
I'd recommend this too. It's a financial blog by a married 38yo former software engineer. If you're into hacking your finances and living a less consumer driven lifestyle, I'd check it out.
There's a lot of people who are physically incapable of biking to work -- not because of distance, but because of some combination of {age, injuries, lack of fitness, difficult terrain, luggage}.
It's easy for a fit 20 year old who lives on a flood plain to say that more people should cycle to work. It's not so easy for an overweight 40 year old who needs to drop her kids off at daycare, works at the top of a steep hill, and needs to buy groceries on the way home.
Laziness. I'm able to commute by bike, on a well-maintained bike path, no less. However, more often than not, I don't do it. Why? Because since I also have a car, I'm more likely to drive when running late (which is basically ALL the time).
Basically, the idea is that for every mile you live closer to work, you can afford another $15,900 worth of house.
It's also interesting when you throw in cycling to work; I used to argue with a friend about going to the gym (which I'm not fond of). I told him I could bike to work (20 minutes) and bike home (20 minutes) for a total of a 40 minute workout during my commute and save myself the extra hour (maybe more) it would cost going to the gym everyday.
It's crazy inconvenient, not particularly pleasant and offers weak health benefits[1]. If someone likes it, great but for most of us getting sweaty right before classes/work (and likely keep sweating while there), not being able to dress properly and not being able to go out afterwards is a deal breaker.
And you can't even ditch the car and all the maintenance costs and efforts that go with it because you will still need it occasionally.
I am guessing that most people aren't able to work. Just taking a survey from the people around me, no one lives close enough to work to bike. I also live in Orange County and the Los Angeles area so everything is very spread out.
in many american cities, if you want to have enough living space to raise 2 or more children, your options are to spend several million dollars on housing that is close enough to your downtown office that you can bike to work, or, move to the suburbs.
This article sounds a lot like minimalism (not design but the one similiar to simple living). There are lots of other people out there with a similiar mindset.
I wouldn't forget what day I get paid any more than I would forget what day of the week it is. Being cognizant of the details of your life says nothing of your financial health.
Limiting your expenses also gives you more freedom. You can quit your job, take a lower paying job if it's more inspiring, or just afford to work fewer hours on your day-job.
My wife and I have found this type of investing really fulfilling. Instead of investing in larger but more infrequent chunks, we'll buy stocks 50 or 100 at a time to add to our portfolio.
Since we've started, we've increased our annual allocation to long-term savings 100%. Investing is also a lot more fun.
[+] [-] patio11|13 years ago|reply
For what it's worth, if you're a HNer, I'll tell you something Ramit Sethi says often which would have been useful to internalize, oh, five years earlier: it is very hard to cut expenditures in such a meaningful fashion that your financial situation qualitatively changes. (There's only a few big wins there, and lattes or "stop buying books" do not qualify.) By comparison, the amount of impact you can have by moving your salary up is quite substantial indeed, particularly because there's just a crazy dynamic range in our industry and, well, most of us by default do not make choices which tend to land us on the top tiers of that range.
Seriously: I get people who email me on an almost weekly basis saying they got $5k ~ $15k a year just by asking for a raise. You know how many trips to the library it takes to move your financial situation by that much? You won't accomplish it in your lifetime. And that's between a few hours of work or, literally in some cases, minutes.
[+] [-] SageRaven|13 years ago|reply
Say you have 2 people earning $30k/yr. One is trying to live frugally, the other is not. Suddenly the latter gets a $10k/yr raise "just by asking". I'd wager that the person with the deliberate, frugal mindset will still have more discretionary cash the day before payday than the one who got the raise.
[+] [-] jiggy2011|13 years ago|reply
If you want to get that salary raise, at some point it has to be backed by somebody actually buying something.
If everybody becomes super frugal then the economy shrinks and unemployment gets worse. I guess this is because we're at a point where we don't need anything close to 100% employment to cover everybody's 'basic' needs.
[+] [-] leeHS|13 years ago|reply
[+] [-] Cass|13 years ago|reply
I'm a student who's never had a full-time job in her life, and I have more money in savings than many well-paid professionals I know, simply because I actually put money into savings.
[+] [-] SatvikBeri|13 years ago|reply
It's also helpful because the same technique that helped me earn an X% raise has worked over and over again, with roughly the same results. So when you learn to negotiate, you're changing the rate at which your income grows, as opposed to a one-time increase in income. That has a massive effect in the long term.
[+] [-] zurn|13 years ago|reply
[+] [-] debacle|13 years ago|reply
Seems like a pretty specious argument. If you pay bills, then you know when bills are due and you know when payday is. That's finance in a nutshell - managing your AR and your AP.
"Do you live within biking distance from work? No? Then move closer to work."
I live in one of the better school districts in the area and pay a premium to do so. Why would I move from a better school district to a worse one?
I realize that this is Hacker News, and that many people here are younger than I am (and I'm young myself), but this person is trying to give advice about something he may not be quite old enough to understand yet.
[+] [-] silvestrov|13 years ago|reply
USAism because you're still using checks and other old money tech.
In the modern world: My rent, insurance, electricity, heating, phone, mastercard, newspapers, etc are payed automatically every month. Whenever I get a bill, it contains a 'subscription id' which I enter in my online bank, and all following bills are then sent as an electronic invoice to my bank which then automatically performs the requred transfer of money on the due date. I don't even see those bills unless I want to spend time looking at it. I don't receive those bills in the paper mail. Everything is online.
Same with my wage. It just goes into my account after taxes are automatically payed. I don't need to do any work to pay my taxes.
Thus, I don't need to know when it's pay day unless I use too much money.
[+] [-] IgorPartola|13 years ago|reply
[+] [-] jf271|13 years ago|reply
They only time I notice I got paid is when I make a ATM withdrawal and see the balance go up.
[+] [-] prodigal_erik|13 years ago|reply
[+] [-] jiggy2011|13 years ago|reply
[+] [-] engtech|13 years ago|reply
[+] [-] leeHS|13 years ago|reply
[+] [-] ZanderEarth32|13 years ago|reply
I've got my finances setup pretty well and I still know when payday is and enjoy it very much. No, I don't need the money to get through the next two weeks but it's still fun to receive money. I'd almost argue that if you don't know when payday is, and when money is coming in and out of your account, you don't have your financial shit together.
Besides that, this article doesn't really provide any tips or advice that a generic "save more money" article on MSN would offer. Some examples from the authors personal financial "hacks" would have been helpful.
[+] [-] cperciva|13 years ago|reply
My impression is that the usual cause of payday unawareness is when people have enough liquid funds that "getting paid" doesn't have any significant effect. There's an argument to be made that such people probably have too much liquidity and should be more aggressive about investing their wealth, but that's certainly a better position to be in than not having enough liquidity.
[+] [-] spking|13 years ago|reply
[+] [-] jiggy2011|13 years ago|reply
[+] [-] dagw|13 years ago|reply
It also has one huge downside the article neglects to mention. If your work is in the center of town (as many offices are) you often either have to greatly increase the amount you spend on housing or greatly decrease the 'quality' of the housing.
For disclosure sake I do live in an apartment in the center of town, but in doing so I'm sacrificing things like a garden and a my daughter getting her own room. It's a price I'm willing to pay, but I'm fully understanding of people who aren't.
[+] [-] legulere|13 years ago|reply
[+] [-] Lasher|13 years ago|reply
[+] [-] hkarthik|13 years ago|reply
This. I've lived this way for the past 8 years and it's been a breath of fresh air. To me, this is the definition of "living within your means."
Although I think it's not for anyone. Some people actually enjoy pinching pennies or spending frivolously while watching their bank account constantly in either case. I can't really identify with that, and it would drive me crazy.
[+] [-] unknown|13 years ago|reply
[deleted]
[+] [-] jerf|13 years ago|reply
In fact quite a lot of the top-level posts seem to have chosen the same hostile reading of the text. It makes me think perhaps some buttons were pushed and there's some rationalizing going on in at least some of these messages.
[+] [-] dmm|13 years ago|reply
[+] [-] romain_g|13 years ago|reply
[+] [-] jiggy2011|13 years ago|reply
It's easy enough to stop buying consumer stuff that you don't need, but you do need some way to entertain yourself and if you want any social or family life at all eventually you're probably going to end up in some pretentious bar with overpriced drinks.
[+] [-] dblock|13 years ago|reply
[+] [-] eli_gottlieb|13 years ago|reply
This has been happening for 40 years in the United States.
[+] [-] johnrydell|13 years ago|reply
[+] [-] debacle|13 years ago|reply
That can mean many things - for every year you work, you could theoretically retire one year earlier. You could now afford a car that doesn't cost more in maintenance than gas each year. You could now afford to double your extremely tight grocery budget and spend more money on healthier foods.
"Lifestyle" and "standard of living" are unquantifiable, which is why this is a compelling factoid, but the reality is that, ignoring inflation, a 10% increase in salary is a 10% increase in disposable income.
Now obviously if you have more disposable income than you need, a 10% increase doesn't mean much. If I was pulling down 200k I wouldn't move for 220k if I was happy where I was at, but if I was pulling down 40k I would move for 44k in a heartbeat.
[+] [-] kamaal|13 years ago|reply
If you are a ordinary working class citizen, you are not likely to make it big unless you save and invest when you are having it good. I've seen a lot of people who didn't save and invest only to be saying later, If at all I had done so...
Saving money cannot increase your income by drastic size. But not saving, can sure decrease it.
That's the whole point.
[+] [-] Robin_Message|13 years ago|reply
[+] [-] leeHS|13 years ago|reply
[+] [-] tomp|13 years ago|reply
[+] [-] engtech|13 years ago|reply
[+] [-] cperciva|13 years ago|reply
It's easy for a fit 20 year old who lives on a flood plain to say that more people should cycle to work. It's not so easy for an overweight 40 year old who needs to drop her kids off at daycare, works at the top of a steep hill, and needs to buy groceries on the way home.
[+] [-] endemic|13 years ago|reply
[+] [-] npsimons|13 years ago|reply
Basically, the idea is that for every mile you live closer to work, you can afford another $15,900 worth of house.
It's also interesting when you throw in cycling to work; I used to argue with a friend about going to the gym (which I'm not fond of). I told him I could bike to work (20 minutes) and bike home (20 minutes) for a total of a 40 minute workout during my commute and save myself the extra hour (maybe more) it would cost going to the gym everyday.
[+] [-] spindritf|13 years ago|reply
And you can't even ditch the car and all the maintenance costs and efforts that go with it because you will still need it occasionally.
[1] http://medicalxpress.com/news/2012-09-short-intense-health-l...
[+] [-] ZanderEarth32|13 years ago|reply
[+] [-] munin|13 years ago|reply
[+] [-] legulere|13 years ago|reply
e.g. reddit.com/r/minimalism http://zenhabits.net/start/
[+] [-] cslacasse|13 years ago|reply
[+] [-] jacobr|13 years ago|reply
[+] [-] logn|13 years ago|reply
[+] [-] debacle|13 years ago|reply
Since we've started, we've increased our annual allocation to long-term savings 100%. Investing is also a lot more fun.