If I have five minutes and my goal is a clean house, I can get a big reward by picking up things off tables and floors, but a much smaller reward by sorting papers in my filing cabinet. If I have an hour, I can get a bigger reward from vacuuming and mopping than from scrubbing the shower. That doesn’t mean that sorting papers and scrubbing the shower aren’t worth doing, just that you get a bigger impact from the other things. If you get the high payoff things done, though, there’s nowhere to go but the low payoff things (if the house is clean, maybe the shower is the dirtiest part and does need attention.)

Yeah, it’s simple, that’s why everyone is doing it. Lots of things are possible, not all are probable. Successful businesses require more than a formula. There are always ways to make more money, but not all are probable or, as Donna pointed out, possible due to given circumstances. And if everyone could make a million dollars a million dollars would no longer be a good salary, it would be average and buy average things. By definition there will always be a tapering off at the top of the income rung. Therefore my point is valid. PLUS there is always going to be risk involved in starting a business. The reward is high, but so is the likelihood of failure.

$150k/yr is a lot of money (in most locales), and people making that aren’t going to have many opportunities for making more money. It isn’t usually worth their time to get a second job, many are salaried or can’t work overtime, and as pointed out above, quitting and going into business for oneself takes on a lot of risk.

Regarding Nichole’s point, that is valid as well. Okay, so in your scenario you’re now making $1M instead of $400k…and your expenses are at $1.1M instead of $500k. The opportunities to spend money are endless. One must still control spending, no matter the income. That is a logical fallacy a lot of people making that $1M make. They assume that much money will never run out, and easily over spend it. That’s how so many celebrities wind up bankrupt.

I agree that a lot of Ramit’s “big wins” are the basic things any other PF blogger would write about. I’ve never found such tips very helpful for the same reasons as you. The higher effort/lower reward frugality tips can get boring and extreme. I really like The Complete Tightwad Gazette, but there are several tips in the book that just make me shake my head.

Thanks for taking the time to comment!

I actually don’t think Ramit and Trent are all that different. Ramit wants to market his tips as something other than “frugality” because he writes for an audience that considers frugality to be boring, but most of his “big wins” are things that Trent, JD, and lots of other frugal PF bloggers have recommended as well. Like SF_UK (#2), I don’t find many of these tips useful because I have already done most of them or prevented them from applying to me (e.g., I have no credit card debt, so there’s no reason for me to get my interest rates reduced). Once the big expenses are under control, you have to do the small things if you want to save more money.

and a similar comment:
“People bringing home $150k/yr won’t get as much with a coupon, but the likelihood of being able to make more money is diminished. While it’s POSSIBLE to make more, it isn’t terribly probable (at least not without major personal sacrifices).”

If you’re running your own business, this simply isn’t true. Here’s what happens when you hit the 6-figure mark with your business…you have some things that work and some that don’t.

Assuming you focus on the replicable processes that work, you can easily go from $100K to a million or more in just a year or two.

When my business was generating about $400K annually, I sat down with a business coach for a day. I paid a princely sum to do it, but it was worth it. He helped me figure out what was working and what wasn’t working. A year and a half later we were close to hitting $1M in annual revenue, and that’s when I sold the business.

Businesses do that. If you can make $400K, it’s a matter of finding the systems inherent in your earnings, and duplicating them (with possible outsourcing and/or hiring involved.) Then you make $800K in a year or two.

If you’re working 80 hour weeks at that point, you need to let go of the reins and hire people for many of your replicable systems.

I know some of you think I’m loony, but this comes both from personal experience as well as working with many other business owners who are in that “6 figures but not yet a million” range.

-Erica

P.S. There are a whole lot of business owners out there who are making well into 6 figures and not even working a full 40-hour week…

Conversely, low to moderate effort attempts to increase your income typically yield very limited results, unless you have a highly demanded skill. If it were easy to make a lot of extra money, many people would do it. High effort attempts to increase your income, on the other hand, can be very successful and make the greatest impact on your financial situation. But they require a level of time commitment that shouldn’t be underestimated and is not necessarily possible for all people at all stages of their life.

@HollyP(#34): I’m glad to get the feedback. It does seem I did a particularly poor job in relating my idea in this article, but the feedback has been helpful and will give me specific areas to improve upon in future articles. I think your comment about stages relates well to chacha1′s comment (#35).

@chacha1(#35): Hooray! So my graph makes sense to at least one other person. Your interpretation is one way of seeing it, and I think it holds true for many people. It’s easy to start with the low effort things – especially if they offer a good reward. That’s how my idea relates to the stages J.D. has discussed in the past. After you’ve done so much improving in your personal finances, you’re in that final stage where you maintain some effort but there’s not really a whole lot more you can do to improve.

@Donna Freedman(#37): Thanks for commenting! Your point is also something I was trying to address in the post. Just because Ramit is telling you to focus only on “big wins” and earning more doesn’t mean you’re a failure if you don’t do it. And just because Trent tells you to use only three squares of toilet paper (or whatever he said in that post) doesn’t mean you flunk frugality school if you don’t do it. There’s more than one way to skin a cat – and you might not have the resources available to skin it the way others tell you. That’s where the “do what works for you” comes into play.

@Sushi(#39): The “holier than thou” aspect is what sparked this idea for me when I read about Trent & Ramit’s little battle. (That’s also why I included it in the post.) There is a middle ground where you do some of what both camps suggest. Following this path can help you achieve your goals and maintain the lifestyle you want. Just because you don’t strictly adhere to one type of advice doesn’t mean you’re doing it wrong.

@TR(#40): Excellent point! I would hope anyone who’s serious about improving their personal finances wouldn’t give up so easily, but I can see how that can happen if they’re not fully aware of the bumps in the road they might face. It’s easy to tell someone all the “right” things to do. It’s harder to prepare them for all the things that could go wrong. Good teachers don’t just tell you how to do something the right way – they also prepare you for the pitfalls and common mistakes.

As Seinfield would say “not that there’s anything wrong with that”

first we do the low-effort things with high rewards, gradually tapering those off as the rewards become less, um, rewarding;

second we do the medium-effort things with high rewards, gradually tapering off;

third we do the high-effort things with high rewards.

There’s only so many different things we can try in each category, depending on our personal situations. Eventually we have to shift gears and move into a new category. Most of us start with low-effort things because we need an easy “win” in order to build momentum.

So while the structure may not have been “optimal,” just wanted you to know that for this reader, at least, the graph was a non-issue.

I agree with the mantra of “Do what works for you,” with emphasis on the DO and the YOU. Be active, and figure out what works for you.

This changes as your life changes. In my 20s and early 30s, I put a great deal of emphasis on the side of increasing income. It took a great deal of time & effort away from home. In my later 30s and 40s, as my husband and I had a family, we’ve moved our efforts to controlling lifestyle inflation. I’m not so interested in increasing my income, as I’d rather spend the time with my kids. I still engage in frugal lifehacks just because I enjoy them. I expect my approach to money will grow and change again as I move to my next life stage.

I switched jobs last year for a 40% raise, and by keeping a 10 year old car I don’t have any auto expense except my small insurance policy. I also “pay myself first” and don’t stick to any budget for expenses, just make sure I don’t spend more than what’s left. I do track my spending categories though out of habit (hard to break that!).

Nickel and dime frugality irks me! I love Simple Dollar but sometimes Trent goes too far in that direction.

“If you want to improve your financial situation, the biggest gains are to be had by increasing your income.”

I get what you’re saying, but at the same time we are always talking around here about how people can make $250k/year and still sink into debt. I don’t read Ramit, and perhaps he touches on it, but frugality is a lifestyle choice. There is always something bigger and better that you can have. You might have the yacht but want the private island to park it at. While your income is limitless, so are things to spend it on.

Everyone defines frugality differently, but at its core it is giving up your wants for the sake of saving money and we all need to exercise that. Many people take it to extremes, and even around here some of us raise our eyebrows at what some people do to save a few cents. But there are extremes on each end. People bringing home $20k/yr are going to get a big bang with a coupon, making it more worthwhile, but they should concentrate on making more money because they have a lot of room to grow. People bringing home $150k/yr won’t get as much with a coupon, but the likelihood of being able to make more money is diminished. While it’s POSSIBLE to make more, it isn’t terribly probable (at least not without major personal sacrifices).

@ Paul

You can divide or multiply to your heart’s content, you just change the scale you are comparing it to, but they will still come out along a line. You just have to understand your equation to determine if high is good or bad.

I think it is more realistic for most to get a handle on needs, wants, etc. Try to reduce the big costs (homes, car, rent) if you can, a lot of times people are tied into these costs unless they want to walk away from a home – although I’m all for selling an expensive car and getting rid of a car payment.

I agree that one can take some time to negotiate non-fixed costs, things like cable and insurance costs and those negotiations can pay off over time. Saving $20 a month does add up over the year. We are not super frugal, but we limit the amount we can spend via an allowance system which allows for fun, entertainment, shoes, etc. but cuts us off at a certain point.

One area that we really focus on is avoiding new recurring costs and keeping our spending plan as is to avoid lifesyle inflation. While I’d love to have someone clean our home we won’t sign up for a regular service but we have had a cleaning company come in on a one time basis before a big event or company. Same with things like the bug guy. Although our income may have increased over the last few years we have not increased our spending plan or budget, except to try to push more money to savings and investments.

The trouble comes in knowing what works for you. Some people think they hate budgets but have never kept one just like some people think they hate running but have never done much of it. Sometimes you have to give something a fair try to find out how you really feel about it.

I think you should do what works for you but also keep an open mind. If you see something that works for someone else, you might want to try it out. Perhaps there’s a reason why it works for them.

Rob

I think this is probably true for most people…
but living in LA this past year has reminded me that spending can be almost infinite too. Most of us don’t have a whole lot to cut, but if you’re making 400K and spending 500K (and working 80-100 hour weeks), you’ll probably have bigger gains from cutting some than from earning more. (Yes, real people out here are in that situation, and not just movie stars.) At my comparatively piddly (but still high compared to the US average) income I’m a lot happier because I have less debt, smaller fixed expenses, and work fewer hours.

Really the finite resource is time. We can allocate it to earning or to cutting. Depending on what we’re currently doing either earning or cutting will have larger pay-offs.

I cringed when I read “Along with the guidelines I posted last weekend, I’m going to file this post away as a sample to show prospective writers. I want people to be able to see an example of how sometimes what they think they’re saying isn’t actually what they’re saying.” But I agree, what I thought I was saying wasn’t what I actually said. I failed in that respect.

I wholeheartedly agree that you can get the biggest gains by increasing your income. The problem I see with emphasizing that fact too much is that so many people haven’t learned the important parts of frugality yet. They focus only on income and ignore their expenses. Then, ten years later, they wonder why they still don’t have any money even though they’re making three times as much as before.

Once you’ve covered the “big wins” and stopped wasting money on stupid, unimportant things, frugality becomes mostly about those intense effort-low reward activities. At that point, you should focus primarily on the earning side of things while maintaining the good habits you learned from being frugal.

I want to highlight this comment because from my experience, it’s very true. I’ve met Ramit once (twice?), and talked to him several times. He really is a frugal fellow. He just plays a role on his blog because he really does believe Big Wins are more important, and he’d rather have people think about them than pinch pennies. But I’d be willing to be he’d tell you that both are important in his own life.

Erica makes another good point, though, and it’s one that she, Ramit, and I have all discovered (as have many others): There’s only so much you can do to improve your finances by cutting costs; there are far greater rewards to be had by increasing your earning power. And when you do that, frugality becomes less important (not unimportant, but less important). I try to stress this again and again, but I feel like the point never gets across, or that people dismiss it because they think it doesn’t apply to them: If you want to improve your financial situation, the biggest gains are to be had by increasing your income.

Finally, thanks to every for offering constructive criticism for Paul. I feel like you’re doing a good job of not attacking him, but instead sharing what you find confusing about his article. Along with the guidelines I posted last weekend, I’m going to file this post away as a sample to show prospective writers. I want people to be able to see an example of how sometimes what they think they’re saying isn’t actually what they’re saying.

For his part, Paul’s being a good sport about this, and seems to understand this he didn’t communicate his point as effectively as he wanted. So, even though the article may not be perfect, it sounds like it’s a productive discussion for everyone involved.

Now, if you’ll excuse me, I need to shower. Tough tough Crossfit workout this morning: run 800 meters, do pushups to failure — repeat the cycle for 30 minutes. I’m toast.

Trent suggested that people ensure that their children qualify for more financial aid by “giving away” any money that the kid has to someone like an uncle and then maybe the uncle would “decide” to return the money at a later date. Sketchy. And illegal. And greedy.