Large Amounts Matter Too

This article is the sixth of a fourteen-part series that explores the core tenets of Get Rich Slowly.

Last winter, Kris and I re-financed our mortgage. In one fell swoop, we trimmed our monthly payments for principal and interest from $1386.60 to $1137.69, boosting our cash flow by $248.91 per month.

If we had consumer debt, that's $248.91 per month we have could used for our debt snowball. It's $248.91 per month we could stick in our retirement accounts, or to put into savings accounts for our trip to France next year — or to pursue other hobbies and interests. Really, it's $248.91 we could use for anything we wanted. (As it happens, we chose to use that money to accelerate our mortgage payments.)

Note: Sierra Black gave us a guest post on this subject in September when she described how she and her husband are sweating the big stuff. They made a big change that saved them $1,000 a month.

 

There's no question that frugality is an important part of personal finance. It's good to clip coupons and to mend broken furniture and to turn the thermostat down. But it's even better to shop around for the best deal on a mortgage. Everyday frugality can save you a little money consistently, but by making smart choices on big ticket items, you can save thousands of dollars in one blow. Or you can boost your cash flow by hundreds of dollars per month.

Some people spend so much time sweating the small stuff that they don't bother to do the same on the big stuff. They're penny wise and pound foolish, negating their daily scrimping and saving by making poor financial decisions that burden them for years. Kris has a co-worker who once bought an SUV for $43,000. After a year, he decided to trade it in, but could only get $23,000 for it. Ouch!

Now obviously, you only get a few chances in your life to save big on a home or a car. You rarely make financial decisions involving tens (or hundreds) of thousands of dollars.

However, you probably do make other big decisions several times a year. You buy a camera or a television or a new piece of furniture. You book a cruise or fly home for Christmas or hire somebody to work on your house. These are prime opportunities to save money. Whenever you anticipate a big expense, you should look for ways to maximize the value you get for your dollar.

As I've shared before, here are the guidelines I use to steer my shopping for big-ticket items:

    • Know what you want before you start. If you're buying a vacuum cleaner, what are you going to use it for? What features do you need in a television? What features do you want? When I bought a small digital camera in 2007, I jotted a quick wishlist: wide-angle lens, large display, easy-to-use menu, good video quality. Some of these items (like wide-angle lens) were much more important than others.

 

    • Set a budget. Ideally, you'd set a budget for your purchase before you started shopping. That's not realistic. You can't know how much a dishwasher costs until you actually look at a few. But once you have a sense of the landscape, decide how much you're willing to spend. If you don't set a budget to start, it's easy to succumb to “desire inflation”. When shopping for my digital camera, I had a budget of $300.

 

    • Research your options. Once you've created a features list and a budget, search for options that meet your requirements. In most cases, Consumer Reports is a great place to start. Your local public library probably has a copy of the annual Consumer Reports Buying Guide. But don't discount the web. I often do product research through Amazon.

 

    • Make a selection. Once you've done your research, you'll probably find one or two items that seem most promising. (There's rarely one perfect choice.) I tend to write down the manufacturer and model number of my top three choices before I move on to the next step. In 2007, I was able to narrow my choices down to two camera models, both of which were within my budget.

 

    • Compare prices. Now that you have a shortlist, begin researching prices. Again, check Amazon. Check other online vendors. Check your local stores. Don't forget to consider used or refurbished items.

 

    • Make the purchase. Once you find the best source for the item you want, buy it. Be confident that you've researched price and features so that you know you're getting a good deal.

 

  • Protect your investment. The older I get, the better I am about saving warranty information and boxes. (If we had a smaller house, I'd only save boxes for a couple weeks. Because we have space above the garage, I save them forever.) A little foresight when you buy a product can save a lot of headache down the road.

But large amounts don't just matter when you're refinancing your house or shopping for a new plasma TV. One of the best ways to discover the power of large amounts is through boosting your income. Whether that's through negotiating your salary, asking for a raise, or changing careers, a larger income can have a huge impact on your finances.

Remember: Saving money on the little things every day is great, but saving money on the big things can make an awesome difference to your budget.

This is the sixth of a fourteen-part series that explores my financial philosophy. These are the core tenets of Get Rich Slowly. Other parts include:

Look for a new installment in this series every Monday through the end of the year.

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aol.com
aol.com
10 years ago

I enjoyed the step by step sequence of making a good financial choice. I would definitely say that part about price is important. Many times folks don’t look at what they can afford before purchasing. Good stuff!

Brett McKay
Brett McKay
10 years ago

I’m working being “penny wise and pound foolish.” I’ve had a tendency to focus on saving a few pennies at the grocery store, only to waste a ton of money somewhere else. It drives my wife crazy. I’ve gotten much better about it. The thing that has helped me is to take a step back and focus on the big picture. Often with budgeting we get so bogged down with the details we lose the forest with the trees. When you take a step back, you’re able to get some perspective and see that saving a couple of hundred dollars… Read more »

Generation Y Investor
Generation Y Investor
10 years ago

I fall much more in the large amounts matter group. It’s so ironic when someone is clipping coupons and then goes out and leases or finances a new car. If you can control your housing, transportation and medical spending chances are you’re going to have solid finances.

Rob Bennett
Rob Bennett
10 years ago

My biggest concern with large spending items is ancillary or hidden costs.

For example, if you buy a home bigger than what you need, you will be spending lots of money hearing and decorating and cleaning and paying property taxes on rooms you rarely use.

Rob

Michael
Michael
10 years ago

I am actually in the process of buying a house with a 4.625% morgage rate that we locked in 2 weeks ago. Its an awesome rate that enables us to get more house for our money. Plus we are putting 20% down to get rid of that wasteful insurance money.

WilliamB
WilliamB
10 years ago

When researching a big ticket item I like to look for customer feedback as well. Generally the two best sites for customer feedback on items is Amazon and the product website. I focus on the negative reviews. What I take seriously are problems that a lot of people complain about, or everyone complaining about a different thing. The former indicates that whatever it is is truly a problem, the latter indicates that the product may be a lemon. Then I skim the positive reviews to find out what works well and whether the serious problem affects many users or just… Read more »

Kate
Kate
10 years ago

The hidden costs apply to other large purchases too, like if you finance a piece of furniture or appliance. They get you with nothing down and no payments until whenever, but when they payments actually kick in and the interest starts racking up, it doesn’t look like such a good deal anymore.

Four Pillars
Four Pillars
10 years ago

I think that “large amounts” always matter regardless of who you are. The “small amounts” are important for some but not everyone.

If you don’t have a lot of money then every penny counts. For others however who have more money than time – it’s not worth wasting time on small amounts.

Tyler Tervooren
Tyler Tervooren
10 years ago

Budget and features, as you listed above, are the most important aspects to consider prior to a big purchase.

If you only really wanted a normal candy bar, but upsell yourself to a king-size, not that big of a deal (financially anyway), but if you only need 2 bedrooms and a 1-car garage, well, you’re really gonna to be hurting if you accidentally buy a 4-bedroom with a 3 car carage because someday you might need the space.

Know up-front what you need and ignore yourself when you start questioning if you’d like more while you’re out shopping.

Ben
Ben
10 years ago

Personally, I’ve tended to progress through three types of expenses:

1. Low hanging fruit – eg. got rid of a land line I didn’t use, stop buying steak
2. Bigger expenses – keeping mortgage and student loan payment low
3. Smaller expenses – gas, entertainment, etc.

Jennifer
Jennifer
10 years ago

I wouldn’t limit negotiations to salary. When you find a big-ticket item you want at the best price, if it is a bricks and mortar, act like you are on the fence and just ask “can you do any better on the price?” Often, there’s some deal they can give you, especially appliances/furniture. You may also get them to match an online price you printed out, which will save you costs of shipping/handling. The worst case is they say no, but often you can tens or hundreds of dollars for less than a minute of effort.

Little House
Little House
10 years ago

Doing research before buying a large ticket item is key. You can usually shop around and find the best quality item for the best price that way. I agree, Consumer Reports is also a great way to investigate brands, especially cars.

Mark Wolfinger
Mark Wolfinger
10 years ago

I also used savings from re-fi to accelerate mortgage. Even though the rate is low, it’s like found money, and I’m satisfied to ‘invest’ it at 4.875%

It takes 5 years off the mortgage.

Alexandra
Alexandra
10 years ago

I agree with Four Pillars – I think this tenet applies to everyone, rich or not, but worrying about small amounts only makes a big difference for those with more limited means.

Great post.

Jill
Jill
10 years ago

For everyone getting on the mortgage refi bandwagon, it’s also worth it to reshop for homeowner’s insurance as well. For a couple of phone calls, you can sometimes find another A+ rated insurer who will cut your annual premium in half. (which can be hundreds or even low four figures in a high cost insurance area)

Kristen
Kristen
10 years ago

Re Consumer Reports : Many public libraries also have a subscription to the electronic version of Consumer Reports, with all their back issues and searching capability. You can frequently log on from home if you have a library card.

John DeFlumeri Jr
John DeFlumeri Jr
10 years ago

The hazard is taking out a lot more equity and using it for dream purchases, just reassigning the debt to the mortgage.

John DeFlumeri Jr

Financial Samurai
Financial Samurai
10 years ago

Large amounts actually matter THE MOST!

It’s kinda silly to sweat the small stuff, when we aren’t busy working on how to negotiate a raise, figure out a big idea and monetize, and in your case, refinance a mortgage to a lower rate.

It has always been about the big stuff for me. Once you have that high paying job for example, everything else becomes easy when you lock your costs in place from your low paying job.

It’s all about PROCESS and we will all be rich one day.

Shara
Shara
10 years ago

I remember reading an article a while back that talked about this very thing, and how research was indicating that when we think about money we think about it in relative (and emotional) terms. So we *feel* like we’re getting a better deal saving 50% on a $20 item than talking the car dealer down $100 because it’s relative to the overall purchase. That’s why a coupon clipper might think nothing of paying an extra $1500 to upgrade a stereo, or $5k to upgrade the floors in the house they’re building, because it’s a relatively marginal cost, without thinking and… Read more »

Sara A.
Sara A.
10 years ago

Another tip with large purchases: Save a copy of the receipt and the serial number in case you need to file an insurance claim for fire or theft. We keep a three ring binder of this info. It’s also handy if you have something break under warranty a year or two down the line.

Jonathan Vaudreuil
Jonathan Vaudreuil
10 years ago

This is where the focus needs to be at first, not on the small things (I would have swapped the order). You can’t save three grand a year on cutting cable and cell phone bills like JD did with his mortgage. The other part of this is assessing major annual costs. If buying a new car means putting $5k down and $3k a year in payments (nevermind increased insurance), but maintaining your current vehicle will be half your monthly payments, why buy unless you have to? Over the course of the five years you’d make payments, you’d save $12,500 total.… Read more »

RichHabits
RichHabits
10 years ago

It’s is so true, big items do matter. Last year,My friend bought 50 inches Samsung LCD for $2100. I told him to wait, do not hurry, but he did not do that. Last month, I got a deal of 47 inches LG just for $699. He was surprised to see so little difference both TV’s had. I waited and saved money. I’m paying of my car loan with the money I saved.

J.D.
J.D.
10 years ago

@Jonathan (#21) I think it’s important to focus on the small things first for a number of reasons: they’re quick to implement, you can do them everyday, they help build good habits with the big things, and they really do add up. At this very moment, I’m writing about this in Your Money: The Missing Manual. Last night I completed a tally of just a few of the things I cut during my first year of frugality. My total savings? At least $2281.61 annually. Not the $3000 saved by re-financing the mortgage, but close. And these are cuts I could… Read more »

The Debt Hawk
The Debt Hawk
10 years ago

Very good article JD. Personal finance bloggers often talk about how to save money on everyday items.

I think that readers mistake this for advocating that small savings are more important than bigger savings. In reality, big purchases offer a much better area for saving lots of money. However, there are less things to talk about. Therefore, we write a lot about saving money on small purchases more than bigger purchases.

Kandace
Kandace
10 years ago

A few years ago my husband bought a Kirby vaccuum for $1800 without consulting me first. A salesman came by and talked him into it. Yes, we needed a vaccuum, but our house has hardwood floors upstairs with two area rugs. Downstairs we have three carpeted rooms. The Kirby does have a shampooing function as well.

After a day, my DH realized that perhaps it wasn’t the best purchasing decision.

You can’t beat yourself up when poor decisions are made but you certainly can learn from them.

Oleg Mokhov
Oleg Mokhov
10 years ago

Hey J.D., Maximize results and minimize time spent getting them by focusing on the big wins. By following the 80-20 rule–focusing on the 20% of actions that’ll get you 80% results–you’ll be able to get those large amounts of money saved while not having to spend all your time getting miniscule savings here and there. If we focus on the large amounts, we’ll get the biggest savings but still spend the same amount of time had we been coupon hunting or doing some other small savings actions. Nice reminder to–even if we want to do the smaller savings–go for the… Read more »

Erica Douglass
Erica Douglass
10 years ago

No mention of haggling or negotiation?

-Erica

Laura
Laura
10 years ago

Big wins are great since you can take the money saved and redirect it.

A few months ago we cut our car insurance bill in half by checking around and seeing the rates. I found out that we could get a great deal by being Costco members.

We’re shopping around for homeowner’s insurance and I was surprised by the huge difference between companies for the same coverage.

ebyt
ebyt
10 years ago

I definitely agree with this post. I guess I try to maximize my savings on big and little ticket items, but the huge purchases definitely should be researched thoroughly. Like Erica (#27) mentions, I too thought of where haggling fits into all this. I worked at a furniture store for several years while I was at school, so I know that asking for a discount is ALWAYS a good idea. The worst someone can say is “no”. I won’t argue at a clothes store for them to reduce a shirt, but you can argue for discounts at lots of different… Read more »

Tyler Karaszewski
Tyler Karaszewski
10 years ago

My gross monthly income from my base salary is about $8300. My housing costs $1450/month. This means that I’m spending about 17% of my income on housing. If I did the typical “1/3 of income towards housing” thing, I’d be living in a house thats cost about $2750/month. That’s a difference of $1300/month. All my other bills combined don’t add up to that much. J.D. says he was able to save $2281 on the small things in a year. I saved $15,600 on a single big thing. It makes the cost of lattes at Starbucks or the price of gas… Read more »

ldk
ldk
10 years ago

I have to agree with a number of the other posters…I think the Big Things matter MORE. Like Tyler, our housing costs are way below what we could manage if we followed traditional guidelines, so I don’t waste any time clipping .30cent coupons for baked beans. I am able to focus all of my energy on the ‘big things’…earning more money, lowering the management fees on my investments, etc. etc.

Craig
Craig
10 years ago

I’d say that it’s the common, everyday small amounts that get you into the right habit so that when a big opportunity appears, you’re prepared to take advantage of it. 🙂

Avistew
Avistew
10 years ago

Saving on big things is definitely important. Of course, depending on how much you make, the number of big things will be extremely limited. I have never bought a TV, never owned a car. But we all have things we spend more for. A computer. A trip. Getting something second-hand can really help. Most people replace their computers very often, so you can grab one that’s only a few months old for a very reduced price (and it can last for years). For trips, I make sure to buy early. The price can double as the date gets closer. Also,… Read more »

Rosa
Rosa
10 years ago

Sometimes focusing on the small things help you do well on the big ones – spend a year decluttering and figuring out exactly where your money goes and thinking about what’s really important to you, and *then* go house hunting – especially if you can rent in the neighborhood you want to live in for that year. If it turns out you’re just fine in less space, or you don’t really like the neighborhood that much, or your kids hate the school, you’ve saved yourself a chunk of purchase price before you ever get to negotiating interest rate. And ancillary… Read more »

Adam
Adam
10 years ago

I can’t stand nickel and dime-ing my way to save money. I’d much rather not stress over lattes or finding the cheapest gas station or constantly worrying about pinching pennies. So instead, I drive my car until its collapsing, live in affordable housing, and look at big ticket items.

Somehow I’m able to do that and have great quality of life. I doubt I would be happy if I cared about small stuff. As the saying goes, don’t sweat the small stuff. Worry about big ticket items.

Foxie || CarsxGirl
Foxie || CarsxGirl
10 years ago

This is a great, timely reminder as I’m getting closer and closer to pulling the trigger on buying a dSLR. 🙂 Not only that, but I’ll have to start readying for our move, too…. Now there’s something to make sure we research and are getting a good deal on. (Yeah, the military will help cover it, but if we do our homework we have the potential to make a tiny profit doing so too, which would help if we do decide to upgrade our tv or buy a coffee table or something!) Sorry, but my transportation costs are non-negotiable. 😉… Read more »

Sandy L
Sandy L
10 years ago

Saving on big stuff wins hands down. If you think about it like a business, you have fixed costs and variable costs. Your fixed costs are very hard to change quickly when a crisis strikes(especially if you’re in an upside down mortgage or car).

When times get tough, there are alot of variable costs that can be quickly and drastically reduced if need be (food, internet, cable, phone, daycare, entertainment, etc).

Shane
Shane
10 years ago

I like to pinch pennies but not to an obsessive degree. The big wins can make the real difference in your cash flow, and penny pinching is the icing on the cake.

Kevin M
Kevin M
10 years ago

@JD – you saved about $250 a month on your mortgage, but it looks to me like you rolled about $6,500 worth of closing costs into your new mortgage ($212,900 borrowed – $206,345 balance on the old loan). You’re not really “saving” that $250 until month #27* and that’s not even counting the accruing interest on those closing costs.

*(6,555 divided by $250 savings = 26 month payback period)

I didn’t see any discussion in the original linked post or this one on why you didn’t just pay for that in cash and instead financed it over 30 years?

Rick Francis
Rick Francis
10 years ago

JD – is accelerating your mortgage payments a big thing you are missing? If you just refinanced you have an interest rate in the 4.X% range right? That is a historically low rate. It is difficult for me to believe that investing wouldn’t give a better return on your money. Looking at historical data it should be substantially more. How did you eliminate other alternatives? Even if you didn’t want to take any risks it hasn’t been that long since CDs and treasury rates have been higher than your mortgage. If inflation spikes they will be a LOT higher. -Rick… Read more »

chacha1
chacha1
10 years ago

Rock: high cost of rental apartment; hard place: insanely high cost of homes. My DH and I choose to live in a central location and pay more in rent than many people allocate for their mortgage … *but* they have 60- or 90- or meshuggeh-minute one-way commutes. And buying our square footage would cost close to 3x as much per month. That’s a case where we feel we are truly getting value for our money and we’re not willing to cut that line item. On the other hand, we are both perfectly satisfied to drive relatively old, economical, reliable cars… Read more »

David/yourfinances101blog
David/yourfinances101blog
10 years ago

I think they both matter–and I really try to limit the amount of time I invest in the little things. If its going to take an hour of my time to save/generate $5, is it really worth doing?

And on the “home runs” I have to remind myself sometimes of this. What I mean, is that fi I am undertaking something that could save me $600 or so I could literally invest a week’s worth of time and it would still be cost-effective.

Sierra Black
Sierra Black
10 years ago

Thanks for the shout-out, JD! I’m glad to see you write more about this, because people so often miss opportunities to do these things.

I just posted over at Wise Bread last week about buying a used car using pretty much this process. Here’s the post: http://www.wisebread.com/the-game-of-haggling-how-to-get-a-great-deal-on-a-used-car

Judy Hates Debt!
Judy Hates Debt!
10 years ago

It’s amazing how many people overlook the large stuff and focus on the small stuff. I know someone who clips coupons (won’t go to the grocery store without them) and then turns around and takes the whole family (2 adults, 4 kids) to Olive Garden and lets the kids order whatever they want. Of course they order the $15 to $20 meal. I don’t even order expensive meals much less let kids do that. She then proceeded to complain that the bill was over $100! Go figure.

Tameika Ramundo
Tameika Ramundo
7 years ago

Thanks for the recommendations on credit repair on this amazing blog. A few things i would advice people is usually to give up the mentality that they may buy at this point and pay back later. As being a society all of us tend to try this for many issues. This includes holidays, furniture, as well as items we would like. However, you must separate your wants from the needs. If you are working to boost your credit score you have to make some trade-offs. For example you’ll be able to shop online to save money or you can turn… Read more »

Benjamin
Benjamin
4 years ago

This is several years late but I thought I had to add my thoughts to this great post. Despite being in Sweden I can still relate very much to the content of this post and its comments. Firstly, I would like to say I am all for saving “large amounts” wherever possible. Myself I am very fortunate that my current apartment is my first and also likely my last one as it is a four-roomer with plenty of space, for when we are a family in the future. I bought it a few years back. By not having to move… Read more »

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