The Personal-Finance Continuum

“Do what works for you”. Not sure I agree – I think many people need to challenge themselves, just as JD is challenging himself in his many post entries. “Do what works for you” sounds too complacent. Too easy to say that doing this or that “just isn’t me” although you are very well capable of doing something, but you just are too lazy or is slightly outside of your comfort zone. I know several people who are total financial disaster zones, and they fail to get out of those situations mainly because they refuse to stretch or apply themselves… Read more »

I read Ramit’s challenge post, and the thing that leaped out to me is that none of his “big win” tips would work for me, because I either already do them, or I don’t spend money in those areas (I have fee-free banking, no cable etc). Also, the “big win” on those things is a one-time thing – you can’t usually get a discount on a discount. So in a way, there is a case of diminishing returns. There are easy, low-effort things, but once you’ve done them, if you want to have more effect (either earning more or saving… Read more »

I try to save as much as I can, but I also live life. Some extreme frugalites would say I spend too much. However, I am not willing to sacrifice a lot of happiness in order to have some extra money in the bank. Its finding a balance that works for your family that can be hard. For instance, I am not inherently a spender. I do not have an expansive closet filled with clothes or a fancy car. But I will spend money on vacations for the family. Everyone has different priorities, and some may look at us and… Read more »

@ Jake(#1): I didn’t intend for “Do what works for you.” to mean you should just do what you feel like doing even if it means you won’t reach your goals. The phrase just means that there are multiple ways to do the same thing (pay off debt, save money, earn money, etc.). It doesn’t matter which path you choose as long as that path takes you to your goal. And for the record, I’m in the “earn more AND save more” camp. @SF_UK(#2): I found the same to be true for me when I consider Ramit’s tips. I think… Read more »

Is it just me, or do the green traces in the figure have the opposite slope of what they should? “Reward” (as I understand it) is cumulative, so as one expends more effort in any of the three categories, reward should increase – not decrease. Another way to explain my point is as follows: If one can spend the minimum possible effort (left-most point on the abscissa) and achieve maximum reward in a given effort category, why would they expend any more effort (in a given effort category)? The other issue with this figure is that it does not seem… Read more »

I’m in the final stage of financial independence now. I’m also firmly in the earn more / low-moderate spending category. Although I enjoyed (most of) my jobs, the key was still to maximize income and not to inflate my lifestyle along with it. For the last few years of the 5 years it took to save enough to retire, my average savings rate was over 65%. A commenter in a previous post said the following: “in my experience a person making $70k+ has: talent/education, drive, and/or a high tolerance for discomfort.” This is true and the same can be said… Read more »

I’m becoming increasingly convinced that the key is to spend less on the things that aren’t important to you so that you can afford the things that are.

So if I can make some easy changes to allow myself to skip some of the hard ones–great. On the other hand, if spending money on ______ would be easy to cut out, but it’s important to me, it might be worth my time to deal with some of the intense effort activities.

@C(#5): There’s no perfect way to plot what I’m trying to say. This was just my best idea. To answer your first question, you might expend more effort in a given category because that’s what it takes to reach your goals. Most people will probably go for the big wins first (the easy things with a big reward). But there are other easy things that people will do to save or make money just because they’re easy. To answer your second question, rewards aren’t always cumulative. Just because something takes more effort doesn’t mean it absolutely will give you more… Read more »

Hm. You do have to discern between what’s worth the effort and what’s not. And clearly, that differs from individual to individual. For me, as an example, spending hours searching out coupons and clipping them and then running through traffic from store to store to cash them in is way too time-consuming and stressful to be worth the payback. On the other hand, blogging — also a great time-waster — has its rewards. Though I don’t make much on Funny about Money, it does earn enough to free me from having to teach several adjunct courses a year, which I… Read more »

Hi Paul.

Where does “switching to index funds” fit on your chart? 😀

Hey– don’t knock economists

Opportunity costs is exactly what your argument is about. Doing what works for you means taking into account opportunity costs and choosing one activity over another based on all the pros and cons. If meeting your goal is what’s important, there’s no conflict.

I’m not sure what is meant by utilization in this context.

@David(#7): Great job summarizing the point. You can also apply that logic to the earning side of things though it’ll look different that way. @Funny about Money(#9): It sounds like you’ve applied this idea to spending money and making money. I have to agree about coupons. Though I’m starting to think I should reconsider after reading about Jeffrey (J.D. wrote about him last week – the guy who spent less than $30 in May for his food). @Mike Piper(#10): Hey, Mike! Hmmm, I’d put switching to index funds in the Low effort category if it’s in a tax-advantaged account and… Read more »

I dont know about low effort/big reward on this item: Taking a few minutes to send in a rebate form may only get you an extra $20, but it’s easy to do. Ive sent in dozens of these, including a VERY large one on a new set of tires in 2008, and never got a cent back. As far as Im concerned they are a waste of time and money and I dont bother any more. I tend to come down on Ramit’s side. I’ve gained far more from aggressively increasing my salary-by over 10x since 1981- than by pinching… Read more »

I agree with Single Mom Rich Mom

I’m at the stage where I’m near freedom. My income is steadily increasing thanks to work I started a few years back. And I’m satisfied with my current lifestyle

There’s is nothing left to do but to make money and donate

There are a lot of things about this article that detract from the point it’s trying to make. First is the paragraph about some conflict between Ramit Sethi and Trent Hamm which mentions some conflict between them that’s never brought up again in the rest of the article and therefore seems superfluous. Second is the giant graph in the middle that’s really confusing. It seems to show ‘reward’ decreasing sharply with effort until you hit some categorical boundary. this is firstly not a continuum at all, and secondly not what you mean. The graph should be a scatter plot, but… Read more »

@Tyler(#15): Thank you for the feedback. I feel like I didn’t do the best job connecting all my thoughts on this article. I started with Trent & Ramit’s pseudo-conflict because that’s what got me to thinking about this idea. Maybe there’s a better word than continuum, but I used it because the American Heritage dictionary defines the word this way: “A continuous extent, succession, or whole, no part of which can be distinguished from neighboring parts except by arbitrary division”. My point was that within the easy, moderate, and hard activities (which are very arbitrary) there is a range of… Read more »

oh, you mean utility maximization– in lay terms, do what makes you happiest
utilization just means you use something

And again, what you’re saying is not at odds with utility maximization. Optimization is related, but different… you can utility maximize without optimizing, especially if there is effort to getting information… the “second-best” can be utility maximizing in an imperfect world. (In psychology this would be the argument that “satisficing” provides more happiness than optimizing in a world of too many choices.)

I really like Tyler K’s commentary.

I agree with Tyler, the graph is terribly confusing and most of the examples are just wrong.

My favorite one was starting a business and using less hot chocolate powder as both “intense effort” activities.

EDIT: a better way to approach this may have been referencing the “stages” JD talks about and giving an example of varied effort/reward instances found in each stage. Like someone in the getting out of debt stage could see setting up a debt snowball as a moderate to intense activity, but with “big win” potential should he complete the goal.

Paul, when discussing Ramit, you have to keep in mind that the real Ramit (the person) has a different “persona” than the blogger. I’ve known Ramit personally for years…before he had a popular blog. And he really does live a frugal lifestyle personally. He also recently made $127,000 in one day doing a launch on his blog. Again, I know most of the “behind the scenes” on that and there were weeks of preparation and work that went into it, as well as weeks after where he was working with his students. But your priorities change when you make that… Read more »

My only complaint about intense frugality is the amount of time some of the tips take to implement versus the 5 cent savings. I think life is about balance and if you go too crazy on the little stuff, the big stuff (like time with family and friends) will pass you by…

This post makes more sense if you skim it because you get his point without trying to figure out exactly how he’s trying to make it. Tyler has a point. In my job we have a risk equation that looks like “Likelihood x consequence = Risk” You give each failure item a score of likelihood and a score of consequence (1-5 or 1-10 depending on the resolution you want) and you get a numerical rating of how you should tackle mitigation of your risks. I think this is what he is talking about “money saved/earned x effort = payoff”. I… Read more »

@KevinM(#18): Thank you for suggesting a positive change to the article. I agree with you. I intended to do that and somehow got off track. It’s hard to see how the stages apply in my article as it is written. I think how you categorize activities will change as you move through the stages J.D. has discussed. @Erica Douglass(#19): Thank you for sharing your insight into Ramit’s personal life. I was commenting on how he comes across in his blog. I would not fault him for spending more money to regain his time at this point. He can afford it… Read more »

I stopped reading Trent’s blog when he gave illegal and unethical advice, they denied it and kept digging his hole, and then he secretly changed part of his original posting while deleting comments from lawyers and others.

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.

@Shara(#22): Your comment about skimming made me laugh. I think you’re spot on though. I did a terrible job making my point because my point is so simple. I think I would change your equation though. (Reward/Effort) * Risk = Payoff Using something like that could help you rank your choices in a better way. Should I chase interest rates on my savings or learn how to cook better meals? I’ll stop with examples there because I’m apparently handicapped in generating such things. 🙂

Erica wrote: Paul, when discussing Ramit, you have to keep in mind that the real Ramit (the person) has a different “persona” than the blogger. I’ve known Ramit personally for years…before he had a popular blog. And he really does live a frugal lifestyle personally. 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… Read more »

It comes down to other variables as well. For example, if you detest your job and love to go to yard sales, saving more might not yield as much, but life is nicer. If you don’t have enough time to spend with kids, working more hours is a negative, whereas many frugal activities can double as quality time with kids. Just earning more money is not so easy in the short term, especially with the scarcity of jobs. I know a woman who just finished two grueling years of school to become an RN, and then was immediately offered a… Read more »

J.D., 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… Read more »

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

I absolutely agree in the idea of do what works for you. 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… Read more »

I think that there are limits on how much most people can earn in a given month or year (depending on education, time, family responsiblities, location and especially now – the overall income). As a result, I think that for most dramatically increasing income is difficult to do especailly now. 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… Read more »

JD Said: “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… Read more »

I’m at a stage where I’m trying to come up with ways of earning more that will be worth the effort, but I can’t see any that don’t require a significant time investment. At least that I find moral. In my current line of work I can’t make any overtime, so I’d have to ask for a raise. But if I’m getting paid a very reasonable rate there is only so much room for increase. Right now the best strategy for me is to keep working with the small increases in salary while keeping expenses low and sticking the rest… Read more »

Hey all. Fun post to read and comment on! I am definitely in the “increase your income” and “cut the big items” rather than “cut the powder in your hot chocolate, make your own detergent” croud. But then I’m a single young professional living in a HCOL area, so its a bit easier for me to do that then it would be for a stay at home mom with 5 kids living in rural Idaho. 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… Read more »

Paul, thank you for being a good sport about the feedback you’ve received. There are some commenters who seem to be offering constructive criticiscm with great gusto today. 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… Read more »

Paul, fwiw I had no trouble at all with the graph, perhaps because I am not a mathematician and I read it as follows: 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… Read more »

Funny story. I picked up my two daughters’ bedroom (not all their fault; had a friend over who didn’t help them pick up). I kid my 7 year old daughter when she walks in “I think you should give me some money for picking up your room”. Rather than be insulted she says “how much?” I say “I don’t know, 50 cents?” She runs out the room and comes back with 2 quarters from her piggy bank. I tell her I was just kidding, but she insists that I keep it. She also mentions ways she is thinking of making… Read more »

Increasing one’s income is a swell idea. I hear that advice all the time. What I *don’t* hear is that it isn’t always POSSIBLE to do this. Maybe you live in an economically depressed area with few jobs in general, most of which pay minimum wage. Maybe you don’t have the skills needed to increase your income but can’t find room in your life right now to get those skills. (I’m thinking about folks with long commutes, small children, lack of a partner, no funds to pay for training, et al.) Maybe you have small children and it’s hard enough… Read more »

@Donna (#37)
You’re absolutely right, of course. Sometimes a person a can’t increase their income, for whatever the reason. Still, I think that it’s vital that folks include this in their mental calculus. Most people just forget about it, I think. And I think you are a great example of finding all sorts of little ways to make more money (which is why I included your story in my book to represent this concept).

I’m in the camp of ‘Earn More,Spend Less’! I agree with Donna that it might not always be possible to earn more.I think most of us have a problem with the ‘Holier than thou’ attitudes of extreme frugalists and extreme earners. I believe it is possible to have a happy middle where you don’t have to worry how much you skimp or have a price tag on time(create more money).
Balance keeps me happy and by being happy, I’m not Grumpy 🙂

From my experience teaching, “do what works for you” is dangerous to tell a student. I understand the sentiment, but phrasing it so softly means that many people will give your advice a cursory try, then revert back to their old ways when they hit the first wall that inevitably comes with any attempt to change habits. They think, “it doesn’t work for me,” when really they never gave it a chance to work. Since many of us don’t have have a personal coach to keep us on track, “do what works for you” should come with the disclaimer that… Read more »

@Shara(#31): I thought dividing worked better for comparison purposes. For example, if an activity takes 10 hours and saves $5 that’d be a payoff $50 if you multiply but only $0.50/hour if you divide. It makes more sense to divide if you’re trying to compare that to something that takes 2 hours and saves $10. Multiplying only gives you a payoff of $20 when you’re actually getting $5/hour for your efforts. @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… Read more »

For most people, it takes only low to moderate effort (in time, though not necessarily in willpower) to keep their spending in balance with their income. High effort frugality is required only if you are aggressively saving for a very early retirement or if you want to spend way beyond your means in some particular area. 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… Read more »

@Doug Warshauer(#42): I really like your comment. I agree that the high effort frugality stuff isn’t necessary for success unless you have an extreme goal and can’t (or don’t want to) drastically increase your income.

Thanks Paul! I thought your article was very thought-provoking, as evidenced by the enthusiastic discussion it has sparked.

Some interesting beliefs I wanted to highlight: “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.” 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… Read more »

@45 That may be true if your income is from a business that has room to grow. Not if you’re a high powered lawyer couple with kids that you already never see. That’s not replicable, at least not without a lot of time spent building infrastructure (which will not generate the 250K salary before you drown in debt).

@Erica(#45): I understand what you’re saying and I agree with you. If you focus on the right things when you’re already doing well, you can compound your success. I think most people are commenting from the viewpoint of those who are not business owners and have no desire to be. As Nicole points out in her comment (#46), some business can’t scale very easily. Professional services (like attorneys, CPAs, financial planners, etc.) seem to fit that category. If people want face time with you, it’s hard to outsource that aspect. (Though you could certainly outsource everything else.)

@C (#5): It’s not just you. I think I get what Paul is saying, but I disagree with the way he drew the graph. Perhaps if this were a graph of the first derivative of the function, it would work. I would probably make the graph with three plateaus, because at each level of effort, I think one reaches a point at which one cannot squeeze out another penny without moving to a higher level of effort. I actually don’t think Ramit and Trent are all that different. Ramit wants to market his tips as something other than “frugality” because… Read more »

Sara, you actually picked up on something another reader emailed to me. A graph like you describe might have made more sense to more people.

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!

@Erica 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… Read more »