{"id":235447,"date":"2018-02-27T07:03:31","date_gmt":"2018-02-27T15:03:31","guid":{"rendered":"http:\/\/getrichslowly.org\/?p=235447"},"modified":"2023-12-05T14:26:45","modified_gmt":"2023-12-05T21:26:45","slug":"optimization-trap","status":"publish","type":"post","link":"https:\/\/www.getrichslowly.org\/optimization-trap\/","title":{"rendered":"The optimization trap"},"content":{"rendered":"

Since returning to Get Rich Slowly in October<\/a>, I’ve begun to receive more and more email from readers with questions about what they should do with their financial lives. I love reading what people have to say, and I love trying to help (when I can).<\/p>\n

Often the folks who write to me are focused on frugality. They want to make the most of their grocery trips, their book budgets, and so on. Sometimes the questions come from people who want to know which index fund to choose: Is it better to buy Vanguard’s Total Stock Market Index Fund (VTSMX<\/a>) or Fidelity’s Spartan Total Market Index Fund (FSTMX<\/a>)?<\/p>\n

In other words, many of the emails I receive — regardless the sender’s financial situation — are about what’s best to do with their money.<\/p>\n

I think it’s great that GRS readers are making deliberate decisions about their financial lives. It’s awesome that they’re looking to optimize their saving and spending, that they’re clipping coupons and fretting over how to get the best returns on their investments.<\/p>\n

However, I worry that sometimes people pay too much attention to small details, to minute aspects of personal finance, while neglecting the Big Picture. It’s easy to fall into what I call “the optimization trap”, to believe that tiny tweaks will make more of a difference than they actually do.<\/strong><\/p>\n

<\/p>\n

Here’s a real-life example from a reader named Dave:<\/p>\n

We get coupons in our Sunday paper. I’ve contemplated getting rid of the paper because it’s sometimes difficult to have the coupons subsidize the monthly cost of the paper. (The paper costs $12.45 per month.) Many times it ends up being a push. Should I ditch the coupons altogether and cancel the paper or stay the course?<\/p><\/blockquote>\n

Dave’s dilemma is a perfect example of the optimization trap in action. He’s spending $150 per year on a newspaper. By clipping coupons, he’s able to defray some of that expense — but not all of it. Should he cancel his subscription?<\/p>\n

My response? This isn’t an important financial decision. Even if Dave only recovers half of his newspaper expense via coupons, it’s only costing him $75\/year. If he uses the paper and enjoys it, and if the $75 per year is worth it to him, then he should continue getting the paper.<\/p>\n

Meanwhile, I worry that Dave (and people like him) are missing the Big Picture. Small economies are a terrific way to optimize<\/em> your spending, but they’re a terrible place to start.<\/strong> If you’re at the beginning stages of getting your financial house in order, it’s far more important to ask questions like:<\/p>\n