A girlfriend of mine once chided me on my extreme frugal habits. Telling me that I don’t have to prepare and train for an apocalypse all the time. At that time I replied with something that I consider very sexist but something that I truly believed in. “It’s different for a guy, I can’t rely on getting a rich spouse”. To put you into the context of the exchange, she was commenting on my attempt at training myself to sleep on a plank of wood in order to toughen my back to weather possible life on the street.
I consider that exchange very valuable and it is one of the more enlightening moments of my life because the message and the ensuing internal debates that followed. It was her matter-of-fact way of stating her thoughts that made me realize just how different my basic assumption is from that of the western society.
I was raised in a culture of saving everything you have in preparation for armaggedon, because my previous generation lived in armaggedon scenario and the government isn’t there to ensure that you live a healthy life. So cost cutting and saving for me is as natural as breathing. Just like bartering and asking for discounts.
What that exchange really drove home is the fact that being cheap here in a western world, is not looked upon as a good trait. It is also not part of the value that the opposite sex look for. No, in a culture where you have a hard time killing yourself even if you want to, we’ve effectively taken away any incentive to cut cost. Instead the focus is on how much you can output and consume.
Trap of saving and cost cutting
At the moment of discovery ( which means when I reached my conclusion of this debate), I realized that saving and being cheap is detrimental to a person’s life in a western society. What you are effectively doing is subsidizing money with more time spent. The poorer you are, the more you pay for things with time. I realized then that I need to spend in order to expand and that I cannot hold back. So the only option for me is to somehow make my cash worth more while not having to waste time bartering and debating about price all the time.
That’s when the concept of automatic cash back hit me. If I can make my money’s buying power worth more than it is, I not only save time, but also money. And if I can do that on the smaller items while leaving bartering purely for the larger items, it will be even more cost effective.
Optimized state
So now that I don’t always practice for armaggedon scenario I started to see what I call the optimized way. The trick to life, is to be able to recover from any disaster and put all my efforts to get back to the optimized way instead of getting caught in a downward spiral in a state where I am at a disadvantage. So it is worth while to evolve a most efficient way of life for myself, based on my personality. I inspected my life closely to discover that there are a few core things that I spend most of my time and money on repeatedly. If I can reduce the cost and time by even 1%, the savings over the span of my whole life is enormous. For me, I concluded the following:
- Transportation
- Cooking/food
- Mortgage/rent
- Electricity
What to consider
There are a lot of other things to optimize, such as phone, internet etc but I usually stops when the calculation shows that I will only be able to reap the benefit after 7 years of usage. The reasoning behind this is that almost every 7 year, something doubles. Whether technology or population, but the effect of doubling is a game changer and will most likely throw whatever plan you have in place out of whack. So I considered my options and determined that there’s absolutely nothing I can do about electricity.
Other things that are easier to change are transportation, cooking food and mortgage. It is important to practice any skills involved so that it take the least amount of time as possible. The skills don’t have to be a physical things, it can be the process of something that you can improve. These are skills that requires an initial investment of time, but don’t need to be constantly honed. I suggest you get it down as soon as possible in your life. The first step is to know the price by scouring and taking inventory of price levels of major items at different places. I realized that I will not be able to do this while moving from city to city all the time. So part of the reason I settled down is so that I can enjoy this benefit. The advantage of knowing the city inside out and having a network of people is required in order to gain the price advantage.
Here are some examples of what I’ve done in terms of skills:
Gas: Figure out the time of the day with the least amount of traffic (50% reduction in time stuck in traffic), observed the price cycle of gas stations (10% cost reduction), figured out the fastest lane of every stretch of a highway (~5% reduction in time)
Cooking/Food: Mapped out 10 dishes that I will constantly cook and improve on (30% reduction in time). Reduced cost by figuring out the cheapest place to acquire ingredients (10% cost reduction) and planted some rarely used spice+plants so I don’t have to buy and discard spoilt food for one time use only.
Mortgage/Rent: This part is very hard to improve on, because it involves a lot of money management and credit arbitrage. Basically doing due diligence in market research and timing the interest rates. The result of these efforts are usually out of my control due to market condition. I did my shopping around, bartering the house price and reduction of the unnecessary services that my bank tries to push onto me. I will say that I have at least reduced the cost by 1% so far due to canceling some double insurances and credit arbitrage.
Increasing the worth of my cash
This part is the no brainer and represent only an initial cost of 1 week’s time. After the research, I am able to improve my money’s buying power overall by at least 3%. The key to this success lies in 6 things.
- MBNA Smart cash credit card
- Starwoods Preferred Guest credit card
- The great canadian rebates
- Visaperks
- Aeroplan
- Gift cards
In order to stay the course and not stir away from the core intent of this post, I will only list the cost reductions I’ve been able to reap in my life.
- Groceries 5%
- Gas 9%
- Home improvement 5%
- Some restaurants 5%
- Clothing 5%
- Everything else 2%
These are in addition to the sales and bartering I do. So real results are significantly better.