Tuesday, September 24, 2013

Fewer chances to "save"

Last week's Tip Hero newsletter featured a video from blogger Ramit Sethi, of the modestly named finance blog I Will Teach You To Be Rich, in which he promises that you can save "well over a thousand dollars" just by making five phone calls. The idea is, you call up companies you do business with, tell them that you're a long-time customer who "would hate to switch" to a different company, and ask them flat-out if they can offer you a better deal than you're getting now. The five companies he proposes calling are:
  1. Your cell phone provider
  2. Your gym
  3. Your cable company
  4. Your insurance company (or companies)
  5. All your credit cards
Now, there's just one little problem with this: you can only save "well over a thousand" with these phone calls if you're currently spending well over a thousand per year on your cell phone, gym membership, cable TV, insurance, and credit card fees. Apparently Mr. Sethi's idea of "teaching you to be rich" is to teach you to live the expected lifestyle of a rich person—complete with a cell phone plan, a gym membership, and premium cable—for (somewhat) less money. He doesn't seem to consider the fact that it's actually possible to give up many of these amenities without any real sacrifice. Yet many frugal folks—the kinds of people who read Tip Hero—are already doing just that, as the second comment on the video illustrates:
We gave up cable months ago and watch our favorite shows free online. I'm on a promo-rate for internet service with cable company. Once a year before it runs out, I give them a call reminding them of my 20+ years of loyalty and how disappointed I would be to have to go to another provider, quoting comparison teaser rates. I ask to speak to whomever can help keep my rate affordable. No gym, $0 balance on credit cards, and unlimited prepaid cell phones. All tolled [sic], it's much less than one month of cable tv service.
We're in a similar boat. We don't belong to a gym, and we use a prepaid cell phone for emergencies only, paying around $40 per year. We don't pay any interest or fees of any kind on our credit cards, so there's no potential savings there. I did try shopping around for lower rates on our insurance policies a couple of months back and found that we could save a whole $140 by switching both our homeowners' and our auto policies from our current, trusted providers to one we know little about—but when I tried going to our current providers and asking them to cut me a deal, I had no luck. True, we do now have cable, after going without it for most of our married life—and we did succeed, after suffering sticker shock when we received our first bill, in getting our monthly rate lowered. But first of all, we were only able to do this by cutting back to a lower tier of service, something that Mr. Sethi probably doesn't advocate. And second, now that we've done it, we've already harvested the low-hanging fruit as far as savings are concerned. So calling our cable company a second time and asking for yet another price reduction would probably get us nothing.

The basic problem with Mr. Sethi's tips is the same one I've noted so often with financial advice in general: it only saves you money if you're spending way too much to start with. It's the same problem I've encountered when looking at ways to cut energy use or reduce household waste; in order to improve, you have to be doing some fairly wasteful stuff to start with. So for those of us who are already frugal, already eco-conscious—already, in short, doing all the obvious things—there just aren't as many opportunities to "save" as the articles aimed at a more mainstream (i.e., wasteful) audience would imply. It's the same problem that Amy Dacyczyn (all hail the Frugal Zealot!) noted in her article, "Read This Article and Save $150,000," which appeared in her third Tightwad Gazette book:
sometimes to "save" the most, you have to spend the most...If this woman wrote a diet book and marketed it on the claim that she lost 75 percent of her weight, you'd immediately conclude she must have weighed a lot before the diet. Unfortunately, when fuzzy claims are made about how much money can be "saved," we don't always grasp the implication.
So in short, whenever you see an article claiming in big, bold capital letters that you can "save" thousands each year—or hundreds, or even just $100—by following a few basic tips, be suspicious. Chances are, the only people who can really save this much are those who were spending way more than they needed to in the first place.

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