Sunday, February 5, 2012

Two more pointless challenges

Last month, you may recall, I posted about the "Food Stamp Challenge," which is to feed yourself for one week on a strict $30-per-person budget. I concluded that for us, taking this challenge would be pointless—even counterproductive—because the constraints of the challenge itself would force us to spend more for that one week than we normally spend, on average, for seven days' worth of food. Then last week, the mail brought me not one but two more examples of money-saving challenges that struck me as singularly unhelpful. The first one, "The February Freeze," appeared in the latest issue of the Dollar Stretcher newsletter. The goal of this challenge, according to the article, is to have "no discretionary spending at all" for the month of February. You still pay your rent and any bills that come due during the month, and you're allowed to refill your gas tank and buy essential perishable groceries like milk and fresh fruit, but aside from that, you don't buy anything. You stock your pantry ahead of time and eat only what you have on hand; if "a pipe clogs or your water heater goes out," you're supposed to fix it yourself, or get a friend to do it, or find a way to pay for it through barter. (And if none of these strategies works, well, I guess you're just supposed to manage without running water until March.)

The second challenge is along the same lines, but not quite as strict. It's a plan developed by Michelle Singletary, a financial columnist for the Washington Post, called the "21-Day Financial Fast." During this 3-week period, you are allowed to spend money—but only in cash, and only on "true necessities like food and medicine." Singletary says the point of this challenge is to break "spending habits that have become automatic," like buying a latte every morning or indulging in "retail therapy." But even if you don't have any careless spending habits, Singletary insists that the fast is still for you. "Even the most frugally and financially responsible person," she says, "can find something more they can do"—like giving more to charity, or increasing retirement savings, or helping friends in need. (Apparently it doesn't matter if you already give to charity, help friends, and fund your IRA to the max; as far as she's concerned, you, yes, you, NEED to engage in this fast, and that's all there is to it.)

Here's what particularly annoys me about both of these challenges: like the Food Stamp Challenge, they impose a set of arbitrary rules that could actually end up costing you money in the long run. Under the rules of the February Freeze, for instance, if a sale flier arrived at your door during the month of February advertising an unbeatable price on several staple foods at your local grocery store, you wouldn't be allowed to go stock up on these items, because the rules say you have to eat only from your pantry. So instead of buying potatoes for 20 cents a pound and cheese for $2 a pound during February, you'd have to wait until March to replenish your supplies at the regular price, which could be two to three times as high. During the 21-Day Financial Fast, you would still be allowed to stock up at the grocery store, since groceries count as a "true necessity"—but you wouldn't be allowed to take advantage of a sale on anything you didn't have an immediate need for, no matter how long you'd been looking for it or how good the price was. Say you've been shopping around some time for a slow cooker, which costs about $35 new. Then you come across the exact model you want at a yard sale for $5. It doesn't matter that this is the best deal you're ever likely to find; it doesn't matter that the amount of money it could save you on food would more than make up for the purchase price. The point is, you can live without it, and therefore you can't buy it. End of story.

Another thing that bugs me about the 21-Day Financial Fast is the insistence that even if you're buying necessities, you mustn't pay for them with plastic. The rationale for this is that credit cards make it "too easy" to acquire things you don't really need. Singletary cites a study done at Britain's Warwick University that found "customers using credit cards spend more than those paying with cash or checks in purchasing situations that are otherwise identical." I couldn't find information about this study, but I do know from personal experience that I tend to put larger purchases on credit cards and pay cash for smaller ones—but the use of the credit card is the effect of the size of the purchase, not the cause. That is, I don't go into the store thinking, "Okay, I'm putting this on plastic, so I can buy whatever I want"; instead I buy whatever's on my list, take it up to the checkout, and only after I see the total do I decide whether to whip out a twenty or my Visa card. And to me, that's the problem with most studies that profess to prove that credit cards increase spending (like this one from the Journal of Applied Psychology); it's never really obvious to me whether the credit card use is really producing the higher spending or is caused by it. (And at least one controlled experiment, done at Carnegie-Mellon in 2009, found that deciding ahead of time to pay with credit rather than cash made no appreciable difference in how much people spent on their lunch.) Moreover, in my case, if I can get 1 percent cash back by using my credit card, then every time I pay for a purchase with cash, I'm actually losing money. So that's yet another way in which this Financial Fast, rather than saving me money, would mean less money in my wallet when the three weeks were up.

Now, some of you may be thinking, "The lady doth protest too much, methinks." It may sound like I'm just rationalizing, insisting that these challenges aren't helpful because I'm not willing to confront my own irresponsible spending habits. Well, it's possible, I suppose, but I really don't think so. I know myself pretty well, and I know that I'm very, very careful with money. In fact, over the past year or so, I've begun to think that my biggest financial weakness may lie in the other direction: I'm not willing enough to spend money, even on things that I can easily afford. Sometimes I have to remind myself that the whole point of saving money is so that you have it to spend on the things you really want, the things that will really make you happy. And while having my mortgage paid off early will certainly make me happy, that's a goal I can easily meet and still treat myself to a new handbag. (Especially if it's a handbag with a lifetime guarantee—so if all goes well, it'll be the last one I ever have to buy.)

I'm not trying to suggest that the February Freeze and the Financial Fast can't be helpful for anyone. I can definitely see how, for people who really do have mindless spending habits that they are trying to break, they could both be useful exercises. And for those who have a lot of fat to trim in their budgets, the unnecessary expenses they'd avoid over the course of three or four weeks would certainly offset the short-term costs of the bargains they'd miss out on. The only thing that really bothers me about them—especially about the Financial Fast—is the insistence that they're important for everyone, no matter what their actual habits or financial situation may be. I don't deny that these challenges could be helpful for a lot of people, but with respect, I have to insist that I know better than Michelle Singletary does what will or won't be helpful for me.
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