Focus on the Big Wins
One the main themes in Ramit Sethi’s popular blog “I Will Teach You To Be Rich” is the idea that you should focus on the big wins. In personal finance, that means that you’ll save the most money by cutting back on a few big expenses rather than trying to penny-pinch every step of the way.
For example, Ramit talks about how some of his readers saved hundreds of dollars each year just by switching to a low-cost brokerage account and finding the best credit cards. Check your credit card statement for monthly charges – chances are you’ll find some subscriptions (a gym membership or a credit report service) that you never use. Cut those costs first! These are “high-return” situations – they take very little time, save you lots of money, and best of all don’t require any change in your lifestyle.
Another great option is the daily deal sites. There’s nothing wrong with going out to eat or treating yourself to a weekend getaway. But why pay full price if you don’t have to?
It’s just another application of the 80-20 rule: 80% of your gains come from 20% of the effort. The trick is to identify that 20% quickly and maximize those particular opportunities – both in personal finance and in life.
Interestingly enough, many people who claim to be frugal are in fact “penny-wise and pound-foolish.” They’ll try to save $2 on coupons, but will pay massive annual fees on credit cards and subscriptions that they never use. Don’t become one of these people! Figure out how much you can save upfront with just a few big wins. You’ll be surprised at how big a difference it can make.
Don’t Overcommit Without Knowing What You’re Getting
A couple of years ago, I was looking to hire an SEO (search engine optimization) company for one of my web projects. I interviewed a bunch of candidates and finally narrowed in on one company. Everything seemed to check out: great references, terrific work history…and the guy I talked to was really friendly.
Eventually, we started talking about price. He gave me two options – a monthly fee, or a larger upfront fee that would guarantee me services for one year. I did the math and realized that I’d be saving a bunch of money by paying upfront, but I was still a little concerned.
When the guy saw that I was interested in paying upfront, he went in for the kill. “Listen sir, I promise that you will get outstanding quality service here. We know that our fees are expensive, but the one year option will definitely make things more affordable.”
I was sold.
Fast forward a few months. The SEO company was a total disaster. They weren’t delivering the results that I had wanted and they were incredibly unresponsive. I was getting angrier and angrier, and demanded my money back. Of course, they refused. After all, there wasn’t a whole lot I could do about it.
It was my own fault. I had overcommitted. I had gotten carried away in the moment, and wrote a large check without knowing all the facts. Had I gone with the monthly plan, I could have cancelled at anytime. This would have motivated them to keep working hard. But by giving them the money upfront, I ended up getting sucked into a major black hole.
This actually brings me the final point: if you’re going to hire people….
Hire On A Contract Basis
Anyone who’s ever had to make a hiring decision knows how hard it is to make the right choice. In a tough economy, every job listing gets hundreds of responses. It’s fairly easy to whittle the list down to a few qualified candidates, but how do you make the right decision? After all, some people might be great during an interview but won’t be the best performers on the job.
The new contract economy provides an effective solution. As the job market gets more competitive, qualified applicants are more willing to accept paid contract work that could potentially lead to full-time employment in the future. By hiring someone as a contractor first, you can quickly and cheaply find out if they fit the needs of your organization.
The contract economy is a boon for cash-strapped startups. Around Silicon Valley, many startups hire new employees on a three-month contract to see what they are capable of accomplishing. After the three month period, the startup and contractor can decide to extend the contract or part ways.
For example, ODesk, a leading internet network of contract employees, actually uses its own technology to hire contractors for technical copywriting, customer support, and server maintenance. This allows ODesk to identify the best people quickly while keeping costs low.
But contract employment isn’t just a win for the employer. By having a chance to evaluate the company while getting paid, the contractor can also see if the job is a good fit. The short-term nature of the contract also allows employees to keep their options open and look for opportunities elsewhere if they realize the job isn’t a good fit.
My own story – A few years back, I accepted a contract role with a startup in the Bay Area. It was a short-term deal with the possibility for full-time employment if things went well. Although I really enjoyed working with the management team, I just wasn’t that passionate about the product. A few months later, one of the senior executives asked me if I would like to join full-time. I said no – I’d thought about it a lot and decided that this just wasn’t the best opportunity for me. We parted ways on good terms.
This was a good decision for both parties – the company hired another contractor (who ended up being a better fit), and I moved onto projects about which I was far more passionate. I had also made some money and some great connections, while providing much-needed business development skills to the company. Overall, a win-win that wouldn’t have been achieved through a full-time hire.
What are some ways that you’ve achieved savings without changing your lifestyle?