We're back. In my Liquidity Defense thread, we identified five categories where the poor (income <$30,000/yr) overpay compared to those the bureau of labor labels “upper class†(Income >$150,000/yr). To refresh your memory, the areas where the poor are overpaying a percentage of their income are listed below, in descending order, with the difference in the percent they pay compared to the percent the rich pay next to the category:
Utilities: 6.8%
Transportation & Gasoline: 4.9%
Food at Home: 4.8%
Health Care and Insurance: 3.7%
Housing: 1.7%
I want to remind everyone that this, and all “liquidity defense†threads, are not about how to get rich, they are about protecting your assets to relieve the financial stress of the early years of launching your fastlane plan, many of which require an investment of capital to get started. I’ve also deliberately avoided measures that descend into absurdity in the interest of savings, like gathering firewood to cook, showering in your clothes, or leaving a stopper in the bathtub and using that water to flush your toilet.
A second caveat as we tackle the area with the largest spending discrepancy, Utilities, is that part of that discrepancy compared to other areas is artificial. You can buy a suit at Marshalls for $150, or at Neiman Marcus for $1,500. You can buy a Honda Civic for $16,000, or a 911 Turbo S for 160,000. In many categories, there are options for the rich that cost 10x or more the amount that the poor pay for an equivalent item. Utilities are not like that. There is virtually zero brand-related cost inflation. There is no Prada electricity; the same distributors sell to the rich as sell to their poor in a given area. If the rich decide to explore exotic options, like solar or geothermal, they get a tax credit or benefits in terms of being able to sell back to the grid, reducing their costs (unlike a 911 Turbo or V8 Vantage, which costs more to drive a given distance than a Civic). Also important is the notion that the rich are still normal humans in terms of biology and routine. A cardiologist or an app mogul does not go to the bathroom 75 times a day, have 50 refrigerators, or shower eleven hours every night. Sure, they might have a big pool or a huge house to air condition, but it’s unlikely that these things equate to the same level of disproportionate spending seen in categories like cars.
With that said, utilities are one of the hardest expenses to reduce because they are an inelastic need. You can live without eating carry-out, you cannot live without electricity and water. As I stated in my last thread, suppliers know this, which is part of the reason why you never see coupons for 40% off your month of electricity or a free thousand gallons of water. So, are you stuck over paying? No way!
The first step is that people often blunder into their utilities payments after signing on the dotted line for a place to live. When they look for a place to live, they evaluate the structure and neighborhood first, usually in conjunction to some degree with the commute (I’ll argue later that to give the commute a subordinate position to the emotional appeal of the dwelling is a huge mistake). In the next five threads, I’m going to argue for a process that I’m going to call “simultaneous relocation,†where your relocation decision processes prices for commuting, rent, utilities, distance to frequently visited associates, etc. at one time. Yes, this is a ton of work, but this is an event (a pile of algebra for a couple of weeks) that creates a valuable process (saving money just by being alive in the best spot possible for your needs). Don’t allow land lords or real estate agents to be cagey about utilities costs: Bug your potential neighbors, man/woman up, and hustle up real bills for people with similar family and dwelling sizes. An hour of aggravation could be worth a thousand dollar, so if you don’t make a thousand dollars an hour, it behooves you to do the legwork and get this right.
Another strategy that goes along with simultaneous relocation, is to negotiate with smaller land-lords to include part of your bill into their costs (we'll talk about the actual rent negotiations later). At my last rental, I got the land-lord to finally agree to pay $200/mo towards my electricity, heat, and water costs in the deal. I never went over that amount, so I basically got free non-telecom utilities that year, since the cost of the apartment was in line with others in the area I was considering.
In some regions, like my own in Pennsylvania, recent deregulation in electricity has led to a bidding war between numerous smaller suppliers. Although the differences in prices are seldom dramatic, a few calls could save you on your bottom line. Calling is an event, using cheaper electricity every month is a process. Make the call!
But that isn’t the only thing you need to consider. When I was shopping for an apartment years ago, I found that one prospect only had one option for high speed internet: FiOS, at $100/mo. But another apartment that was remotely located had a high speed DSL package that was nearly as fast as the $100 tier of FiOS (especially considering the low bandwidth usage of the farming community where the rental was located), for $35/mo. On a 12-month contract, that decision saved me $780, the lion’s share of a month’s rent. Depending on your apartment size and location, internet can represent your biggest monthly bill, easily costing more than water or electricity, easily beating out $40 for electricity or water the small water bill of a single person in an apartment. Also, keep in mind that many low-price starter promotions are not quite as one-time as the company’s want you to think. I had my cable provider renew their “new member†rate four times when I threatened to cancel because of the price hikes. In a 12 minute phone call, I saved $400.
On that note, a huge utility bill for many people starting out is their TV/Cable package. Let me take a moment to explain to you very concisely what cable/dish TV is: TV is you paying to waste your time and be sold more stuff that you pay for. It reduces your equity by costing you money for the TV, it reduces your equity by wasting your most valuable resource of time, it reduces your equity by burning electricity, and it reduces your equity by letting some of the best marketing minds have an uninhibited crack at you while you’re sitting on the couch. TV takes a toll on your physical fitness by having you sitting in one spot, often with a high calorie drink or bag of chips, and depending on your proximity to the TV, EMF radiation has also been known by NIH to increase the risk of several types of cancer. Here’s the short answer on TV: Don’t. I have been without a TV of any kind or any broadcast TV package for two years, and I am richer (but again, not rich on an absolute scale) and happier than I’ve ever been.
So you found the absolute best place to live factoring in utilities before you signed a single slip of paper, negotiated both with your land lord and/or your utility company for the best deal, and you’ve decided to ditch the money-sucking vampire living in your family media center. Can you do better?
Yes. Although home owners have greater options in this area, there are a few things basic things that anyone can do to reduce their costs:
1. Get power strips and use them. At home, have all your chargers for your devices and laptop, your bedroom light, etc. all on a power strip. Have devices that do not need to remain powered up, like a microwave, toaster, or mixer, on a power strip. One flick of the button neutralizes so-called phantom drains from all those devices.
2. Optimize your living space. You live there, not your guests. If you have AC window units and your life at home is divided between your computer, move your computer into your bedroom, isolate the rest of the space, and call it a day. You’ll save big money in the summer, and in the winter with zone heating. If you do video editing, like I do, you may even find that your desktop is so powerful under load that it can reduce your heating costs in the winter.
3. Use batteries at home. I know the brick and mortar types will hate me for this, but if you use a laptop at work, charge your phone and laptop there, and run on batteries at home. You’ll reduce the electrical costs from these devices to zero.
4. As soon as you turn the shower on, wet your hands (while still outside the shower), put shampoo on them, and put it in your hair. Then get in the shower. What I’ve found by talking to dozens of people is that morning showers are often dragged out because thinking and waking up is happening while hot water-your money-is running down the drain. By taking this part of the shower before you ever get in, you need to immediately rinse your hair to keep the suds out of your eyes, and a huge part of the shower is already over and done with before you had a chance to waste water. Although this teeters dangerously close to the annoying cheapskate stuff I said we’d avoid, I found that this simple tip, which is not very invasive, shaved about six or seven minutes off the average shower time of the couple of people I could get to agree to try it back when I was in grad school. That’s 35 gallons of water saved per day. Another alternative is to find a cheap gym, like Planet Fitness, and take all your showers there while working out. I love PF because if one is right on your way to work, like mine is, you pay $10/mo, get many free showers (worth way more than $10/mo), get in shape, and one Monday and one Tuesday a month they give you free pizza and free bagels. Yes, that'll ruin your workout if you eat a lot, but enjoyed in moderation, these foods supplant two meals, further upping the value of the membership. Local deals like this can be huge money savers and set up win-win scenarios for you. Follow word-of-mouth leads.
For home owners, the ability to select your appliances is a game change. Some come with huge tax credits for their installation, and if you have old appliances in a house, upgrading to a newer furnace, water heater, or more efficient toilets can be a game changer. Always be on the lookout for items that “pay for themselves†(in reality, not in advertising, because if advertisers say it it’s probably bullshit) when shopping for appliances. If you flush twice a day at home, will your new toilet pay for itself in three years? If so, it might be a good deal. Also, look for grants or credits online for green home upgrades. A friend of mine got a substantial discount on a huge bank of solar panels as part of an initiative from her township. Things like insulation and updating doors and windows can be worth thousands of dollars over your course of your ownership.
There are two takeaways here, and the first is that anytime you’re settling into a regular payment, like utilities, if you’re not doing a ton of math, someone is taking your liquidity too easily. Calculate, call, negotiate, and recalculate. If you don’t do the work (liquidity rule 0), someone who has paid millions of dollars to have professionals do it for them (like a telecom company or power company) will get the benefits.
The second is to keep making saving an event and wasting/spending a process. Use the power strips to make saving one-click instead of seven. Use efficient electronics to make saving totally passive. Look for deals on internet, whether promotions or geographically located, that will save you every month while you sit back and enjoy your service.
Utilities: 6.8%
Transportation & Gasoline: 4.9%
Food at Home: 4.8%
Health Care and Insurance: 3.7%
Housing: 1.7%
I want to remind everyone that this, and all “liquidity defense†threads, are not about how to get rich, they are about protecting your assets to relieve the financial stress of the early years of launching your fastlane plan, many of which require an investment of capital to get started. I’ve also deliberately avoided measures that descend into absurdity in the interest of savings, like gathering firewood to cook, showering in your clothes, or leaving a stopper in the bathtub and using that water to flush your toilet.
A second caveat as we tackle the area with the largest spending discrepancy, Utilities, is that part of that discrepancy compared to other areas is artificial. You can buy a suit at Marshalls for $150, or at Neiman Marcus for $1,500. You can buy a Honda Civic for $16,000, or a 911 Turbo S for 160,000. In many categories, there are options for the rich that cost 10x or more the amount that the poor pay for an equivalent item. Utilities are not like that. There is virtually zero brand-related cost inflation. There is no Prada electricity; the same distributors sell to the rich as sell to their poor in a given area. If the rich decide to explore exotic options, like solar or geothermal, they get a tax credit or benefits in terms of being able to sell back to the grid, reducing their costs (unlike a 911 Turbo or V8 Vantage, which costs more to drive a given distance than a Civic). Also important is the notion that the rich are still normal humans in terms of biology and routine. A cardiologist or an app mogul does not go to the bathroom 75 times a day, have 50 refrigerators, or shower eleven hours every night. Sure, they might have a big pool or a huge house to air condition, but it’s unlikely that these things equate to the same level of disproportionate spending seen in categories like cars.
With that said, utilities are one of the hardest expenses to reduce because they are an inelastic need. You can live without eating carry-out, you cannot live without electricity and water. As I stated in my last thread, suppliers know this, which is part of the reason why you never see coupons for 40% off your month of electricity or a free thousand gallons of water. So, are you stuck over paying? No way!
The first step is that people often blunder into their utilities payments after signing on the dotted line for a place to live. When they look for a place to live, they evaluate the structure and neighborhood first, usually in conjunction to some degree with the commute (I’ll argue later that to give the commute a subordinate position to the emotional appeal of the dwelling is a huge mistake). In the next five threads, I’m going to argue for a process that I’m going to call “simultaneous relocation,†where your relocation decision processes prices for commuting, rent, utilities, distance to frequently visited associates, etc. at one time. Yes, this is a ton of work, but this is an event (a pile of algebra for a couple of weeks) that creates a valuable process (saving money just by being alive in the best spot possible for your needs). Don’t allow land lords or real estate agents to be cagey about utilities costs: Bug your potential neighbors, man/woman up, and hustle up real bills for people with similar family and dwelling sizes. An hour of aggravation could be worth a thousand dollar, so if you don’t make a thousand dollars an hour, it behooves you to do the legwork and get this right.
Another strategy that goes along with simultaneous relocation, is to negotiate with smaller land-lords to include part of your bill into their costs (we'll talk about the actual rent negotiations later). At my last rental, I got the land-lord to finally agree to pay $200/mo towards my electricity, heat, and water costs in the deal. I never went over that amount, so I basically got free non-telecom utilities that year, since the cost of the apartment was in line with others in the area I was considering.
In some regions, like my own in Pennsylvania, recent deregulation in electricity has led to a bidding war between numerous smaller suppliers. Although the differences in prices are seldom dramatic, a few calls could save you on your bottom line. Calling is an event, using cheaper electricity every month is a process. Make the call!
But that isn’t the only thing you need to consider. When I was shopping for an apartment years ago, I found that one prospect only had one option for high speed internet: FiOS, at $100/mo. But another apartment that was remotely located had a high speed DSL package that was nearly as fast as the $100 tier of FiOS (especially considering the low bandwidth usage of the farming community where the rental was located), for $35/mo. On a 12-month contract, that decision saved me $780, the lion’s share of a month’s rent. Depending on your apartment size and location, internet can represent your biggest monthly bill, easily costing more than water or electricity, easily beating out $40 for electricity or water the small water bill of a single person in an apartment. Also, keep in mind that many low-price starter promotions are not quite as one-time as the company’s want you to think. I had my cable provider renew their “new member†rate four times when I threatened to cancel because of the price hikes. In a 12 minute phone call, I saved $400.
On that note, a huge utility bill for many people starting out is their TV/Cable package. Let me take a moment to explain to you very concisely what cable/dish TV is: TV is you paying to waste your time and be sold more stuff that you pay for. It reduces your equity by costing you money for the TV, it reduces your equity by wasting your most valuable resource of time, it reduces your equity by burning electricity, and it reduces your equity by letting some of the best marketing minds have an uninhibited crack at you while you’re sitting on the couch. TV takes a toll on your physical fitness by having you sitting in one spot, often with a high calorie drink or bag of chips, and depending on your proximity to the TV, EMF radiation has also been known by NIH to increase the risk of several types of cancer. Here’s the short answer on TV: Don’t. I have been without a TV of any kind or any broadcast TV package for two years, and I am richer (but again, not rich on an absolute scale) and happier than I’ve ever been.
So you found the absolute best place to live factoring in utilities before you signed a single slip of paper, negotiated both with your land lord and/or your utility company for the best deal, and you’ve decided to ditch the money-sucking vampire living in your family media center. Can you do better?
Yes. Although home owners have greater options in this area, there are a few things basic things that anyone can do to reduce their costs:
1. Get power strips and use them. At home, have all your chargers for your devices and laptop, your bedroom light, etc. all on a power strip. Have devices that do not need to remain powered up, like a microwave, toaster, or mixer, on a power strip. One flick of the button neutralizes so-called phantom drains from all those devices.
2. Optimize your living space. You live there, not your guests. If you have AC window units and your life at home is divided between your computer, move your computer into your bedroom, isolate the rest of the space, and call it a day. You’ll save big money in the summer, and in the winter with zone heating. If you do video editing, like I do, you may even find that your desktop is so powerful under load that it can reduce your heating costs in the winter.
3. Use batteries at home. I know the brick and mortar types will hate me for this, but if you use a laptop at work, charge your phone and laptop there, and run on batteries at home. You’ll reduce the electrical costs from these devices to zero.
4. As soon as you turn the shower on, wet your hands (while still outside the shower), put shampoo on them, and put it in your hair. Then get in the shower. What I’ve found by talking to dozens of people is that morning showers are often dragged out because thinking and waking up is happening while hot water-your money-is running down the drain. By taking this part of the shower before you ever get in, you need to immediately rinse your hair to keep the suds out of your eyes, and a huge part of the shower is already over and done with before you had a chance to waste water. Although this teeters dangerously close to the annoying cheapskate stuff I said we’d avoid, I found that this simple tip, which is not very invasive, shaved about six or seven minutes off the average shower time of the couple of people I could get to agree to try it back when I was in grad school. That’s 35 gallons of water saved per day. Another alternative is to find a cheap gym, like Planet Fitness, and take all your showers there while working out. I love PF because if one is right on your way to work, like mine is, you pay $10/mo, get many free showers (worth way more than $10/mo), get in shape, and one Monday and one Tuesday a month they give you free pizza and free bagels. Yes, that'll ruin your workout if you eat a lot, but enjoyed in moderation, these foods supplant two meals, further upping the value of the membership. Local deals like this can be huge money savers and set up win-win scenarios for you. Follow word-of-mouth leads.
For home owners, the ability to select your appliances is a game change. Some come with huge tax credits for their installation, and if you have old appliances in a house, upgrading to a newer furnace, water heater, or more efficient toilets can be a game changer. Always be on the lookout for items that “pay for themselves†(in reality, not in advertising, because if advertisers say it it’s probably bullshit) when shopping for appliances. If you flush twice a day at home, will your new toilet pay for itself in three years? If so, it might be a good deal. Also, look for grants or credits online for green home upgrades. A friend of mine got a substantial discount on a huge bank of solar panels as part of an initiative from her township. Things like insulation and updating doors and windows can be worth thousands of dollars over your course of your ownership.
There are two takeaways here, and the first is that anytime you’re settling into a regular payment, like utilities, if you’re not doing a ton of math, someone is taking your liquidity too easily. Calculate, call, negotiate, and recalculate. If you don’t do the work (liquidity rule 0), someone who has paid millions of dollars to have professionals do it for them (like a telecom company or power company) will get the benefits.
The second is to keep making saving an event and wasting/spending a process. Use the power strips to make saving one-click instead of seven. Use efficient electronics to make saving totally passive. Look for deals on internet, whether promotions or geographically located, that will save you every month while you sit back and enjoy your service.
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