Comments on: There Are Two Guaranteed Ways To Improve Your Financial Situation … But Which Is Better?

By: Loi Tran

Loi Tran — Fri, 28 Sep 2007 00:58:10 +0000

I feel that I am pretty good in the savings department. I now need to focus on trying to earn more. It is tough trying to get into the front office work in the investment management field. In the meantime, I set net worth increase goals every month.

By: vh

vh — Tue, 18 Sep 2007 04:45:25 +0000

Along these lines, has anyone ever run into a situation where a creditor tried to refuse to accept all of a payment toward loan principal but instead engrossed part of the payment with interest? After I plonked down a goodly payment toward the principal of a $25,000 equity loan I’d like to pay off in 3 years, my credit union statement revealed that they had absorbed about a third of it with interest. This was especially infuriating because I had written on the check “for principal only” and because the teller had told me it in fact was applied to principal.

I went over there today to ask for an explanation. They tried to tell me that ANY payment would be partly glommed for interest. I threw a hissy fit and made quite a little scene in the CU’s lobby (knowing that some years ago I had paid off a car loan by putting every spare penny toward principal, & they hadn’t pulled this on me then), and pretty quick they disgorged a secret code that tellers can use to ensure that ALL of a payment goes toward principal.

Is it legal for a lender to disregard your expressed wishes and take an extra payment–above & beyond your usual principal & interest payment–and soak it up with MORE interest? You can’t pay down principal very easily if a large percentage of each extra payment is grabbed for interest. And no, my beloved employer does not pay me in such a way that extra money will be available on THE day the regular P&I payment is due.

By: Tommy

Tommy — Tue, 18 Sep 2007 04:10:16 +0000

Of all the post on this website, this is properly the sigle most important – most of your posts are valuable if you are in debt, or live paycheck to paycheck but this is the only one with a significant chance of drastically improving your life.

By: Mariette

Mariette — Tue, 18 Sep 2007 03:35:19 +0000

Nicely put John’s pappy. I also enjoyed this post and would say that both approaches are important and ideally balanced out – being frugal yet earning enough so that you don’t have to pinch every penny to the extreme, and increasing your income but not twisting yourself into a pretzel of misery for it (unless you want to.)

By: John

John — Tue, 18 Sep 2007 02:50:43 +0000

Trudat, Trent. I like how you compare the effectiveness of earning more vs. spending less, classifying the former as strategy-base and the latter tactic-based. You make an important distinction for the folks who come to this blog and to frugality in general with a sense of URGENCY, because of some recent or impending financial crisis, and rightly identify frugality as a more effective short-term solution.

You have total and exclusive control over your own spending, but it requires the hard-won cooperation of others to increase your income. You can even form a whole set of frugal habits faster than you can get a raise, most of the time. And as my pappy always said, the first rule of fillin’ holes is, “stop diggin’”.

By: Mrs. Micah

Mrs. Micah — Tue, 18 Sep 2007 02:20:28 +0000

Hmm, I like that. Right now, Mr. Micah and I are working on a way to get out of debt. So we’re trying to live pretty frugally (but also knowing we’re in for the long haul with $110,000 of his student loans). At the same time, I’m trying to increase my earning potential by getting hired at the place where I’m temping.

As you say, though, not as easy as it sounds. I’d rather be working than not working. So if I have to stay at this level for another few weeks/months (?) so be it.

By: Dan

Dan — Mon, 17 Sep 2007 21:08:17 +0000

In my life it has depended on who I am taking care of. When it was just me, it was very easy to control spending. If I needed to improve my financial situation, reducing spending was the easiest way.

Now that I am older though, and a parent, I have a lot less control on my spending. I have to spend for my kids, various family members who seem to get into trouble, and eventually perhaps on aging parents. For these future expenses, it seems that making more money is the only answer.

By: VN

VN — Mon, 17 Sep 2007 19:26:35 +0000

Excellent article Trent !!
I went through the same thought process few years ago and tried to save every penny I could. Went good for sometime and later realized that this could not be a permanent solution. Coz while at a job, we work for income as against the truly rich work for wealth. I went ahead and started a part time business (just like you have), and am making good secondary income, the kind I could never be able to save from my “income”. I would encourage people to read more, coz thats the only way they can widen their horizons. And without any doubt, you’re doing a fantastic job here.

By: Aaron Stroud

Aaron Stroud — Mon, 17 Sep 2007 19:18:05 +0000

I just used this Adam Smith quote on All Financial Matters, but it’s relevant here as well.

“It is maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy…What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage.” 1776 Wealth of Nations

Basically, thift is always good, but we need to compare the time required to the value of our time. For example, most people are better off making their own coffee or lunch. But this advance shrinks as income rises.

For extremely high incomes, making your own coffee or lunch actually costs you more than having it prepared.

By: dong

dong — Mon, 17 Sep 2007 16:29:18 +0000

Both are useful but being frugal is like a put option, there’s only so much you can squeeze out. You can’t spend less than 0. With earnings, you can always earn more. But earning begs a tougher questions on is it always worth it?

By: FIRE Finance

FIRE Finance — Mon, 17 Sep 2007 16:16:56 +0000

Trent has offered a very balanced view of bringing about a change in finances. We feel that both frugal living and higher earnings are necessary. Sometimes we have found people live frugally, do all the stuff and then go and blow off their savings on big items like car, tv, sofa, etc. Perhaps the temptation of being penny wise is very inviting. The best way to save is to get out of debt and invest in one’s career. But striking the right balance is extremely important and it is different for each person.