Each Friday, The Simple Dollar reviews a personal finance book of interest.
Unlike most books that describe paths to financial prosperity, Gregory Karp’s focus is solely on one area: cutting spending. Karp’s about as up front about this philosophy as he can be – the first eight words in the introduction of the book are “Controlling Spending Is the Key to Building Wealth.” In big, bold letters.
Right off the bat, this philosophy will probably tell you whether this is an appropriate book for you to read or not. If you disagree with this philosophy and don’t want to read about it, you shouldn’t bother reading this book, or this review, for that matter. However, if you do agree with that philosophy – that controlling spending is the key to wealth (or at least a major key) – then you’re in for a treat with Living Rich by Spending Smart. This is unabashed frugality – Karp is all about maximizing the value of every buck you spend and finding financial prosperity through that process.
Let’s dig into the book, shall we?
A Walk Through Living Rich by Spending Smart
Although the book is broken into eight chapters, each chapter itself is a series of short essays, making the entire book feel as though it’s a collection of blog postings. For me, that’s an appealing thing – it makes it easily available for bite-sized readings and it’s easy to pick up and glance at and then put down again, which is perfect for learning about new, simple tactics and skills. In fact, for me it was the kind of book where I found myself jotting down ideas and scribbling in the margins, which means one of two things: it made me think, or it gave me ideas for stuff to do myself. In Karp’s case, it was a bit of both.
Chapter 1 – Financial FITness
The FIT is in capital letters because of Karp’s thesis here that food, insurance, and telecommunications are the three biggest areas to start looking for ways to cut spending. I agree with him to an extent – they’re the three biggest areas to cut without a major lifestyle change – cutting housing or automobiles can save even more, but often require significant changes to your day to day life.
To cut food costs, Karp suggests eliminating (or severely reducing) eating out and also adopting a sensible grocery shopping strategy: hit the flyers, make a meal plan and a shopping list, and clip coupons. He also advocates stockpiling food that doesn’t perish easily – buy your beans in bulk, in other words.
His strongest statements here are for life insurance, though – he advocates canceling whatever policy you currently have if it’s not a term policy, and getting a term policy, similar to advice I’ve heard elsewhere, but more extreme. I think he’s correct, for the most part, with the exception being people who have had whole life insurance since birth where the investment value may now be enough that it’s not worth canceling in adulthood. I do agree that term is the best choice for any adult, though.
Chapter 2 – Know Thine Enemy: It Is Us
Psychology is the main point of this chapter, which focuses in on how we psychologically trick ourselves regularly into making poor financial choices. He uses the oft-repeated nugget about shoe shopping for a great example here:
Imagine you’re in a downtown store, considering buying a fabulous pair of shoes for $75. Another customer notices, “Hey, I just saw those same shoes on sale at Bloomingdale’s for $50,” she says. It’s a five block walk.
This is a spending decision that represents a fork in the road. Do you walk the five blocks for the better deal? […] Now imagine you’re eyeing a $2,500 living room set and learn that same set is available five blocks away for $2,475. Do you hoof it to the other store?
This is a good example of psychology, actually, as both cases are merely asking whether it’s fine to walk five blocks for $25. But, unsurprisingly, people react vastly differently in each situation.
In short, this chapter covers much the same ground as Ron Gallen’s excellent The Money Trap – there are countless little mental tricks that often swipe money right out of our wallets, and the best way to avoid them is to think carefully about each dollar we spend.
My favorite piece was Karp’s comments on the lies people tell themselves, such as “thinking about money is for greedy people” or “I could die tomorrow, so I’ll live for today.” Both of these are merely excuses to avoid plotting a strong financial path, mostly due to an avoidance of goals. You’ve got to stand for something or you’ll fall for anything, right?
Chapter 3 – What a Waste!
This is perhaps the most entertaining chapter in the book, as Karp rants about some of his spending pet peeves: bottled water, extended warranties, smoking, timeshares, ink jet cartridges (refill rage, indeed!), the lottery, textbooks, hybrid vehicles, and greeting cards. Most of the rants are quite entertaining and are very spot-on – each one of these are vastly overpriced for what you get.
I particularly agree with him on bottled water. Get a few quality water bottles, fill them yourself, and keep them in the fridge. For just the cost of one case of bottles, you’ve got an infinite number of bottles, plus you’re not filling up the landfills with your junk.
Chapter 4 – The Big Picture
The message here is simple: shop around. From the smallest to the biggest purchases, you simply save money by taking that extra step and being a careful shopper.
Here’s an example: my recent experience with shopping around for prices on the video game Rock Band for a gift. If you just do a quick glancing around, you’ll quickly observe that the standard price for the basic Rock Band kit is $169.99. Shopping around, however, reveals better prices – you can get it for as low as $139.99 (for the Wii version) on Amazon.com, or $147 for any version at Sam’s Club. Instead of just hopping on board with the purchase at the first place I found it at, I saved $23-30 by merely shopping around for a bit.
Karp offers a lot of good tactics for shopping around, but the real key to making it work is actually doing it. Instead of just buying something the first place you see it, put in a bit of time to see if you can find a cheaper price, whether it’s just looking on another shelf for the generic version of the product or doing online shopping for that new laptop.
Chapter 5 – Around the House
This chapter is a collection of short pieces on how to reduce spending in specific areas, from air conditioners and pets to prescription drugs and television. Solid advice, all around.
The section that really stood out to me was the section on lawn and garden care, which was loaded with a number of smart ideas. For example, one tactic that I’ve long used to kill weeds in the cracks in pavement is to dump vinegar on them, which Karp espouses, but he claims you can dilute the vinegar 1:1 with tap water and it still has the killing effect. The compost bin is another brilliant idea – we use a barrel composter and just toss all of our vegetable waste, coffee grounds, and eggshells in it. Every few days we spin it around, and about once a month we add a big fistful of garden dirt and some water to it. Twice a year, we stop putting compost in it for about three weeks and hit it twice a week with water and a fistful of dirt, then empty it out on our garden (once just before planting and once at the very end of harvest). That’s it – no fertilizer expense needed and a lot less garbage, too.
Chapter 6 – Financial Foolishness
Here, Karp focuses on financial institutions – credit card companies, banks, and investment houses. Most of the advice is standard stuff, but it’s important stuff – pay more than the minimum on your debts, snowball the payments, and don’t buy into the idea that shuffling your debt around will somehow make it disappear. You’re still in debt – it’s just wearing different running shoes.
Perhaps the most stunning advice (for many people) is Karp’s suggestion that individuals stop using personal checks if at all possible and instead use electronic transfers for their money moves. His argument? Personal checks are loaded with your personal information and are ripe sources for identity theft, particularly in the hands of unwise cashiers who do things like write driver’s license numbers directly on the checks themselves. I’ve largely moved away from personal checks myself, not just because of identity theft, but because online banking by comparison makes check writing seem awfully inconvenient.
Chapter 7 – That Time of Year
Here, Karp (unsurprisingly) focuses on special occasions – holidays, birthdays, graduations, weddings, and so on. The advice across all categories is pretty consistent: plan ahead, shop early, and budget for what you spend. If you’re running through a Target store an hour before the event searching for a gift, you’re going to make a poor buying decision and lose out, guaranteed (and not really save any time, either).
Another aspect I liked: he pretty consistently says to skip the greeting card, or at the very least, give one with a blank interior that’s inexpensive and filled with more personal sentiments. My feelings exactly.
Chapter 8 – Life Happens
The book closes with a look at mega-ticket items: houses, cars, weddings, college educations, and so on. These items are often so expensive that trimming off even 10% can make a gigantic difference in your day-to-day bottom line.
Two big points stuck out at me. Karp is strongly in favor of the late model used plan for buying a car. In his eyes, the best bang for the buck you can get is a car that’s just three years old or so – new enough to be still several years from big problems, but old enough so that you’re not paying that new premium. Cars coming off of leases are perfect. Also, for college education, he strongly advocates the two-and-two plan – get your general education requirements out of the way for cheap at a local college (even in your spare time during high school), then you’ll only need two or three years of expensive tuition costs at the university. Solid plan.
Some Thoughts on Living Rich by Spending Smart
This book reads like a well-written frugality blog. I think that’s actually a very good model for a compelling book, but it may be too bite-sized for some people to really enjoy. If that sentence intrigued you, you’ll like the format here.
Do I really buy into the idea that controlling spending is the key to building wealth? I think there are two keys: controlling your spending and increasing your income. Doing them simultaneously is the key to building wealth. This book succeeds at describing one half of the equation.
If that’s the case, where’s the books on genuinely earning more? There are lots of books on that topic. You just have to look more carefully for them, because there is no easy to follow recipe for earning more. You can always find frugal tactics that work – earning more, though, isn’t as straightforward.
Is Living Rich by Spending Smart Worth Reading?
That first sentence of the book really says it all. Controlling Spending Is the Key to Building Wealth. Do you strongly agree (or at least partially agree) with that phrase? If you do, this book is a worthwhile read – it really does a good job of hitting a lot of areas where spending can be reduced. On the other hand, if you think that phrase is rubbish, you’ll think this book is rubbish, too.
Most of the ideas in this book are ones I’ve heard before, but if you’ve read a lot of books on frugality, you already know the secret to reading more – it only takes one or two new tactics to make the new book worth reading, because each tactic you adopt will likely save you a significant amount. I found enough meat within this book to make it well worth my while, and it’d be worth even more to a person who has never read extensively about frugal topics.
Better yet, Karp makes it enjoyable. Several of the sections in this book would have made fantastic blog posts, and I’d love to read a whole collection of his rants on ways people waste money (like his priceless bottled water rant). Even if you think the advice described above is basic, there are elements of this book that are simply entertaining to read.
In short, if you’re into frugality at all, this is one well worth checking out (at the library, of course).