Tuesday, January 23, 2007

Thanks For Nothing, David Bach

David Bach's latest column on Yahoo! Finance demonstrates (again) the fact that when it comes to financial advice, one size does not fit all. Not one of his five suggestions for saving money applies to me.

1. Lose the premium cable television package and save $960.
That would work. If I had a premium cable television package. Which I might have, if I had a television.

2. Get real about your cell phone and save $240.
Nope. I'm still on my mother's family plan, so my phone costs less than two-thirds of the $60 figure that Bach cites as a bare minimum.

3. Go wireless [i.e. cut your land line] and save $600.
Yeah, the last time I had a land line was the one year I lived in the dorms (that would be 2003).

4. Exercise smart and save $240.
My major source of exercise is walking (I do, after all, live in New York). It's free.

5. Shop for car insurance and save $500.
...and because I live in New York, I have no car to insure.

My point here is just a quickie, and one I've made before (though I think this is a nice example): while experts' tips can provide a jumping-off point for a course of action that will save you money, nothing works like knowing your own behaviors and options.

8 comments:

Strange Bird said...

I've noticed that same thing, and it doesn't help to be a 20-something in the workforce who is about to go back into graduate school for three years to rack up 150K in debt. Is saving for retirement really my best option in this case? I couldn't say, no one talks about it.

English Major said...

Strange Bird, if I applied my own head and its little bits of logic to this issue, I would say: contribute to your 401(k) up to (but not above) the level of your employer match. That makes the rate of return on that money 100%, which means that saving for grad school in, say, a high-yield savings account has a pretty big opportunity cost. When you go to law school, you can decide whether to cash it out to lower your debt (which means that you incur taxes & penalties) or roll it over into a Roth (which means that you just incur taxes). Personally, I think I'd roll it over into a Roth. I think that, as a lawyer, you can expect a reasonably high income--you can pay down debt, but you can't get back lost years of compounding interest, you know?

I think the real decision is what to do with any savings that exceed the level of the employer match on your 401(k). Put 'em in a Roth? Save for your oncoming educational costs?

I think this is a matter of personal choice. I think, purely mathematically, your best deal is the Roth. I also think, though, that it may be more valuable for you as a human being rather than a calculator to see a debt level that looks not-quite-as-tremendous. If it were me, I'd try to figure out how much I could put towards the school costs before starting school, and how much better that would make me feel about my financial situation. If the answer were "A lot," I'd do it. If the answer were, "Oh my god, I still have $140K in debt are you KIDDING ME?" I'd put the "extra" money into a Roth.

Apologies for length, but in summary: I agree. It's difficult to get a good answer a) as a young person whose life is in flux, and b) from one-size-fits-all financial guru-types in general.

Strange Bird said...

Especially when your company doesn't offer a 401K, has a post-tax retirement plan, and contributes to it whether you choose to or not. :) Then I just have no idea(!) what to do.

Thanks for the advice!

mOOm said...

Yeah none of those apply to me either... and I don't drink lattes either :)

mOOm said...

1. Lose the premium cable television package and save $960.

No TV

2. Get real about your cell phone and save $240.

No cellphone

3. Go wireless [i.e. cut your land line] and save $600.

That's how I connect to the internet and phone at all, can't dump that.

4. Exercise smart and save $240.

Walk too and ride my bike when it's warm.

5. Shop for car insurance and save $500.

No car.

But this just shows that we are already frugal and don't need this kind of advice on how to be frugal.

J.D. said...

nothing works like knowing your own behaviors and options

Exactly right. I preach this, too, but my phrase is: "Do what works for you."

Wil said...

J.D.

Spot On!!

The best any PF person can do is try to help some. For some of us, the advice in question doesn't apply, but for others, it may be like getting smacked between the eyes with a hammer. Luckily, if his advice isn't good for you, there's another person out there who's advice might be your hammer.

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