“The trick is to just make sure you’re not spending a lot of money on stuff you don’t use or appreciate very often.”
Well, that’s one trick offered by Trent Hamm, purveyor of the popular personal finance blog TheSimpleDollar.com, and author of the new book The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams. Like most of Hamm’s advice, this “trick” is really more of a simple nugget of hard-learned wisdom. Hamm’s new book splices in these nuggets with stories from his former self, a man who one night, while holding his newborn son in his arms, decided then and there he would stop his free-spending ways and dig himself out of debt—and then, most impressive of all, he actually went ahead and did it.
Below is a Q&A with Hamm, who discusses everything from career advice to spending habits, from why savers shouldn’t freak out about today’s awful interest rates to why it’s a great idea to volunteer in your local youth sports leagues.
A little while ago, it occurred to me that lots and lots of personal finance writers actually have a history of being bad with money, and they struggled, often for years, to get out of debt. Do you think someone who gives advice on personal finance has something of an advantage, or at least a really solid, noteworthy perspective, on money if he or she has personally been in debt?
Trent Hamm: It’s easier to write about something from the heart if you’ve lived through it yourself. The fear and panic you feel when you realize that you’re just not going to have enough money to pay this bill or when you’re dodging debt collectors is an experience that a writer can draw on for some really compelling material. Personal finance writing
sometimes lacks the “personal.” When it misses out on the intimacy of real, personal experience, it can have a lot less impact than stuff written from the perspective of a person who has lived through it.
Beyond that, it’s a lot easier to trust the advice of someone who made a disaster of things and fixed it themselves than someone who has never been through that rollercoaster in the first place.
It’s the same as health advice. I’d tend to trust someone who has been overweight in the past and lost that weight than I would someone who has been thin all their life, because you can’t teach metabolism.
In the same vein, I’d tend to trust someone who has been in debt in the past and reduced or eliminated that debt than I would someone who has never been in debt, because it’s a journey back that the debt-free person has never experienced. There is a lot of pain and psychology involved in the process of turning around a crisis.
What do think is the biggest challenge to getting out of debt? The logistics themselves seem pretty straightforward: Reduce spending, and pay off debts strategically, in the most cost-effective order possible. So if it’s not the logistics that people have trouble with, what is it? Is it breaking habits? Is it getting over the mental hump and really believing that you can do it?
TH: It’s the habits! People are creatures of habit, and once you’ve established a routine over a period of time, it can be really hard to break it. If you’re in a routine of eating out every night, it’s really hard to break it. If you’re in a routine of always having the latest phone from Apple, it’s hard to break that habit.
People look at an individual habit on the surface and think, “Well, that’s EASY to break.” That one habit *might* be easy, but it has a ripple effect throughout your life in a lot of ways that you don’t expect, and those little ripples do affect you. If you’re a chronic
cell phone checker and you suddenly switch phones, your routine is impacted and that routine echoes all through your life.
It’s the same reason most dieters fail: they disrupt a lot of routines at once. At first, when it’s new and adventurous, a person can stick to it because of the novelty. As the novelty wears off, though, and they’re left with a life with many, many disrupted patterns, they often find themselves simply reverting back to their old habits.
A person committing to real change is often better off changing one routine at a time, getting used to that change, then changing another routine. Radical change only works when you’re already forced to disrupt a lot of patterns in your life, so, for example, the day you lose your job is a great day to start a diet.
Saving money (i.e., not buying stuff) can sometimes be a bummer. How do you advise people stay upbeat about making sacrifices? How do you help people to feel like they’re not missing out when they go without some hot new product or experience that everyone else seems to enjoy?
TH: What I found easiest was to simply start exploring activities I always wanted to try but never really got into because that’s not what seemed “cool’ at the moment.
For example, I started getting involved in the youth athletic leagues in my town. They’re always needing volunteers and coaches, so I got involved. I joined the managing committees of a few community organizations I cared about as well. These are things I *wanted* to do that were vastly different than what I *was* doing with my time.
Over time, what happened is that I started to build strong relationships and friendships with many of the people I was spending time with on these activities. Instead of going out for drinks and to eat with “the boys,” I would spend time in the evenings involved with other things that fulfilled me. Yes, a few relationships withered a bit, but I gained a lot more in the process.
What was most interesting, though, is that the new relationships I built usually espoused a much different value set. The people involved in these other activities were people that were generally responsible with their money and also people who wanted to improve their local community. The people you surround yourself with help you to define what is “normal” in your life, so as the relationships in my life changed, so did my sense of “normal.” It was no longer normal to buy mountains of gadgets and to go out on the town a lot. It was now normal to get involved with community activities, grow as a person, and be responsible with what you have.
Your book is filled with all sorts of advice that’ll help people save money. But, as I discovered with a series of posts asking cheapskates what they’ll spend good money one, even people who are extremely careful spenders are willing to drop cash on certain things. What are the things that you are willing to spend good money on—things that aren’t exactly essential, but that make you happy, or that you feel are worthwhile, and worthy of paying extra to ensure quality and value?
TH: The answers in that series all seemed to have a few things in common. The big one was that each respondent was willing to spend more on the things that they used repeatedly or valued repeatedly.
So, for example, I love to cook at home. My wife and I are preparing something from scratch almost every night. Thus, we’re not bothered by spending plenty on a key kitchen implement that we actually need and will use over and over, like a Le Creuset French oven or a Global chef’s knife. These are things that we constantly use and appreciate.
The trick is to just make sure you’re not spending a lot of money on stuff you don’t use or appreciate very often. For example, if you only watch a movie once a month, it’s probably a waste of money to purchase DVDs. Instead, just go rent one on your way home from work on the one day a month when you feel like watching a movie. If you barely notice your front garden, don’t invest a lot of money in gardening — just put in some hardy, inexpensive perennials and trim them once a year.
People run into trouble when they feel they must spend a lot of money on high quality items in areas that they don’t really care about very much. People need to trust their own heart and how they actually spend their time instead of focusing on what other people think and what marketers tell you that you need.
Your book also has lots of advice about careers and work. In light of the current economy, I was wondering what kind of advice you would give to two particular groups of people who seem to be struggling more than most: Recent college grads, and people interested in making career changes, either because of force (unemployed and no jobs out there) or simple preference.
TH: There are two different groups here, with two different sets of advice.
People who are forcibly out of work, like recent college grads and the recently unemployed, are best served by lowering their expectations a bit and working where they can find it while still searching for the right job. They should also keep as involved in
their field as they possibly can by keeping in contact with everyone they know in that field, sharing ideas and thoughts about the field in a public forum, and keeping their skills sharp. In my eyes, the most important step is simply keeping in touch, because most great job opportunities are passed along the social network.
If you’re considering a job change because of preference, the best thing you can do is build up a healthy cash emergency fund to help with the transition, because that transition might involve moving or setting up an office or countless other expenses. It’ll also help you in the event of an unplanned transition period or an unexpected job loss.
Finally, in light of an uncertain stock market and savings account and CD rates that pay nearly nothing, do you think the way that people are saving now is outdated? I constantly see stories about investing that say things like “assuming an 8% annual report,” but can we make assumptions like this anymore? Seems like a major leap of faith. How do you advise people to save nowadays, and how has your saving strategy changed, if at all, since the Great Recession hit?
TH: This is a short term situation. Statements like “assuming an 8% annual return” is a long term statement (and it usually relies on a reasonably well-balanced set of investments, but that’s another topic).
Right now, the economy is relatively weak. The Federal Reserve has to keep interest rates low to give the best platform possible for businesses to get rolling again, and they will. It’ll just take some time — probably a year or two.
When things do get rolling again (and they will — people are too creative and productivity is too high to keep it from happening), the stock market will have a run like it did from 2003 to 2007, with consecutive years of double-digit growth. The Federal Reserve will raise rates, and then savings accounts will rise again and begin offering much better rates on savings and CDs — some banks were offering 6% on straight savings accounts in 2007.
We’ll be back there in the next three to five years. So, if you’re only making 2% right now for five years, then you make 14% a year for the following five years, that averages out to about 8% a year.