YNAB BLOG

Lavish Spending, Merciless Cost-Cutting (But Secretly This is About Pricing to Infinity and Beyond)

A few weeks ago I played lagged-out, totally-delayed-to-where-I-couldn’t-participate webinar host to Ramit Sethi (of I Will Teach You To Be Rich) while he taught YNABers interested in earning more money on the side about…earning more on the side.

Participation was impossible since I was about 20 seconds behind the live performance. That gave me the opportunity to scan the comments as they came rolling in throughout the presentation. Wow, did the comments roll in.

I should have written this post the next day, because my memory isn’t as fresh now, but I’ll give it a shot anyway.

$9 on Chips — Even in New York That’s “Pricey”

Ramit opened by saying that he purchased a bag of chips, didn’t check the price, and was floored to see they cost nine dollars. In a hurry, he purchased them anyway. Long story short — he loved the chips. He now purchases them regularly. He said they could cost $20 — he’d still buy them.

The other example he gave — a $300 shirt.

The comments began rolling from everyone, just dripping with incredulity. I watched, mildly amused, and wondering just how good those chips really must be. And what color the $300 shirt is.

Ramit closed by repeating something that he repeats a lot. And it’s good he repeats it, because it’s an important lesson:

Spend lavishly on the things you love, and cut costs mercilessly on the things you don’t.

And I find myself wanting to write this as the next sentence:

Here are a few of my lavish spending sins...

Because I want to confess. And I want to use the word ‘confess.’ But that right there is wrong. By using the words ‘sin’ and ‘confess’, I’m implying that lavish spending is wrong. And then we all get to decide what’s lavish.

Congress called. They want you as part of their Lavish Spending committee…

…which is my way of saying that it’s futile. And a waste of time. And probably a bit lame for all of us to judge everyone for how(ever) they use their money.

As long as they’re thoughtful about it. Conscious about it.

Lavish on Purpose

Ramit’s use of the word ‘lavish’ is a bit to blame here because lavish–just the word itself–signifies that it’s a bit over-the-top. It’s kind of saying that you’ve perhaps gone overboard a smidge or two. And I don’t think Ramit’s use of the word ‘lavish’ is a coincidence. I think he’s using that word to drive home the point that YES it can be lavish and there doesn’t need to be any guilt associated with your purchase because you’re proactively planning and choosing what you want to do with your money.

You’re budgeting my friend!

The fact that some of you spend lavish amounts of money on fishing tackle just blows my mind. Really? For fishing?

And you ladies out there that own 437 different stamps used for scrapbooking. Really? A little lavish don’t you think?

You just don’t need to feel guilty about those 437 different stamps. Or those 90 lures that all look the exact same (to me…). You planned for it. You paid cash for it. You get to be lavish about it. Whatever that means.

Merciless Cost Cutting and Snooty Restaurant Choices

If you noticed recently that you’re only watching network television anyway…cancel the cable. If you noticed that you aren’t going to the gym…START GOING :) If you’re not using all of your minutes, downgrade your plan. Cut costs mercilessly.

Look at the value you’re getting. Look at what you’re paying. Make sure those two things make sense. Both sides of that equation matter!

Here’s something snooty to chew on. I will not eat at the following restaurants: Olive Garden, Chili’s, Applebees, TGIFriday’s, Outback, Texas Roadhouse, McGrath’s, Joe’s Crabshack… the list goes on. Julie can cook those places into the ground. Every time I went, I would walk out feeling slightly sick and completely unsatisfied. I’d rather begin a fast than eat at those places. You could call me and tell me that you want to take me to lunch (great!) and it’s all on you (even better!) and you want to go to Chili’s (nOoOoOo!!!) and I’ll tell you just to come over to my house and we’ll split the difference ;)

Because I’d rather pass four times on Olive Garden to go once to Bambara’s.

It’s just about conscious decisions. No guilt. Just planning. Thinking. And no more knee-jerk reactions.

So those of you that were a bit incredulous at the $9 chips… you’re doing that too! You’ve got your lavish thing. Enjoy it. You planned for it.

[Enter the business connection postscript here, so read on if you want to get insights into the pricing aspect and the Big Tie-In that I think was missed.]

Later on in the webinar Ramit was talking about targeting your niche. Really targeting it. Where you decide on a very specific demographic/end client case and you target that person. All of your language should be that target client’s language. If they say “allocate” instead of “budget”, you should start saying “allocate.” If they’re always talking about how they want more “time”, you should stop selling them on the flash-bang feature that does this-or-that and talk about every feature through the lens of time savings.

I’m remembering the example Ramit gave about having a newborn baby where you’re picking between two photographers. One takes pictures of everything (and does a great job). But this other photographer, his whole site has great pictures of newborns. Every single line of copy on his site talks about photographing newborns — about the different nuances taken into account…all of the details he mentions (that you didn’t know you cared about until now)…

The specialized photographer makes the sale nine out of ten times. And you know that’s true!

So…with the photographer pricing for people that know they really, really want his service. Or for the bag of chips that is remarkably delicious… doesn’t price become basically moot?

And that’s where you can price to infinity and beyond.

16 Responses to “Lavish Spending, Merciless Cost-Cutting (But Secretly This is About Pricing to Infinity and Beyond)”

  1. liz

    Jesse, thank-you for your comments. Is there a copy of this webinar online to view? I might have missed you announcing it, but as I’m in the UK I missed the opportunity to view it live. thanks in advance!

  2. Megan

    I love the idea of spending lavishly on the things you love and mercilessly cutting costs on the things you don’t care about. It’s one of my favorite things I learned from iwillteachyoutoberich.com and I’m excited about the possibility of doing it myself.

    Having trouble getting the budget to play nicely with me, though. It seems that we always over-spend on something (last month it was food), and then I don’t get to play.

    I don’t spend on cable, I don’t spend on a fancy smart phone (even though I want to), I don’t spend on the gym or anything else, but I still don’t have a lot of wiggle room in my budget for spending on the things I love. What can I do about that?

    I guess the answer is figure out how to earn more, since spending less isn’t getting us quite there. ^_^

  3. Kenny D.

    I watched the archived webinar and have 3 comments to make:

    1. It was great to watch. No-nonsense common-sense advice that gets you thinking. It reminded me a bit of Dave Ramsey, but instead of advocating delivering pizzas to make more money, start your own side business.

    2. The whole spending lavishly thing reminded me of something Dave says, just worded differently. Dave says “Spend like no one else so tomorrow you can spend like no one else.” Example: drive a $1,000 used car today and when it falls apart buy another one until you’re out of debt. Sometime down the road, you’ll be debt-free and can buy a Corvette or something even nicer if you want.

    3. Most importantly: what kind of chips cost $9 and are actually worth it? I need to try these!

  4. Andrea

    “Here’s something snooty to chew on. I will not eat at the following restaurants: Olive Garden, Chili’s, Applebees, TGIFriday’s, Outback, Texas Roadhouse, McGrath’s, Joe’s Crabshack… the list goes on. Julie can cook those places into the ground. Every time I went, I would walk out feeling slightly sick and completely unsatisfied. I’d rather begin a fast than eat at those places. You could call me and tell me that you want to take me to lunch (great!) and it’s all on you (even better!) and you want to go to Chili’s (nOoOoOo!!!) and I’ll tell you just to come over to my house and we’ll split the difference ;)

    Because I’d rather pass four times on Olive Garden to go once to Bambara’s.”

    Jesse – WITH YOU. :-) Here is what I am aiming to return to and if I had to pass 44 times on Olive Garden, I would: http://www.everestrestaurant.com/

    You have spoken straight to what I have done, and loved to do, for decades which is to save my pennies to partake in knock-your-eye-out gastronomic experiences that would be all but impossible to do at home. And that’s why I am content to drive an 18-year-old car. “Driving don’t matter but, boy, food do!” So I have been a many-year proponent of spending lavishly and unapologetically on the things I love and on being scrupulously frugal about saving on the things I don’t care about. Others might think the thing to spend on is their ride and to save on is what they eat, but isn’t it great we each have our own choice and what’s universal is the principle. I dined at Everest in 2007 and still dream of it today. WORTH IT!

    • Jesse

      Wow Andrea! I’m going to be in Chicago next week, but we were already planning on going to my second-favorite steakhouse: Gibsons.

      Hrm…

  5. Andrea

    Jesse, you cannot go wrong dining at Gibsons (so many good restaurants in Chicago!). No matter what your choice is, it will be the right one. Which is your first-favorite steakhouse? Enjoy your Chicago trip – it is a simply great city – but dress for the fall and winter winds.

  6. WairereRose

    I appreciated this one, and I’m noticing it with my balms. When people try them they don’t mind the price at all because they’re great value for money. At some point I’ll probably need to put the prices up, but the thought doesn’t scare me anymore even with the economy still ‘scary’ to the people who talk about it.

  7. Wifey of a Roadie

    I love this strategy. I have two Louis Vuitton purses. Some people can’t believe I’ve spent that much on a purse. But I only buy a purse once every two to three years! I tell them add up all the money you’ve spent on a purse here and a purse there over the course of a year and see how much that is.

  8. Justin

    Great article Jesse. I follow Ramit’s blog and will be following yours now as well. The point that stands out to me here is how important it is to be INTENTIONAL. Identify what you care about and take care of ‘that’. What may be happening is that we are so influenced by our peers and the media that we try and care about, and spend money on, things that others care about or things that people tell us we should care about. As a result we waste our resources for now and our resources for our future, to please others. At the core it’s being really honest with ourselves and a bit shameless in saying to others–no thanks, that doesn’t really do it for me.

  9. Gerald

    I think it’s just a part of how we like to focus on simple measures – internationally, on GDP; personally, on price.
    Value, as you point out, is the other side of the equation that often gets forgotten.

    It plays out between objective and subjective matters, too. If you feel a need to change your wardrobe with the vagaries of fashion, you’d better make a lot of money or make do with cheap things, or lavish spending on clothes will not fit in your budget.
    If you are looking for something that lasts for a while, and have your own style, something that seems lavish may simply be a cheaper alternative, once you count the whole lifecycle of it. That $300 shirt is probably (if you choose wisely) going to be cheaper – because it lasts longer and beautifully so – than buying $30 shirts, not feeling as good in them, not looking as smart – and having to buy a few of them, and constantly replace them, because they don’t last long.

  10. Bogey

    I really like this article. I’ve been preaching to people for as long as I can remember that they should not feel bad about spending money on things they really enjoy. That’s what money is for!

    Personally, I like to spend a ton of money on golf. Here’s an article where I talk about spending over $500 bucks per month to belong to a country club.

    http://www.backninefinance.com/2011/01/best-financial-move-for-2010-spending-more/

    I would hate to give this expenditure up. The golfing experience at my club is well worth the cost!

  11. Patty

    It’s so true. One problem I know my mother has, is that she’d rather by 5 things for $1 at the dollar store, than by 1 at Walmart for $5 that actually works. Her house is full of junk that doesn’t work because she didn’t see the value in quality.

    From my P.O.V. sometimes it’s a WAIST of money to buy the cheaper version of what you really want. Many of my friends think I’m crazy for buying brand-name jeans that cost $100-200, when you can go to Walmart and get jeans for $20. But those brand name jeans last me for 10 years (opposed to like 6months) and are 10 times more comfortable than a $20 pair of Walmart jeans.

  12. Ryan

    I watched the seminar as well and have been following Ramit for awhile now. At first I was dubious of this theory, spent on what you want and cut what you don’t, but it really does work. Don’t waste on things you don’t want anyway.

  13. Pete

    Great article and many people seem to miss this concept, including my wife. We’re in our 30s, completely debt free and heavily invested in our retirement and kids college funds. My wife refuses to spend much on anything. That is, until I took the initiative to plan and pay for a nice vacation where we went pretty much all-out a couple years ago. She loved it, and we’ve been taking nice vacations ever since. It doesn’t break the bank when you’re planning for it.

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