Last night’s workshop session was on budgets and budgeting tools, a whirlwind tour on How To Make A Budget That Actually Works. Fun times were had by all, but I didn’t have nearly the time to go over everything I wanted. One of the topics that didn’t make the cut is one I’d like to talk about now: negotiation.
It used to be a bad word in American culture, but it’s becoming more and more prevalent in this post-2008 economy. Of course, it still makes a lot of people nervous; speaking personally, the very thought of negotiating with someone terrified me until a couple years ago, when I started really getting into it. This is a shame, because there’s nothing inherently wrong with negotiating: you want to buy something, but you’re not willing to pay list price, so negotiation is the tool by which the salesperson can make a sale and you get the price you want. Everyone wins!

Sounds great, but how do we get there? The best way to get good at negotiation is simply to practice. Just do it, whenever you have the opportunity. You’ll probably not do well your first few times; figure out what went wrong, and correct it. (It took me a while to learn how not to immediately cave in, to ask to talk to a supervisor or to the retention department.) Start with small stuff, so that when you get to the big stuff (like a new car, but that deserves a separate post altogether), you’re ready. A few rules to keep in mind:

  1. Do your research beforehand; know the competitor’s prices, and reference them.
  2. Don’t be afraid to ask for a supervisor or for the retention department. It’s quite often that the first person you talk to simply doesn’t have the authority to cut a deal.
  3. Be polite.
  4. Be persistent.
  5. Be prepared to walk away.

If you’re still intimidated, here’s a step-by-step example of how to negotiate, specifically on your TV, phone, or Internet bill. If you negotiate nothing else, do this: it’s easy, expected, and it pays very well. About an hour total on the phone got me around $30/month permanently off of our wireless bill. That’s a pretty good hourly wage!

Step 1: Do the research. Find out if there are any new customer deals that pertain to your service, and/or find out what the competitor’s prices for similar service are.

Step 2: Call customer support. Tell them, “I like your service, but I can’t afford it. Before I cancel, can I please speak with your retention department to see what they can do about lowering my bill?”

Step 3: Tell the kind folks in the retention department — and my experience is that they are, indeed, very kind folks! — that you’d like them to please match the deal(s) you found in step 1.

Step 4: Ask them if there are other plans not readily available, ones that better fit your needs. Liz and I hardly use our cell phone minutes, so we were able to get special plans with fewer minutes/month and texts/month than anything listed on the website.

Step 5: Pick a provider and stay with it! The longer you’re a customer, the better a deal you will generally get.

There you have it. Intimidating? Well, sure. But there’s nothing that beats the feeling of overcoming your insecurities — and saving money besides!

tricks of the trade: “fake” (levellized) salary

Last night I talked a lot about the key to managing your bills: automation. We had some fun going step-by-step through the process of turning your bills from a headache into very nearly a treat, and in the process, went through several tips and tricks I’ve picked up over the years, including one I call the Fake Salary. If you have a variable income, are a freelancer, or even are just paid biweekly (and thus get an extra paycheck once every six months), check it out:

Unless you are making so much money that you literally cannot figure out how to spend it all, variable income is a problem. Some months you’re flush with cash, and so you treat yourself, spending without a care in the world. Then some months find you on the low part of the cycle, paying for the groceries with credit card debt (which you then resolve to pay off the next time you’re rolling in dough). How do you even things out, so that you’re making steady forward progress rather than two steps forward and one step back (or two or three!)?

Well, you’re smart, so you’ve guessed my solution: the Fake Salary.

It works like this. Currently, you’re probably depositing your income into your checking account, which is all well and good. With the Fake Salary, however, you’ll deposit your income into a different account — another checking account, or even a savings account (which you can only pull from up to six times per month by federal law, but that’s okay, as we’ll only be doing it once per month). Nothing comes out of this account, except for one thing: your Fake Salary, which you’ll deposit into your normal checking account once per month, like a normal salary. This is the money you use for budgeting, paying bills, and other financial planning. The money in your deposit account — your buffer, I’ll call it — may as well not exist, except insofar as it determines what your Fake Salary is.

How do you calculate your Fake Salary? Well, it will be different for each person, but the idea is to take the average of your income, so as to smooth out the rough spots. So for example, if you’re paid biweekly, your Fake Salary would be (paycheck*26/12), suspiciously like what your real salary would be if you were paid monthly. If you get a quarterly bonus, add (most recent bonus/3) to your salary. And so on, and so forth.

With this in hand, you should have a better idea of how much money you really have to spend, and can plan accordingly. However, it’s not for everyone; some people are quite happy to live off of the money they make in poorer months, and put any extra money they get in richer months into savings. If you’re this kind of person, and think you would spend money on less valuable but more attractive things if you went to a Fake Salary, then by all means: keep on your path.

To others folks with variable income, however, I suggest you give the Fake Salary a whirl. Questions or thoughts? Let me have ’em in the comments section below!

the value curve

Last night, among other things, we talked about a fun little concept that’s pretty familiar to financial geeks: the Value Curve.


The idea is pretty straightforward. Imagine something you can spend money on, like buying clothes. You would start off on the far left part of the curve: you’ve spent no money, and gotten no value. (Oh, and you’re naked.) Moving up the curve, you could buy your clothes at Goodwill; not a lot of money, but a heck of a lot of value over being naked! But maybe the clothes you find don’t fit very well; in that case, you could move up a bit, go to a decent department store and get stuff that fits well. It costs more, but you get more value (unless you’re really good at shopping Goodwill!)

Then the curve starts flattening out. Those $200 designer jeans are doubtless better than a $20 pair from Old Navy…but you had to pay ten times the money to get it. And then you go way over to the far end, where you start seeing million-dollar diamond underwear from Victoria’s Secret. (No, I’m not making that up.) Then you start actually getting less value, ’cause it’s uncomfortable and you start having trouble sleeping at night, wondering if someone’s going to steal your undies!

Jokes aside, it’s easier to get to that far end than you might think. The nation’s economy revolves around getting us to buy Stuff, so it’s a natural consequence that, barring effort on our part, our lives will soon become filled with clutter. It distracts us, takes up room, not just in our houses but in our minds.

For some people, climbing this curve becomes likes an addiction; they have to spend more and more to achieve the same “high”. This is closely related (but perhaps not identical) to “lifestyle inflation“. In either case, you find yourself in a very peculiar place: you’re making a ton of money, and yet you still feel like you’re broke.

So the object of the game seems pretty obvious — we want to be on the left side of the curve, in that shaded part. The absolute ideal is right at the knee, right when it starts leveling off. (A friend of mine once got so specific as to tell me that you get there on $75,000 a year household income.) You don’t have to go all geeky and call it “the knee of the Value Curve”, though. You can just call it Enough, or Balance. The point is this: be aware that it exists. Strive for it. When you go to buy something, think about how much value it will get you. Better yet, think about it when you plan your budget, and create a system to help you carry out that plan.

You just might find yourself with a new problem: what to do with all the extra money!