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Stop Asking $3 Questions. Start Asking $30,000 Questions

Frugality can only take you so far on the road to financial independence. That’s because there’s a limit to how much you can save. We all need a place to live, food to eat, Netflix to watch. It’s right there on Maslow’s Hierarchy of Needs.

Strip your budget down to the bare bones and you’re still left with a skeleton of fixed and variable expenses; from mortgage or rent payments, to groceries, transportation, insurance, maintenance – the list goes on. And, at the end of the day, your savings rate is determined by that gap between your expenses and your income.

So why do we spend so much time talking about cutting out lattes and avocado toast, and almost no time talking about ways to increase income?

Ramit Sethi, author of I Will Teach You To Be Rich, makes a profound statement when he says:

“Stop asking $3 questions and start asking $30,000 questions.”

Mr. Sethi hates all the tired personal finance advice about making budgets and cutting out lattes. He says if you focus on the big wins instead, then you’ll never need to worry about the cost of lattes and appetizers.

One of his best tips is to cut back relentlessly on the things you don’t love so you can spend lavishly on the things you do love.

What is a $3 question?

Lattes are a perfect example. We’ve all heard about the Latte factor and how eliminating your $5 a day coffee habit can turn you into a millionaire in retirement. Great in theory, bad in practice.

If you like spending money on good coffee then why should you cut that out of your budget just to save $150 a month? And why would you do that every single year for the rest of your life? It doesn’t make sense. Find the $150 somewhere else.

What about interest rates on savings accounts? I get asked all the time, so-and-so bank just dropped its rate by 0.10 percent. Where should I move my money?

If you have $10,000 saved and earning 2 percent, and your bank drops its rate to 1.9 percent, that’s a loss of $10 whole dollars of interest over the course of an entire year.

Another example of a $3 decision. Netflix just increased its monthly subscription fee by $3. Should I cancel?

Do you enjoy watching Netflix? Yes. Can you afford an extra $3 a month to access hundreds of hours of content? Of course I can!

Credit cards. I always get asked which credit card is best for earning cash back or travel rewards. Most cards pay 1 or 2 percent back, depending on the spending category. You’re really delving into the minutia when you start comparing 3 percent on dining versus 4 percent on groceries. At most you’re squeezing an extra $100 out of your rewards – but that’s optimizing your spending with multiple cards.

I haven’t even touched on gas prices or coupon clipping. I mean, who has time to wait in line at Costco to save $3 on gas? Or to drive around to three different stores to save $3 on chicken?

Heck, I literally pay $4.95 to buy my groceries online and have Save-on-Foods collect the items and deliver them to my house. It’s one of the best decisions I’ve ever made.

What is a $30,000 question?

If you can’t out-frugal your way to financial independence then you need to look at the other side of the equation. How to earn more money.

I remember combing through budgeting spreadsheets trying to figure out how to pay down my credit card faster. I had student loan debt, credit card debt, mortgage payments, and probably had too many nights out on the town. But I was also earning just $26,000 on a one-year contract. There was simply no room to wiggle. I had to earn more money to start moving the needle on my finances.

I made it clear at my performance review that I wanted to stay on permanently, but not at that salary. Other employees may have been happy with simply having their contract extended. I negotiated a $13,000 raise, and some breathing room in my finances.

One year later I got passed over for a promotion. Instead of sulking, I got to work on improving the skills I was lacking, namely on the leadership side, and joined two community boards to broaden my experience. Six months later I was ready when the new director didn’t last beyond her probationary period. The net result: a promotion and another $13,000 raise.

Finally, when the hospitality industry was struggling and I had reached my ceiling in terms of earning potential at that position, I started looking for new opportunities. That landed me in the public sector with a $10,000 increase in salary.

There’s nothing more powerful than your human capital when you’re just starting out in your career. A $10,000 increase in annual salary at age 30 can compound into hundreds of thousands of dollars in lifetime earnings.

More $30,000 questions

Sometimes there’s just no room to negotiate a salary increase or move to a higher paying industry. Take it from someone who has been through five years of salary freezes before finally getting a 4 percent raise this year. The economy can be tough.

That’s why my big decision to start a side-hustle paid off. I’ve been writing about personal finance for nine years. When I started earning $100 or $200 a month, I thought – WOW – that’s our electricity bill. Years later the $100 or $200 a month turned into $1,000 or $2,000 a month. That’s a mortgage payment!

Now the side hustle has reached a point where it out earns my day job. It has provided our family with tremendous flexibility to reach our financial goals and add new ones.

A side-hustle can be anything you’re passionate about. It doesn’t have to be a blog, or web design, or anything to do with the Internet. Even in retirement, adding a part-time job at a golf course, hardware store, or yoga studio can be enjoyable and contribute to your annual income.

What about investing? Many of us ask the wrong questions about our investments and spend too much time chasing last year’s winning stocks or funds.

A $30,000 investing decision would be to switch to a low cost, globally diversified indexing strategy, whether through a robo-advisor or a do-it-yourself discount brokerage. The key is to save on annual fees AND automate your investments to prevent you from tinkering with your portfolio.

Your investments are automatically rebalanced when you use a robo-advisor. You can also get automatic rebalancing and diversification with a one-ticket ETF solution like the one I invest in – Vanguard’s VEQT. You’ll save hundreds of thousands of dollars in fees and increase performance over your investing life, compared to a conventional portfolio of bank mutual funds. Best of all, you can set it and forget it.

Credit cards. I changed my mindset around earning rewards and now focus on signing up for 3-4 new credit cards a year that come with massive sign-up bonuses. This new approach has more than doubled my credit card rewards and partially funded our trip to Scotland and Ireland.

Finally, what about increasing your savings rate? At some point in your life you decided to save 10 percent of your income and set up an automatic contribution. Ten years ago that might have been $400 per month. But now you make $80,000 a year, and so your $4,800 annual savings now makes up just 6 percent of your income.

Make a point of increasing your savings rate each year – at least move it up with your annual raise (if you get one) so your savings rate stays in-line.

Sometimes we pay off certain items like a car loan or line of credit. What do we do with the extra cash-flow? It probably goes back into lifestyle inflation, unless you have a plan. Allocate a portion to your savings and watch the compounding grow even faster.

Final thoughts

We win when we can make the big financial decisions count. For me, that’s meant negotiating raises early in my career, earning extra income with a side-hustle, keeping my investment costs low, and cutting transportation costs (no car payments).

Those big wins have allowed me to increase my savings rate to the point where I’ve fully maxed out my RRSP. Now I’m working on catching up on our unused TFSA room at a $2,000 per month pace.

Without a car payment we can shift those dollars to travel, something we feel really passionate about at this point in our lives.

The bottom line is to stop giving so much attention to $3 questions. You can’t cut your way to wealth. That doesn’t mean turning into a spendthrift. But automate where you can and focus your mind on $30,000 questions that will have a bigger impact on your finances.

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7 Comments

  1. Sam on July 31, 2019 at 4:46 pm

    I love the title. I never really liked Ramit Sethi, but that one line makes me reconsider. off to ponder whats my $30,000 question.

  2. Pavel on July 31, 2019 at 5:31 pm

    You nailed it. I simply don’t get it when people clip coupons for savings of couple of dollars on groceries and gasoline, etc, however don’t even try to negotiate a lower mortgage rate or a better deal with the car dealer. Oh, well, I guess it’s human psychology.
    Another thing that always amazes me is why people are always suspicious of me when I tell them about dividend growth investing, free dripping with Computershare, using stock options to boost their portfolio income. When I started my investment journey 10 years ago, my capital and knowledge were small but through persistence, patience and diligence both have tremendously grown. A person needs to think big and ask himself: Where do I see myself in 5 or 10 years? Is what I am currently doing going to get me there? Then do the right things over and over again in terms of financial power, career, personal growth, health etc.
    The rest is just fluff!

  3. Sarah De Diego on July 31, 2019 at 6:12 pm

    I don’t worry about gas prices, coupons, credit cards, interest rates or lattes (I don’t drink them). I make a decision in each (of the other) categories and review it as needed (when I read an article written about it or annually).

    However, I believe that it’s important to consider the $3 and $30,000 questions as they are all part of the overall solution for financial health.

    I walk my dog daily and always bring a bag with me. I pick up beer bottles along the way and always get a handful. Some would say “what a waste of my time”, however, I’m going out for my walk anyways and walking right by them so why not!? They are not part of my “retirement plan” (I FIRE’d at age 33) but they all add up and support my frugal mindset.

    There are ways to strip down your budget even more. While not conventional or possible for everyone, for the past two years, my family has been living on a farm for “free”. Instead of paying rent, we help out with manual labour jobs and maintain the property (inside and out, we pay for gas for the lawn mower but not the paint for the house walls). We also pay for our utilities (oil for heat and electricity). If I was planning to stay longer, I would consider moving off the grid. We have a garden and chickens which also add to the bottom line. We also live outside of the country for 6 months of the year.

    I understand that this lifestyle approach isn’t for everyone but it’s this “outside of the box” thinking that has gotten my family to where it wants to be, decades before we originally thought because we saved tons of money, one dollar at a time.

  4. fehmeen on August 1, 2019 at 10:55 pm

    Well, I found this really insightful. I too sometimes get stuck with the $3 questions but now that I think of it, it’s the same as “penny wise pound foolish”. There’s so much money that goes to waste as overheads on our credit card bills or other debts and we don’t tackle them as aggressively as we should. Thanks for sharing.

  5. Dale Stephens on August 2, 2019 at 3:48 pm

    Quebec came out with some new law that minimum credit card payments will now be 5% instead of 2%. They are saying that it was that way before in the 80’s and 90’s until that was lowered.

    This is a huge difference and people now have to be careful about their credit card bills. A $5,000 credit card balance would increase from $100 minimum payment a month versus $250 a month now at 5%. This will save people alot of interest because they will not be paying for years even maybe decades.

    I think the credit card companies don’t like this too much because they want long term interest payers.

  6. Frito on August 3, 2019 at 7:05 pm

    These black and white statements get me a bit peeved. Why can’t you do both? Watch the little savings along with the big ones. The thing is we have 10 $30,000 choices and 100,000 $3 choices. The small purchases appear to have little impact but when looked at in accumulation they become a large number. I retired early (51) but in hindsight I see all the wasted $’s on the comfort things. Netflix increased $3 but it was a 30% increase. What other service would you be OK with increasing by 30% without being upset. Everything needs to be viewed as a balance – choices made. If you do the math saving 2 cents a litre by driving for miles makes no sense. But don’t kid yourself, the $3 choices matter.

  7. Amy on October 12, 2019 at 6:05 am

    The extra $30,000 in income will get taxed, that is one of the arguments for spending less. Each dollar you save is worth 2 you earn.

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