Sunday, March 29, 2009

Internal vs. External Frugality: Different Ways of Saving

So I am trying to kick off one of my planned 2009 projects, which is to methodically go through each major expense area and explore ways to save money there. I started out last week with on housing costs (here and here), and still have a few ideas left. But while brainstorming an outline of future posts, I noticed that there seemed to be a divide in the types of strategies out there.

One set of ideas usually has to do with reducing the amount paid for a specific item or service. I call this external frugality, because you aren’t changing anything about yourself, just the price tag. For example, to save on what you pay for your house, you could look for a buyer’s agent rebate to save something like 1.5% of the purchase price, or carefully shop for mortgages with the lowest combination of closing costs and interest rate.

Another set of ideas usually involves either changing the type, amount, or quality of something. I call this internal frugality, because you are changing your consumption habits. An example of this would be realizing that you don’t necessarily need to same house as everyone else. You could look in more “up-and-coming” neighborhoods, or live in an older house with less square footage.

There are plenty of other examples out there:

External: Calling a cable company and asking for a lower rate.
Internal: You cancel cable completely. You could read more, watch episodes on your computer, or use a low-cost Netflix plan.

External: You find a cheaper long-distance plan, or switch to VoIP.
Internal: You get rid of your landline completely.

External: Learn ways to haggle down the price of a car.
Internal: Don’t own a car. Use public transportation.

I don’t think either or worse, but they are different. In general, it would seem like external frugality is at least initially easier to implement, as you don’t have to actually change your habits. However, I can also imagine that in many situations using internal frugality would lead to both greater absolute savings and also more enduring lifelong savings. But changing habits is really tough.

Next time you think you’re being frugal, examine if you’re doing it externally or internally.

Read more about Internal vs. External Frugality: Different Ways of Saving…



No comments:

Post a Comment