11
Being Thrifty like Buffett: Ways to Save Money

“Too often, a vast collection of possessions ends up possessing its owner.”

—Warren Buffett, Giving Pledge Letter

Introduction

The Merriam-Webster dictionary defines the word “thrifty” as frugal. It has a related definition which is “economical management.” Say what? It means being careful, smart, and not wasteful with your money. It doesn't mean cheap or stingy, which are almost always viewed in a negative light. Buffett had a personalized license plate for his car not too long ago. He didn't drive a Rolls Royce or some other super-exclusive car. Rather, he drove a nice, but somewhat modest, Lincoln Town Car. A Town Car was often used by firms providing car service to business travelers. Do you know what it said on his license plate? You guessed it! Thrifty. This chapter discusses things you can do to save money, with a healthy dose of Buffett throughout. Remember, if you can't save money, you can never have it grow and ultimately work for you.

Living within your means is one of the major themes of this book. But that doesn't mean you have to live the life of a pauper or monk. We want you to be smarter with your money. You might recall one of Walmart's famous slogans, “Save money. Live better.” We think that's the proper mindset when it comes to spending money. And we know Buffett's giving virtually all of his money away to charity, so we're confident he's not cheap or miserly.

In this chapter, we're going to discuss a lot of things you can do to save money. In at least one respect, a mindset of saving money is more important to your net worth than making money. If you make money, you have to pay taxes on much of it, often 25% or more. In contrast, saving money goes right to the “bottom line,” resulting in a dollar for dollar increase in your net worth. We'll discuss the names of real companies and products or services to make the discussion actionable. We have no affiliation with any of the firms mentioned but often use some of their products or services. To make it easier to digest we'll break it down into a number of smaller categories and leave you with a bunch of websites and apps that you might want to refer to well after you're done with this book. Of course, you're welcome to read this book more than once. ;)

We'll start out with some things you can do for free and then gradually work up to some bigger-ticket items. The topics of cars, homes, and college are big-ticket items that are so important that we're going to devote other chapters to them. So, they'll receive minimal discussion here, but we haven't forgotten about them by any stretch of the imagination.

Your Library: Free Books, Magazines, Newspapers, Music, Movies, and More

If you're reading or listening to this book, we hope you like books. The medium (reading on a screen, reading a physical book, or listening to a book) through which you consume information shouldn't matter much. We're big fans of audiobooks. You can listen to them while driving (or being driven), on the train, at home, or virtually anywhere. Audible, an Amazon.com company, is the leading provider of audiobooks. There's also audiobooks.com, iTunes, and other providers. OverDrive is an app used by many libraries that allows for the free download of books in various digital formats.

We mentioned in Chapter 1 that Buffett read more than 100 books, outside of what was required for school, by the time he finished high school. He said, “By the age of 10, I'd read every book in the Omaha public library about investing, some twice. You need to fill your mind with various competing thoughts and decide which make sense.” That's good advice and merits a Tip.

We know that Buffett is a super rich guy, but we mentioned another tycoon (i.e., an extraordinarily rich businessperson) in our last chapter, steel baron Andrew Carnegie. If you adjust for inflation and the size of the economy when Carnegie was around versus today, he'd be even richer than Buffett. By some estimates, he'd be worth more than $300 billion!

When Carnegie decided to become a philanthropist, one of his main causes was the construction of a network of libraries around the world. And man, did he deliver! He donated the funds to build more than 2,500 libraries around the world between 1883 and 1929, with the bulk of them in the US. The towns that received the libraries had to help too. For example, they usually donated the land where the library was built and used their own funds to run the library after it was constructed.

Carnegie was an active reader as a young man and realized that the knowledge obtained from books could help people achieve their dreams. Carnegie was an immigrant to the US who arrived from Scotland in the United Kingdom and worked his way up to becoming one of the richest people the world has ever seen. He was mostly known as a steel baron (a synonym of tycoon), and his main firm, U.S. Steel, still exists today. Carnegie believed in a merit-based economic system by which someone who worked hard and became educated had an increased chance of being successful. Some refer to this belief as the democratization of knowledge. You can count Google in that camp as well.

Google has also created a virtual library online, containing many freely available books in electronic or digitized form. Their plan is to scan and put online every book that has been ever written, with the permission of their publishers, of course. The author of a book receives a copyright, providing them with royalties, which are payments for their work. The rules for copyright vary a bit, but in general they last for 70 years after the author dies. Thus, if an author writes a book at age 20 and lives to be 100 years old, the copyright will last 80 plus 70 years, or 150 years in total! Google currently has more than 25 million books scanned online and estimates there are currently a total of 130 million books in the world. They hope to get them all online in the not too distant future.

Today, libraries have all sorts of free things you can borrow besides books. They have movies, music CDs, newspapers, magazines, and even Internet access. In our household, we often borrow movies from the New York Public Library. They have a huge selection of most of the popular movies, but sometimes it takes awhile to get your top choices.

Free Educational Courses: Khan Academy, Coursera

We've all heard the comment “Seeing is believing.” There are all sorts of ways to learn. Many people are visual learners, learning best by seeing. Two popular and free websites for learning in a video format are Khan Academy and Coursera. We'll briefly discuss each website, which may be viewed on your phone, laptop, PC, Mac, iPad, and numerous other devices.

Khan Academy was created in 2006 by Salman Khan. A couple of years earlier, he tutored one of his cousins remotely over the Internet. He eventually decided to turn his tutoring activities into a nonprofit business. Khan originally worked in the financial services industry, but his true passion and calling is teaching. So he quit his high-paying financial job and took his educational business to the next level. The motto of Khan Academy is “A free, world-class education for anyone, anywhere.” It currently offers thousands of free courses on most of the topics taught from grade school through high school. It also offers PSAT, SAT, ACT, and AP preparation courses.

How can Khan Academy do all of this for free? The firm has received substantial financial support from the Bill Gates Foundation, Google, AT&T, the Carlos Slim Foundation, and others. Carlos Slim is also one of the richest men in the world and made his fortune in a variety of Mexican-based businesses.

Khan Academy's courses may be found on YouTube, or through Khan Academy's own website (KhanAcademy.org). In case you're not an Internet guru, .org (organizational) generally means the firm running the website is a nonprofit. The suffix .gov relates to government websites, .edu to traditional educational websites, and the familiar .com stands for commercial or profit-seeking websites.

Curious about what a college course is like? Well, then you should check out Coursera at Coursera.org. Coursera offers free access to more than 3,000 college courses taught at top universities around the world including Yale, The University of Pennsylvania, Stanford, Duke, Johns Hopkins, Rutgers, Fudan University in China, and many, many more. We think it's a cool way to remotely sit in on a real college class and learn without the stress of taking the exams. Of course, you don't get a degree by simply watching Coursera videos, but you can learn a ton. They do offer programs that offer degrees, but it generally costs something. Coursera has several competitors worth checking out as well including Udacity, and edX. For free, short, educational, and inspiration talks that are not college courses we recommend the 2,500+ TED (Technology, Entertainment, Design) talks available at TED.com. Many TED talks can also be found on YouTube.

Websites for Free Stuff

Who would give away something for free? Lots of people! Sometimes they are moving and want to get rid of possessions they don't need. Other times they purchased a new item, such as a TV, and want to get rid of the old one. And it's not just people giving things away. Sometimes its organizations. Libraries occasionally give away old books to make way for new ones. Churches often give away items to their parishioners, beyond the soup kitchens they often run to feed the poor. For-profit firms also give away products (e.g., “free samples”) since they want you to try their product and become a repeat customer. Firms may also try to lure you into getting something for free in the hopes that you will buy another item at its regular price.

In Chapter 3 we discussed banks offering free savings and checking accounts. The strategy of giving away something for free falls under the banner of loss leader strategies. That is, the product that the firm leads with (e.g., the free sample of food) gives the firm a loss, but if the customer purchases another item at full cost (e.g., a regular meal), then the business may ultimately turn a profit. This strategy also falls under the umbrella of cross-selling. This means the firm tries selling the customer another product once they have obtained their current product. Most credit cards charge no annual fee, but the banks offering them make money by charging interest to their customers who don't pay their bill in full each month. Hopefully, after reading this book, that's not you! Banks may also try to sell their credit card customers checking accounts, mortgage loans, and wealth management products to illustrate some other possible cross-selling opportunities.

Perhaps the most popular website for getting free stuff is Craigslist.org. Yes, the business was started by a guy with the first name Craig. Craigslist is the most widely used online classified website. A classified is an advertisement where someone is trying to sell something. Sometimes they are looking for things, such a person to fill a job in a “help wanted” ad. Classified ads originally appeared in newspapers, but they are increasingly found online. Other popular websites that may help you get free items include the appropriately named Facebook Marketplace, FreeStuff.com, FreeSamples.org, BzzAgent, and WomanFreebies.com. There are dozens of websites that we came across that offer free stuff, including some sponsored by large firms, such as Target.

Free Activities

It almost goes without saying, but one way to save money is to do things that you find to be enjoyable that are virtually free. For example, you can hang out with friends, watch TV, listen to music, play sports, go to the park or beach, walk, exercise, work out, shoot pool at a friend's house, play cards, play board games, and many, many other things.

We realize in some cases you may need equipment or have to buy a board game, but over time the cost spread across many months or years is really small. For example, searching Amazon.com, we found a new deck of Bicycle playing cards for $4. You can find a used deck for less than half that or even lower at a garage sale. A deck of cards should last you 5 to 10 years. A small price today for something that might provide you with a decade or more of fun.

By the way, Buffett is a huge fan of the card game Bridge. He thinks it's a game with some parallels to investing, namely, making decisions based on incomplete information and the actions of others. It also involves teamwork since most variations of the game involve two teams of two people. He sometime plays bridge online under the handle T-Bone. Here's one of his quotes on the value of playing bridge:

You have to look at all the facts. You have to draw inferences from what you've seen, what you've heard. You have to discard improper theories about what the hand had as more evidence comes in sometimes. You have to be open to a possible change of course if you get new information. You have to work with a partner, particularly on defense.

Amazon.com: The World's Biggest Store

Moving on to the frugal, but not so free category, we feel compelled to start with Amazon.com, a firm that needs no introduction. Virtually everyone not living under a rock has heard of Amazon.com. The name is related to the Amazon River, generally regarded as the biggest on earth. Amazon does have a huge selection of products and many are selling at very attractive prices. Plus, there are millions of customer reviews on the website, often giving you a somewhat independent view of the product's usefulness.

Jeff Bezos, founder of Amazon.com, started out selling books online, but ultimately wanted to create the biggest store in the world. Mission accomplished, at least in terms of the value of his firm. The value of Amazon.com's stock is greater than that of Walmart's ($1.5 trillion vs. $385 billion), even though Walmart still leads it in annual revenue ($542 billion vs. $332 billion). The difference may be explained by stock market investors speculating that Amazon.com's incredible growth will continue into the future, well outpacing that of Walmart.

Pretty much anyone with an Internet or cell phone connection can use Amazon's website, but virtually half of US households are members, including ours. Membership in Amazon Prime costs $119 a year. One advantage to being a student is Amazon.com will give you a break, six months of free membership and then $59 per year afterward. Membership in Amazon Prime has a ton of benefits that you get for “free”—outside of the membership costs.

Perhaps the main benefit is free and expedited shipping on products sold directly by Amazon. They also have a relationship with Kohl's, where you can return Amazon.com purchases at some Kohl's stores. Amazon also sells products from outside vendors that want access to Amazon's platform of a website viewed by millions of people, but there usually isn't free shipping for these external, or third-party, vendors. You might be wondering why Amazon would allow its website to be used by third-party vendors. Good question! It gets a piece of the sale made by the third-party vendor without having to purchase any inventory. The shipping costs are also handled by the third-party vendor. In essence, Amazon.com is renting the equivalent of shelf space in its market to these vendors for a fee. It also tends to be a win for the vendor since they would never have access to the millions and millions of Amazon's customers without this arrangement.

Amazon Prime's other benefits include free videos, music, and books. You can download one audiobook per month, although the selection is not quite as large as their (pay site) subsidiary, Audible. Amazon Prime has a huge selection of movies and original content programs, although we don't think it's quite as good as Netflix's—yet. Amazon Prime members can also upload an unlimited number of photos and 5 GB of videos to the cloud, a way to store information in the Internet. Yet another benefit of Prime membership is early access to sales, which may come in especially handy during the holiday shopping season.

There are more benefits to Amazon Prime, which you may find at the link below or by typing “Amazon Prime benefits” in any major search engine.

https://www.amazon.com/gp/help/customer/display.html?nodeId=201910360 .

Amazon even tested out shipping items purchased from the website with a drone. It's not yet quite ready for prime time—yes, pun intended. We're also excited about their Amazon Go stores, which allow you to purchase things without waiting in line for a cashier or a self-scanner.

Comparison Shopper Tools: Your New Best Friend

There's a ton of stuff out there on the web. How do you find the best price for something you want to buy? That's where comparison shopper websites come into play. Think of it as a search engine, with a laser focus on finding what you want at the best possible price. Not surprisingly, Google/Alphabet is one of the leading firms in the space. Their comparison shopper tool is called Google Shopping and may be found at www.google.com/shopping.

Let's look at an example of how it might work. Let's say you're looking for a fitness tracker, Fitbit Charge 3. By typing that phrase in Google Shopping's search box, we get the following analysis, as show in Figure 11.1. There's a range of prices for the product from $86.00 to $149.99. That's a difference of about 75% for the same exact product!

Illustration displaying Google shopping Fitbit charge 3 results providing a detailed description and the price of a Fitbit model.

Figure 11.1 Google Shopping Fitbit Charge 3 Results

Source: Google Shopping.

Most of these comparison shopper tools also provide reviews from people who have purchased the product and tell you which physical stores near your home have the item in stock. Other leading comparison websites include PriceGrabber (PriceGrabber.com), eBay's Shopping.com, shopzilla (Shopzilla.com), and wikibuy (wikibuy.com)

Buffett is an avid user of Google and likes saving money on his purchases. In his 2007 Letter to Berkshire Shareholders, he wrote, “Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down.” That's good advice, worth of a tip.

Barter: Turning a Cell Phone into a Porsche Convertible

Barter means to trade products or services, usually without cash changing hands. Maybe you traded lunches with a friend when you were a kid or holiday presents during a grab bag at school or with a sibling. That's barter in action.

Barter has been going on since the beginning of recorded history. Eventually money (in coin, paper, and electronic forms) replaced barter as the primary means of acquiring things, but barter still occurs. One problem with barter is that it requires what economists call a double coincidence of wants. That is, both people must want something that the other has. For example, it might be hard to imagine us bartering with Kim Kardashian, Jennifer Lawrence, or even Warren Buffett. What do we have that they could possibly want?

But before you think barter is a waste of time, consider this incredible example. (Then) seventeen-year-old Steven Ortiz bartered a cell phone and eventually turned it into a Porsche convertible! That's a savage trade! Young Mr. Ortiz started with a cell phone that was actually a gift from a friend. Thus, in some respects he started with nothing and turned it into a Porsche! But let's continue the story. He bartered the cell phone into an iPod touch. He bartered the iPod touch for a dirt bike. He bartered the dirt bike into a MacBook Pro laptop. The MacBook Pro laptop eventually bartered into a 1987 Toyota 4Runner. The Toyota then bartered into another Sport Utility Vehicle (SUV), a classic 1975 Ford Bronco. The 1975 Bronco was bartered into a 2000 Porsche Boxster. We've left out a few steps to the story, but all told Steven engaged in 14 barter transactions over a two-year period to ultimately turn his (free) cell phone into a sweet ride that must have made his high school classmates envious.

There's one example that we are familiar with that is even more extreme. A man bartered a single red paperclip for what eventually turned into a house! It's true! Kyle MacDonald is a young man who accomplished this incredible feat, with the help of some friends and external publicity. He operates the aptly named website http://oneredpaperclip.blogspot.com/ where you can read all about it. Not surprisingly, he wrote a book, One Red Paperclip, about his odyssey.

Our point about barter is that it might be an option to save you money, although it takes time and a double coincidence of wants. There are numerous barter websites out there. Steven Ortiz used the barter section on Craigslist.org to turn his cell phone into a Porsche Boxster. A few of the more popular ones include swap.com, U-Exchange (http://www.u-exchange.com/barterusa), TradeAway (http://www.tradeaway.com/), and SwapRight.com.

Eat a Low-Cost Meal, Periodically

Let's talk about saving money on food. We're not going to advise you to fast (i.e., skip meals). We'll leave that type of advice to your doctor or dietician. But we can suggest one way of saving money. Perhaps one day or more a week (1 day out of 7 = 14.3% of the time) consider eating meals that don't cost much. It doesn't mean starving. It means watching what you are spending for the food that you put in your body. A stereotypical example is young entrepreneurs running a start-up business while living on a diet heavily laden with Ramen noodles and Macaroni & Cheese. A 12 pack (3 ounces each) of Ramen noodles goes for $1.94 on Walmart.com. A 3 pack of Kraft Macaroni and Cheese (14 ounces each) goes for $6.48.

In fact, Buffett usually heads to the McDonald's drive-thru on most days for breakfast. If he's feeling prosperous, he'll splurge on a bacon, egg, and cheese biscuit for $3.17. On days when the stock market's down and he's not feeling quite as prosperous, he'll pay $2.61 for two sausage patties. True story, discussed in an HBO documentary on the life of Buffett.

For something healthier consider eggs, oatmeal, cereal, or rice. Once again, sticking with Walmart prices, since it's the largest seller of groceries in the US, we found a dozen grade A eggs selling for $0.90. A 42-ounce container of oatmeal (30 servings per container) goes for $3.88. A box of Cinnamon Toast Crunch cereal (11 servings per container) goes for $2.98. For something less sugary, a box of Kellogg's Corn Flakes (12 servings per container) costs $3.64. You may want to add milk to your cereal at a cost of $3.00 a gallon (16 servings per container). Winding up our example of cheap staple foods, we find a 5-pound bag of enriched white rice costs only $2.67. With all these food prices, we think you're ready to be contestant on the game show The Price is Right!:-)

If you have time and property, you can even plant seeds at minimal cost and create your own mini-garden. One of America's founding fathers, Thomas Jefferson, viewed agriculture as “the most precious of arts.” One of his more famous quotes, outside of writing The Declaration of Independence, of course, was “I am entirely a farmer, soul and body, never scarcely admitting a sentiment on any other subject.” Thomas Jefferson was down with farming!

The cheapest thing to drink is tap water. It's also one of the healthiest. Tap water should be fine in most locations. In fact, much of the bottled water that is sold to consumers is from the same source as tap water in many communities. Usually a lake or mountain spring. If you are less than thrilled with the quality of your tap water, you can buy a filter for around 20 bucks that will last you at least a year.

Shop Private Label and Generic Items

We've mentioned Amazon.com and Walmart. Let's add another couple of discount stores to the mix, focusing mostly on food. We bring you Aldi and Costco. Aldi is a discount supermarket that originated in Germany and operates over 10,000 stores worldwide. They have more than 1,900 stores in the US. It's probably one of the few retail stores that are often less expensive than Walmart on select items. Aldi has a sister store chain, Trader Joe's, which sells many organic food items at prices that are generally less than what you may find at Whole Foods, at least before it was acquired by Amazon.

Aldi sells some name brand products, such as Gatorade, but they are also known for selling “no name” items. Using Gatorade as an example, a “no name” brand would be a sports drink with similar ingredients, but with a name you probably wouldn't recognize, such as SportsAde. Apologies to any real firm using that name.:-)

When a company slaps its own label on a product manufactured by an outside firm it's called private label. Sometimes the word generic is interchanged with private label, especially in the case of selling pharmaceutical products. Walmart uses the private labels Sam's and Equate on some of the items it sells. Aldi uses private label brands such as Clancy's and Friendly Farms. Costco uses the private label name Kirkland for many of the items in its stores. A rough rule of thumb is that private label products cost at least 20% less than their branded counterparts. For example, a 12 pack of Sam's Cola cans recently sold for $2.17. A 12 pack of Coca-Cola cans recently cost $4.28 at Walmart. That's almost double the price for a product with virtually the same ingredients! Yes, we know Buffett is a huge fan and owner of Coke and drinks five cans a day!

Costco is known for selling items in bulk. Instead of a pack of gum, they might sell a box of 24. Instead of selling a single razor, they might sell a pack of 26. On a per unit basis, the price is cheaper, but if you don't use the bulk items within a certain period of time (a year for the chewing gum example) it may not make sense. Costco also sells some non-bulk items at great prices. They are famous for selling a hot dog and soda for only $1.50 since the mid-1980s and a full rotisserie chicken for only $4.99.

Costco requires a membership fee to join—$60 annually for individuals. But you can often get one membership plan for the entire family, making the expense more palatable. Other firms in the same business, sometimes called a warehouse club, include Walmart's Sam's Club and BJ's Wholesale Club, which charge annual membership fees of $45 and $50, respectively. All of these “wholesale clubs” sell things besides food, including electronics, clothes, health care products, and items used to furnish and maintain a home.

What might surprise you is the branded firm is often selling the private label product to Walmart, Costco, Aldi, and so forth. Why would they do this? One reason is to avoid the expense of marketing or selling the item. Examples of marketing expenses include commercials and (print or online) advertisements.

Clothes: Outlet Stores, Vintage Items, and Buying Off-Season

Teens and young adults are big purchasers of clothes since they are growing rapidly physically and tend to be fashion conscious. Of course, clothes are for everyone, regardless of age. Who doesn't like some cool threads? We have nothing against paying full or retail prices for something that you love, but most of the major apparel brands have outlet stores, which sell items at a big discount, usually anywhere from 25% to 70% off. In fact, there are some malls that are predominately populated by just outlet stores. One of the more popular ones on the East Coast is Woodbury Common Premium Outlets in Orange County, New York. The place is huge and has over 200 stores. Shopping heaven for some! People literally fly in from China and other countries to shop there. We won't list all 200 stores, but here are some you'll probably recognize: Adidas, American Eagle, Calvin Klein, Gap, J. Crew, Levi's, Nike, Oakley, Puma, Reebok, The North Face, Timberland, Under Armour, and many, many others.

The goal of this chapter is to help you save money, but for those able to afford higher-end or luxury brands, Woodbury Commons also has outlet stores for Armani Exchange, Hugo Boss, Brooks Brothers, Burberry, Coach, Fendi, Gucci, Jimmy Choo, Kate Spade, Neiman Marcus Last Call, Polo Ralph Lauren, Versace, and many, many others. In case you get hungry, there are a bunch of places to grab a bite to eat, including Applebee's, Chipotle, Cinnabon, Shake Shack, Starbucks, and yes, McDonald's.

T.J. Maxx is a national store chain with over 1,000 locations whose business emphasizes selling name brand goods at deep discount prices. They have a large selection of clothing and accessories from major brands including Adidas, Calvin Klein, Kate Spade, Michael Kors, Ralph Lauren, Puma, Tommy Hilfiger, Under Armour, and many others. Ross Stores is another national chain selling similar goods at a deep discount.

Vintage clothing is a fancy name for used clothing. Most people have a positive impression of the words vintage or antique, while the term “used” is undesirable, just like Chilean seabass sounds more appetizing than its original name, Patagonian toothfish. While buying someone else's clothes may sound skeevy to some, it's a large industry. Many of the clothes have been barely worn, and the prices are typically 50% to 90% off the retail price of a new item. For example, a new pair of ripped jeans generally costs from $50 to $200. We found a bunch of vintage ripped jeans on eBay (ebay.com) for between $10 and $20. Similar bargains exist for most other clothes. There are vintage clothing shops in most cities that you can check out in addition to websites such as eBay, Etsy (Etsy.com), and Rusty Zipper (RustyZipper.com).

A central concept of investing is that if you have a long horizon, you may be able to profit from distressed sellers. Distressed sellers need the money, for one reason or another, and often sell at low prices. An expression in the investing world for buying stocks on sale is “buying a straw hat in the winter.” Yeah, we know that straw hats may be perceived as nerdy or uncool in many parts of the country today, but when they were popular, most were purchased in the summer or warm weather months. Applying this concept to clothes, if you buy something outside the season, like a bathing suit during the fall in cold regions of the country, you might find a great deal on brand-new merchandise. At the end of each season the retailer is usually trying to clear out inventory to make way for the next season's expected big sellers. For example, removing the bathing suits from the shelves in the Northeast in September and replacing them with long-sleeve shirts or jackets.

Buying Gasoline

Gas, like food, tends to be another part of your budget that is hard to avoid. At least for those who drive or don't live in a city with excellent mass transit systems. Gas prices differ dramatically by company, but the quality tends not to differ too much for the same octane levels. Octane is a measure of the quality and performance of fuel—the higher the number, the better. Most of your “no name” gas stations actually purchase their gasoline from major oil companies, such as Exxon Mobil, Chevron, BP, and Royal Dutch Shell.

When you need to fill up your tank, don't just go to the nearest place, unless you are running on E, of course! Consider using an app or website such as GasBuddy (GasBuddy.com). Simply type in the zip code where your car is, or an address, and hit “Find Gas.” The site will then show a list of gas stations in the area sorted by price—lowest to highest. In our experiences, warehouse clubs such as Costco, Sam's Club, and BJ's Wholesale usually offer the lowest prices on gas. They typically save you 10% or more from the prices of most gas stations. The downside is that the lines are sometimes long, unless you fill up at off-peak hours. Over the course of a lifetime, saving money on gasoline could be huge. Using our compound interest and future value formulas, introduced in Chapter 2, saving $100 a year for 50 years and putting the savings in the stock market at a rate of 10% per year adds up to more than $100,000!

One last note on gasoline purchases. It might be possible to own an automobile without paying for any gas. The prices of electric vehicles (EV) are coming down every day. The US government has provided tax incentives to own these cars, giving discounts known as electric vehicle federal tax credits from $2,500 to $7,500. A new Nissan Leaf costs about $30,000, before any tax credits. The Chevy Volt starts at about $33,000. The Tesla Model 3 EV starts at $39,990, giving you up to 322 miles of range on a full charge. Most auto manufacturers have, or are developing, their own electric cars too. And the price of used cars, of course, is almost always a lot less. Our next chapter will provide you with more details on buying or leasing a car.

Coupons, Double-Couponing, Triple-Couponing, and Groupon

When we discussed the bond market in Chapter 4, we mentioned that the interest the issuer of a bond pays is known as the coupon. Most people are familiar with coupons that give you a discount on a purchase, and that's what we're focusing on here. Here's a funny story on Buffett and coupons. He took Bill Gates to McDonald's and used coupons to help pay the bill! Oh, to be a fly on the wall, watching two of the richest people ever, eating cheap food, at an inexpensive restaurant, using coupons!

Earlier in this chapter we mentioned the concept of a loss leader. That is, selling one product at a loss, in the hopes of selling other items at a profit that will more than make up for the loss. This strategy is especially popular during the holiday season when some firms, such as Best Buy, offer “door buster” specials with a limited number of a highly desired item, like an X-Box, sold at a huge discount. Many stores sell a small portion of their goods at a steep discount on a regular basis. Sometimes they send a flyer in the mail in the form of a coupon.

Let's say your local Stop & Shop supermarket is having a sale on Friendly's Cookies ‘n Cream Ice Cream at a price of $2.00 a gallon when the normal price is $4.00. That's a sweet 50% discount. Manufacturers (Friendly's in this case) also issue coupons that can be combined with those offered by the store selling the ice cream. When you combine two coupons it's called double-couponing. Let's say you have a Friendly's coupon that provides another 50 cents off a gallon of ice cream. Applying this “double discount” results in a price of $1.50 a gallon, a cool 62.5% discount. Occasionally, it'll even be possible to get a triple-coupon, where the store (supermarket in our case) offers another discount, such as 10% off any order over $25.

There are a bunch of firms that specialize in coupons. Valpak is one of the larger firms known for sending coupons in the mail. Supermarkets such as Kroger, Acme, A&P, Stop & Shop, and Shop Rite often put their own coupons, sometimes called a circular, in the mail too. Some websites that specialize in coupons include Retail Me Not (RetailMeNot.com), Honey (JoinHoney.com), and Coupons.com.

Groupon (Groupon.com) is a popular website that teams up with companies to offer deep discounts on products and services. They began in the US but are now in 48 countries around the world. Groupon started out selling a “deal of the day” that would often be active for 24 to 36 hours and then disappear. Today they offer all sorts of deals, at prices typically ranging from 25% to 75% off. Groupon often partners with small local companies who face the challenge of finding a steady stream of customers. One way for these small companies to be “discovered” is to have Groupon advertise their business to its millions of members with a special “deal of the day.” The small business might break even or lose money on this first sale, but hopefully the customer will be satisfied and come back for more at their regular, higher price.

Rewards Programs

Many companies offer reward programs for their customers. They know that repeat customers are a good way to build a long-term business. They often create rewards programs to offer discounts, or “members only” sales, providing an incentive to join. For example, Dunkin' Donuts' rewards program is called DD Perks. Members get points for each purchase they make. They get free beverages when they sign up, on their birthday, and after accumulating 200 points. Starbucks, Panera, Chili's, and tons of other companies offer similar programs.

Airlines also offer their customers popular rewards programs, sometimes called frequent flyer programs. Each time you fly on an airline you accumulate miles or points. These miles, if large enough, can be cashed in to get free flights. Other times, you might get upgraded from coach to cushy business class or first class. Awesome! On the topic of airlines, there are websites such as Kayak, Booking.com (Priceline), Expedia, and Travelocity that can search for your flights and find the best prices. In Priceline's case you can actually bid on the price you are willing to pay. In Chapter 3 we discussed credit cards providing a range of benefits from cash back to discounts on food, gasoline, and clothes. The bottom line is this. Is there a store or business that you use on a regular basis? If so, ask if they have a rewards program and see if you can save money on something you are already doing.

Negotiate with Cell Phone, Cable, and other Service Providers

Many prices aren't etched in stone. They're subject to negotiation. The art of haggling over prices is practiced in many countries around the world. It's an uncomfortable process for many, such as in haggling over the price of a used car, but improving your negotiating skills will pay off for you over the long term. That's one of the reasons why we're going to cover the teachings of a guy by the name of Dale Carnegie (no relation to Andrew Carnegie) in Chapter 13, covered in his best-selling book, How to Win Friends and Influence People.

There are many items that you purchase that may be reduced in price if you ask nicely—especially if the company thinks you're going to leave and take your business to another competitor. Now, we are not suggesting that you should lie, but if you are genuinely thinking about switching, it may be worth mentioning this to your service provider. Among the bills that that may be negotiated are your cell phone bill and your cable/satellite TV (e.g., DirecTV, DISH network) bill. You might start by asking the customer service representative if there are any discounts. There often are if you are willing to commit for at least a year. If that doesn't work, you can show them an advertisement developed by one of their competitors showing good prices and see if there is anything your original company can do to match.

On the topic of cell phones, we know that they're crucial to the lives of most people today. The pricing plans can be more confusing than a Rubik's cube! Fortunately, there are some websites out there that will help you make sense of things and find the best plan for you. Some of these cell phone comparison websites include WhistleOut, WireFly, NerdWallet, and Consumer Reports.

Based on our experience and informal surveys, having access to a smartphone is more important than the phone itself, since it's the apps that matter. Although we are huge fans of the iPhone, there are also great and cheaper phones out there made by Samsung (not the one that blows up!), Google, LG, Sony, Huawei, Xiaomi, and others. The following analogy will explain our logic.

During the 1990s, when the Internet was fairly new, you connected to the Internet through an Internet Service Provider (ISP) such as America Online, MSN Online, CompuServe, and others. Although you might find this hard to believe, many people spent much of their time online within that service provider's ecosystem (i.e., its own websites). For example, there was a page for AOL news, AOL sports, AOL shopping, and so forth. Eventually, people spent much of their time outside their ISP's ecosystem and on great external websites, such as ESPN.com, Instagram, Facebook, and so forth. After all, there are now millions of websites out there. Our point is you should shop around for the phone and cable/Internet carrier that meets your needs.

Now, we're not going to tell you to ditch your smartphone, but you might be surprised to learn that Buffett still uses a Nokia flip phone! He joked, “This is the one Alexander Graham Bell gave me.” He also has sent only one email in his life, and it was subpoenaed in a court hearing. Buying an older smartphone may save you some money and using an ancient cellphone, like Buffett's flip phone, may save you a lot of money, if you are so inclined.

Yard Sales, Flea Markets, and More: Turning Trash into Treasure

A yard sale, called a garage sale in some communities, is where people sell items to the public they don't need anymore. It's a way to earn some extra money if you're selling. On the flip side, if you're buying, it's a way to find some great deals. Pretty much anything can be sold in a yard sale, but common items are clothes, toys, games, sporting equipment, and home furnishings. It brings to mind the well-known expression “Turning someone's trash into your treasure.”

There have been rare occasions where someone sells an item at nominal cost, without knowing its value, and then the item is later revealed to be worth millions of dollars. Now that's a real treasure! Not that we think you can bank on that happening to you, but here are a couple of examples. Rick Norsigian paid $45 for two boxes of what appeared to be regular glass plates back in 2000. Turns out the plates were actually photographic negatives of the American photography pioneer Ansel Adams. The value of the photographic negatives may be worth up to $200 million! In 2009, Teisha McNeal paid $2 at a yard sale for a reportedly fake Picasso. Well, she bought the real thing, and it may be worth up to $2 million!

Many yard sales are done on a community basis. That is, many of the people on the block have a yard sale on the same day. It increases the traffic, since potential customers can peruse the yard sales of many families and not just one. Something related to a garage sale is called a flea market, where dozens, if not hundreds, of vendors all meet at the same place to sell their goods. Each vendor typically sets up a table and places their items on the table for potential customers to examine. Like with a garage sale, you might earn some extra cash by selling, or score some great deals by buying.

A similar place worth considering is called a thrift shop. Most of the items for sale are donated to the thrift shop. They are often run by charitable or religious institutions. Goodwill Industries is one of the largest firms in this space. Thrift shops typically sell many items, including clothes, shoes, books, toys, sporting goods, electronics, and home furnishings. Before you scoff at such an idea, you might be surprised to learn who has purchased things at thrift shops. Buffett's wife, Astrid Menks, is said to be a fan of thrift shops even though she is married to one of the richest people in the world. You are never too rich to save money!

Lastly, for this section, a pawn shop may also be a place to find some great deals. We hope you are never in this situation, but sometimes people need money for a variety of reasons. If they have something of value, say a fancy watch, they may be able to loan it to a pawn shop. Let's say the watch is worth $200. The pawn shop owner may give the person $100 and keep the watch as collateral, a term we encountered in Chapter 3 in our discussion of bank loans. The person who sold their watch to the pawn shop has a finite period of time, typically 30 to 90 days, to pay back the $100 plus interest. If not, the pawn shop owner will keep the watch and then sell it. In our running example of the watch, the selling price may be between $100 and $200.

Pawn shops used to have a somewhat seedy reputation since some were used to turn stolen goods into cash for thieves, but popular TV shows, such as Pawn Stars, have increased the legitimacy and status of these stores. There are even some pawn shops trading on the American stock exchanges, such as FirstCash (symbol FCFS), which is valued at roughly $2 billion!

Do-It-Yourself

There are a lot of things you can “do-it-yourself” to save money. The standard example is bringing your own lunch to school or work (“brown bagging”) instead of buying one. Washing your car (if and when you get one) instead of going to a car wash is another one. Some of your family members and close friends might appreciate a personalized, homemade gift more than one that's store bought. Doing things around the house can save you money, such as painting, cleaning, cutting the grass, and so forth. Using a “smart thermostat” such as Nest may also save you money over time since it can adjust the temperature of your home when you aren't around. You get the idea. There are probably hundreds of things you can do to save money if you really think about it and put it into action. Remember the numbers we cited earlier in this chapter. Saving $100 a year can add up to more than $100,000 over the course of a lifetime. To put it even more dramatically, saving $1,000 a year ($83.33 a month) can save $1,000,000 over the course of a lifetime for a young person on the early road to building wealth.

Donate Things to Charity

If you have things that can't be sold on eBay, Craigslist, at a yard sale, or in some other way, then why not donate them? Many thrift shops or community centers may be interested in things you no longer have use for, or interest in. Your donation may help someone in need or a person searching for a good bargain. Plus, when you make enough money to pay income taxes, the donation will likely qualify as a tax deduction, reducing your overall tax bill. Seems like a win-win to us!

Avoid Shooting Yourself in the Foot with Bad Habits

There are a lot of little things to do that may save you money if you put your mind to it. In Chapter 3, we discussed the importance of paying off your credit card bills, if you have one, in full each month. You'll save on interest expense. Hopefully, you haven't picked up (or will pick up) any bad habits, such as smoking, drinking, unhealthy food, and so forth. Eliminating this type of behavior will likely be as good for your health as it will be for your wallet or pocketbook.

Being happy with what you have is a good mindset to develop. It's a challenge to think that way given the peer pressure that all people face and the pressure to “keep up with the Joneses”—or Kardashians. When in doubt, it might help to turn to Buffett's wisdom for advice. In a 2006 article in Fortune magazine discussing his pledge to donate most of his money to charity, he said, “Some material things make my life more enjoyable; many, however, would not. I like having an expensive private plane, but owning a half-dozen homes would be a burden. Too often, a vast collection of possessions ends up possessing its owner. The asset I most value, aside from health, is interesting, diverse, and long-standing friends.” Let's summarize that sage advice with a Tip.

Tying It All Together in a Budget

We'll finish this chapter with setting up a budget, which is a plan that describes your spending and savings over a period of time. Budgets for teens are a lot different than budgets for retired people, as well as at every age in between. We'll focus on a budget for someone just starting in the workforce, such as a recent college graduate, earning $50,000 a year before taxes. We're pretty sure Buffett could live on $50k if he needed to. He'd have to ditch his private jet though!

At this point in the book, you should know that you can't accumulate wealth without spending less than what you take in. It sounds trivial, but many people wind up in a vicious cycle where they spend more than they take in, often accruing high rates of interest on debt. This behavior often results in living a paycheck-to-paycheck existence. We don't want this to be you! The concept of having net savings was hardwired into Buffett's brain probably at birth. It was never a problem for him, since even as a young person he envisioned himself as the richest person in the world.

Budgets take into account your income, which is typically earned from a full-time job, but it may come from other sources, such as investment income, gifts, and a side gig. Earning multiple streams of income is a great way to accelerate the growth in your wealth. Budgets also take into account your expenses, including food, shelter, entertainment, health, education, and so forth. Everyone's income and expenses are different, but for financially literate people, the key point is that inflows should exceed the outflows most of the time. An obvious exception might be paying for college, since it's an expensive investment that often overwhelms your income at the time.

While you may dread making a budget, an easy place to start is by making a list of all of your expenses as well as sources of income. Credit card statements will often break down expenses by category, potentially making a convenient list for you. It's good discipline to create a budget with the help of a spreadsheet. There are also a bunch of free, or freemium, apps that easily let you create and track a budget, such as those created by Mint, PocketGuard, You Need A Budget (YNAB), and Goodbudget. One way to get motivated to create a budget is to write down your goals. For example, you may want to save for a house, car, retirement, education, and so forth.

Once you have decided on your financial goal(s), you should enter your sources of income. Let's assume you earn $50,000 from your main job. Let's further assume you receive $1,000 in gifts, $1,000 in investment income, and $4,000 from your side gig as an Uber driver. This all adds up to $56,000, but we think it's good technique to reinvest your investment income and not spend it so “the miracle of compound interest” can work for you. That gives us $55,000 in pre-tax income.

A sizeable part of being financially literate is about having the proper mindset. “Paying yourself,” or saving, is the first “expense” we'll start with. Of course, it's not an expense, but it's a good technique and often a tax-free deduction when done through a retirement plan such as an IRA or 401(k), which we'll discuss in Chapter 15. “Supersavers” aim to save 50% or more of their income, but it may take awhile to get there. Saving 10% is more realistic for most people and Fidelity Investments recommends 20%. Let's start at 10%, or $5,500, with the goal of getting this number up to 20%+ in a few years by pocketing future raises in your income.

We'll also assume you are living on your own. Housing is the largest expense for most people, and a good rule of thumb is that it should cost no more than 30% of your total income, even though its weight is closer to 40% in the CPI. Many people got in over their heads in the period just prior to the Great Recession by purchasing homes they couldn't afford. Let's say you don't have to have the swankiest pad and can get by on spending 25% of your income on housing, or $13,750 per year, which comes out to $1,146/month. We realize this amount won't go too far in places such as New York City, unless you have some roommates. Some apartments include utilities, such as electric, gas/oil, (basic) Internet/cable/Netflix, and water, in the price of the housing, but we'll add another 5%, or $2,750, to our budget.

As another rule of thumb, transportation should cost about 15% of your income or less. That's $8,250 per year or $688 per month. Although that sounds like a sweet budget, don't get ready to purchase that new BMW you've had your eye on! By transportation expenses, we refer to those related to automobiles, trains, buses, subways, insurance, parking, and repairs. If you live in a city with great mass transit, you can reduce this number drastically, although the cost of your home will likely be much higher. Carpooling (i.e., sharing a work commute) may be another way to reduce these expenses, especially if you live in the same area as one of your work colleagues. Working from home is an option for many people, especially in the way that the world has changed in the wake of the COVID-19 pandemic.

Health care is typically a work benefit, but with most firms you still have to pay something in excess of what your employer provides. Most young people are very healthy and can use a high deductible plan, which has the effect of lowering your health care cost, unless you wind up with a lot of doctor / hospital visits. Let's put it at 5% in our budget, some of which is usually tax deductible. We'll make your gift giving $600, instead of $1,000, due to your newfound ability to shop at great prices and growing penchant for homemade gifts. ;-)

Based on our earlier discussion, we showed that food costs vary widely and can be reduced significantly if you try hard enough by shopping wisely, bringing your own lunch to work, and eating in a lot during nights and weekends. Let's put it at 10% ($5,500), unless you have a weakness for eating out a lot. Otherwise you'll have to cut somewhere else, as long as it is not your savings rate!

We'll put clothes at 3% of your annual budget, or $1,650. This may seem like a low number, but it's not that bad, considering that these are annual additions to your already existing wardrobe. Sorry—you may not be able to afford anything you see on the runway in Fashion Week on this tight budget. We'll call another category entertainment and other. It's a catch-all category for things entertainment related, including your cell phone, dating, vacations, and personal items. We'll put it at 5%, or $2,750. Once again, if this number seems too low, you will have to rob from Peter to pay Paul, so to speak.

An emergency fund should help with any major unforeseen expenses, such as job loss, a medical problem, or car trouble. A savings account is often a good location for emergency funds, due to its safety and high liquidity. An emergency fund of 5% every year is a good rule of thumb. Over time, the fund should grow to cover at least 3 months of living expenses and preferably six months.

We can't escape the tax man or woman, but we're able to reduce taxes with some of our health and retirement plan deductions, and the standard single deduction of $12,400 for individuals. We estimate the income taxes for this person at around $8,750, assuming you don't live in a high-tax region. If you do, you'll probably need a roommate to cut your housing costs in our example. We're also assuming you don't have a large student loan to pay. See Chapter 14 for a discussion on college and its related expenses.

We've included our fictional budget, in spreadsheet form, in the Appendix. So that's a wrap for this chapter. We know it was long, but it may be the chapter most directly tied to your wealth down the road.

Appendix: Sample Budget

Goals: Save money for retirement and for purchasing a home

Income Sources Amount
Full-time job $50,000
Investments* $1,000
Gifts $1,000
Side job $4,000
Total $56,000
Adjusted total ** $55,000

* Plan to reinvest

** Assumes reinvestment of investment income

Expenses Amount
Retirement savings *** $5,500
Housing $13,750
Utilities $2,750
Transportation $8,250
Food $5,500
Health care $2,750
Clothing $1,650
Entertainment & other $2,750
Gifts $600
Emergency fund $2,750
Taxes $8,750
Adjusted total $55,000

*** Start at 10% with a goal of moving to 20%+

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