Pocketmint

small change toward a rich life
31
December
2012

Learning to talk to strangers

In college, I was once recruited to write a feature article for a magazine. I fled more-or-less screaming from the prospect.

library card catalog drawerWriting was not the problem. Fiction, non-fiction, whatever — I was confident I could figure it out. Research has always been one of my better skills, even back in the day when you had to physically enter a library to do it. But this article, like most journalism, would have required me to go and interview actual human beings.

Asking questions of total strangers? Terrifying. Absolutely out of the question.

That was roughly twenty years ago, and since then I have consistently ignored the idea that I might ever do anything resembling journalism or reporting. This despite having worked in a national newsroom, dating a journalist for several years, and having a journalist as my closest friend for most of the last decade.

Two things happened in September that changed my mind.

First was Liz Weston’s talk at FinCon, which as I mentioned before was influential. Liz had two main points (I almost want to say ‘two beefs with bloggers’, since she clearly thought as a group we were failing in those areas): statistics and sources. I was already on top of basic statistics: I know the difference between ‘average’ and ‘median’, I understand the importance of sample size, and so on.

Sources were another matter. Why would I need to talk to a live person? With the web, a good public library, and access to a university collection of scholarly journals, I am a Research Goddess. I can find nearly anything anyone’s ever said, any fact ever published. Still, her vehemence that they were necessary left me thinking.

Almost simultaneously, my aforementioned journalist friend got the idea that the salary negotiation study I wrote about for Pocketmint would make a fine article for an editor she knew at Fortune magazine. She provided the introduction, and he was willing to give me a shot.

tape recorder and interview notesI was still terrified of doing interviews, but with a paid gig in the offing, I forced myself to do it anyway. And I discovered two amazing things.

The first surprise was: I like talking to scientists. Interviewing corporate mouthpieces was fully as awkward as I could have imagined, but scientists … maybe it’s my science-fiction background, but in some way I feel like scientists are my people. And it turns out that at least some of them are articulate, passionate, and (seemingly) thrilled to explain their particular expertise to a random interested person. When we’re dealing with a field in which I’ve done a lot of reading and am somewhat comfortable — like behavioral economics — I even lose some of my fear. I did four interviews for that article (including one that I wasn’t able to use), and I would describe two of them as ‘fun’. Who knew?

Second was the aha! moment when I put Thorsteinson’s salary negotiation paper in front of Dr. Rachel Croson, a highly credentialed expert in the economics of negotiation. She zeroed in immediately on an important oversight in the study design that hadn’t occurred to me … or to anyone else who’d written about this study and its findings, anywhere. Something that, in fact, you’d pretty much have to be a negotiations expert in order to think about.

And I suddenly got it. That was why you do interviews — because sometimes as a journalist you are making a new connection, one that couldn’t be researched because it previously didn’t exist. Sometimes, it changes everything.

(When I told Stacy about my conversation with Rachel, she laughed. “Yeah, that’s why reporters bother with that pesky reporting thing.” Doh.)

The end result on the Fortune article was not too far different from what I originally advised here on Pocketmint after reading the study myself. But after getting Rachel’s input, I would place even more emphasis on researching your prospective workplace, on finding what she called the ‘zone of agreement’ — which could be described as the Venn diagram overlap between what works for you and what works for the employer.

My Fortune editor accepted the article and published it in November under the headline Salary negotiation: Everything you’ve been told is wrong. If you found my original post interesting, it’s worth reading that update.

•   •   •

So far, that one article is the sum total of my professional journalism portfolio. But I’ve started looking for a way to do more. I’ve been studying the way reported articles are put together, trying to grok the patterns. I’ve been pulling down unedited interviews from the NPR Marketplace web site, listening to the way Kai Ryssdal approaches his questions.

My editor at Fortune is soliciting more from me, but that’s tricky, since his area is all about corporate management, and I’m about as non-corporate in my outlook as it’s possible to be. I might be able to write for him about education, though, if I can find the right hook. More broadly, I think there might be a niche for me in science journalism, especially the social sciences like economics and psychology.

In any case, this experience is definitely going to impact the budget book — in fact, my approach has already shifted as a result. (Unsurprisingly, my earlier hope to be done with a first draft by January was wildly optimistic and will not be coming to pass. Ah well.)

Liz Weston at FinCon12Will I make Liz Weston happy and start interviewing experts for my blog? Well, my most recent pieces for Pocketmint have been pure personal experience stories, not the sort of thing that would benefit from outside sources. But I can see where expert input could be helpful in situations where I’m giving broader advice.

Of course, it remains to be seen whether people will be as cooperative and eager to talk to me when I’m writing for ‘blog you’ve never heard of’ instead of ‘Fortune magazine’. And — although it may get somewhat faster with practice — the whole process (first finding good sources, then setting up and conducting interviews) does take quite a bit of extra time. Not a problem when I’m getting journalism rates, but I have to consider the tradeoffs when I’m writing unpaid blog posts.

So we’ll see; I’m not making any sweeping resolutions yet. But I’m happy to have a new tool in my box, so to speak, and to discover that not only can I overcome a decades-old fear, but that there is enjoyment for me in a place I never suspected.

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21
December
2012

Gasoline spending: the problem

When I set up our budget in July 2011, Jak and I both had contract jobs. That meant two things with regard to transportation: a long commute several days per week, and free transit passes.

Mostly, we bussed to work — free is good. But that took over an hour each way, for busses that only ran for a short period each morning and evening. Since the double income also meant we were flush, I set our gas budget at a moderate $80 per month. That allowed for our normal driving activities, plus the very occasional ‘oh crap I’m late’ drive over the bridge to work.

520 floating bridge across Lake WashingtonBy the time January rolled around, both of us were jobless again. I reorganized our budget to make the numbers work with our unemployment income alone, which meant cracking down on the gas expense, among other things. With no commute, I thought we could manage on just $30 a month. And we did, for a couple of months, but as we got into the summer gas prices crept up and I was forced to pull money from other categories to bump that to $40.

That turned out not to be enough of a patch. Over the four months from July to October, our gas averaged $56.63 per month — and if Jak’s dad hadn’t paid for a partial tank during his visit in October, the total would have been higher still. Our running budgetary deficit was $66.52. Again, I scrounged from other categories and added $10 for September and October, but I couldn’t sustain that without putting something else in the red.

By this time, we were down to just one unemployment check and some very small occasional freelance income: a long way from flush. We were already being squeezed by higher health insurance prices and a big bump in child support payments; I had no budgetary magic remaining. Succumbing to cost creep was not a viable option.

More importantly, I didn’t believe we needed to. Our living circumstances hadn’t changed in any way that required more driving. Our gasoline expense had risen by more than 50%, but gas prices had risen by less than 10%. We were simply choosing to drive more.

Why? Because our incentives were all wrong.

•   •   •

Jak and I agree that in ideal circumstances, we’d burn no gasoline at all. We are both environmentally-minded sorts, concerned about climate change, not big fans of fossil fuels. In theory, we prefer public transit, electric cars, and feet. In practice, electric cars are still far too expensive for us to afford, and our current neighborhood is thin on both transit options and useful destinations within walking distance.

Seattle bus stuck in snowPlus, the weather makes driving attractive. For seven or eight months out of the year it’s cold, wet, and dark, which means both walking and waiting for buses is pretty miserable. Driving is considerably faster than bussing, in nearly every case. Then there’s the matter of cost. Our corporate-sponsored transit passes expired earlier this year, so now every time we step on a bus we instantly have to fork over $2.50. Getting in the car, by contrast, is free.

Of course, it’s not really free. We’re paying $2 a day just for insurance. There’s the ‘opportunity cost’ of the $3K or so that’s tied up in the vehicle — the interest or dividends we could be earning with that money if we didn’t have the car. There’s regular maintenance like oil changes and the ongoing possibility of a costly accident or repair (like the $180 we spent a couple of weeks ago to have the windshield replaced). And of course, the aforementioned gas.

The problem is that psychologically the cost of driving is decoupled from the benefits. When we step on the bus and slide a couple dollars into the farebox, the cost of that transportation is immediate and ‘salient’ — we feel it, and so it gets incorporated into our decision-making.

But we don’t have to hand $2 to an insurance agent every time we get in the car. Each decision to drive somewhere is separated by days or weeks from the incurred cost of gas, and combined with all other such decisions into a single fill-up expense. (Which is itself rolled up with other credit card expenses and paid once a month, obfuscating it still further.) Besides which, Jak and I are each making independent choices about where and when to drive, but only one of us is even present for most gas purchases.

The cost of driving, because it’s dissociated from any given decision to use the car, is naturally non-salient: it feels almost free. The resulting disconnect is severe: in theory, we believe we should drive as little as possible. In practice, the whole system pushes us toward driving all the time.

My solution? Change the system.

•   •   •

I recognized that the incentives around driving were counterproductive from the start. When I was working out the details of the Conflict-Free Family Budget, one of my key rules was that every category that involved frequent decisions (more than once a month) should have a single owner. So in our case I have full control over the grocery allowance, while Jak controls the kids’ budgets.

I deliberately made an exception for gasoline. “To be strictly accurate, we should keep mileage logs and distinguish between required and discretionary trips,” I wrote. But I was reluctant to add that much record-keeping to the system just then, because a) I was already asking Jak for a lot of changes and b) I thought it would be a pain in the ass.

Eventually, two things happened. One, what seemed like a “minimum” of driving when we briefly had two incomes became unsustainably extravagant when we dropped to half of one. And two, we became increasingly complacent about driving, despite our best intentions.

OdometerWithout detailed logs, there was no way of knowing exactly where we were slacking. I had the general impression that Jak was using the car a lot more than I was, but even that was a guess — I had no numbers except the monthly gasoline totals. For a couple of months I tried simply pointing out that we were significantly overspending on gas and we needed to cut back, but that had no discernible effect.

So I bit the bullet, set up a mileage log, and rearranged our budget system to make the cost of driving more salient — first, to force awareness of the expense of each individual trip, and second, to give us direct incentives to become as efficient with our driving as possible.

We started this new system November first. In a couple of weeks, once we’ve got two full months under our belts, I’ll explain in detail what I did and how it’s worked.

(Photos by psvensk, Jeff Maurone, and NewsRover.)
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13
December
2012

To give great gifts, think like a behavioral economist

For Jak’s last birthday, I gave him peace of mind. Also, sushi.

Our mutual favorite restaurant in the area is Mashiko Sushi, way down in West Seattle. These days we eat out very rarely — a bit less than once per month — but we spend more time at Mashiko than anywhere else, in no small part because it’s one of the few things that I can’t duplicate (or improve upon!) at home.

Mashiko sushi rollsThe main issue with eating out on a tight budget is that some of the pleasure is offset by stress over money. When one is looking over the menu, one has to evaluate not just how gratifying each item would be, but track the total expenditure and make tradeoff decisions: should I have a second sake? or save the money for dessert?

While this is good for one’s finances, it’s not so great for relaxation or enjoyment.

So when I decided to give Jak some Mashiko for his birthday, I also spent a fair amount of time thinking about the best way of arranging the gift — an economist would say ‘maximizing the utility’ — so that it had the most psychological, as well as financial, value.

The classic choice — the way I probably would have handled it before I became a behavioral economics geek — was to wait until the bill came, and then pick up the whole tab. While that moment of surprise would be gratifying for me, it would do nothing to alleviate Jak’s concern about cost throughout the meal.

Alternatively, I could tell Jak up front that I would pay for his entire dinner. The psychological downside to that was that either a) Jak would worry about how much of my money he was spending, and so agonize over his decisions as much or more as if he were paying for it, or b) he would not worry at all, in which case I would spend the entire dinner calculating a running total and growing increasingly anxious, making me very poor company.

What I settled on was defining a specific amount and telling Jak on the way to the restaurant that I would cover that much of his tab. The number I chose was $30 — in context, enough to be generous but not extravagant. (I knew from prior experience that he tended to spend around $40 on our Mashiko outings.)

From a mental accounting point of view, Jak just got a $30 windfall. The amount was pre-set, so he wouldn’t have to worry about the effect on me of his spending too much. The $40 that he was planning to spend just became $70 — enough that he could order whatever he wanted without worrying about the cost. At the same time, I could count that $30 as spent and not worry about it anymore, either.

nama sake bottle and wine glassAn important component of the gift was that I stipulated that it be spent on dinner at Mashiko. Psychologically, that was very different from handing him $30 in cash. Thirty unallotted dollars would simply have been sucked into his allowance pool, to be stressed over and maybe not even spent on himself at all.

But by specifying that the gift was to supplement his Mashiko experience, I gave him something he wanted but could never have gotten on his own: an excellent dinner free from stress, worry, and guilt.

This may seem like a lot of geeky thought to put into a very simple gift, but it paid off. Jak appreciated it a great deal, and I got to watch him happy to have all the sake he could drink (and still drive). It was a more memorable and pleasurable meal for both of us than one where we each paid our own way.

Behavioral economist Dan Ariely would have approved: “The best gifts,” Ariely maintains, “circumvent guilt in two key ways: by eliminating the guilt that accompanies extravagant purchases, and by reducing the guilt that comes from coupling payment with consumption.”

•   •   •

Here are a few more gift-giving tips, courtesy of behavioral economics:

Whatever your budget, remember that thoughtfulness is what matters most. And if you can do your thinking like a behavioral economist, so much the better!

(Photos by ario_ and Renée S..)
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