The largest investment many of us will ever make is the purchase of a home. Many people purchase this “product” at least once during their lifetime. This “product”, however, is often so expensive that only a small fraction of potential buyers can actually afford to buy it in full at any given time. Few future homeowners have $300,000 in cash in their hands. Most of us will likely earn far more money than this over our lifetime, but we don’t have access to it all at once. In the meantime, we need a place to live.

       A mortgage helps solve this problem. Banks, with access to large sums of money, agree to give you the $300,000 you need right now at a price. This price is what we call interest, and you may have heard it said that “interest is the price of money”. This is true in one sense, but in reality what you’re paying for is time. Remember, you will undoubtedly earn far more than $300,000 over the course of your career. The interest, the “price” that the bank charges you, is not buying you the actual $300,000 itself. You will eventually earn that either way. What you get is time. The bank gives you $300,000 and time, often 30 years or so, in which to earn this money. You ultimately give the bank $300,000 back plus the price of the time.

       Different banks charge different rates for their time, and of course, the amount of time you’re buying will differ from bank to bank as well and will depend on your personal situation. But at the core, this is how mortgages work.

       What’s the value of a mortgage refinance? Simply put, a refinance allows you to repurchase the time that you’ve bought from your bank at a different interest rate, one that is lower and more favorable to you. You can also extend the life of your loan, buying you additional time at this decreased rate. A refinance, then, is like purchasing additional time at a lower price. If you can find or arrange such a deal, a mortgage refinance can be immensely valuable.

       There’s the logic behind it. As you consider whether this financial step would benefit you, remember one thing. Time is a commodity. You can buy it from any financial institution. Educate yourself and learn what your options are. Find the lowest mortgage rates that are available to you, because the lowest rate will get you the best price on the time that you’ve purchased.

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1. Prepare

       Before you begin negotiating (meeting with your boss or calling a company), take time to prepare for the negotiation. Think about what you want to accomplish and make it a concrete goal. “I want a 10% raise” is better than “I want more money”.

       Then, take some time to look at it from the other person’s point of view. Why should they be willing to give you what you want? In the case of getting a raise, have you proven yourself to be a valuable asset to the company? If you’re dealing with a business you buy from, have you been a customer for a long time or is it difficult to get new customers?

       The key is to list your accomplishments and reasons why you should get what you want. If you’ve saved your company money or taken on new responsibilities, write down exactly what you have done. Good examples would be “saved the company $20,000 a year by reducing waste in …” or “supervising ten more employees than last year”. Be ready to justify your request with reasons that will appeal to the other person.

       If you’ve been hit with a bogus fee, review your situation and be ready to explain what happened and why you don’t think you should be charged. If you were misinformed by an employee of the company, make that clear when you call. This is also why it’s smart to keep a record of when and to whom you speak when you call a company. You can easily reference the conversation and the person if a problem arises in the future.

2. Choose the Right Time

       Timing can greatly help your changes of negotiating successfully. If you’re asking for a raise, try to do it right after you finished a major accomplishment or as you take on new responsibilities. Your boss will have a difficult time overlooking the current circumstances – making it easier to give you a raise.

       Trying to get a better deal on your cell phone? Wait until your contract is just about to expire. (This works for other bills, too.) Businesses often spend quite a bit of money to get customers, so they’ll often do what they can to keep you. Negotiating when you’ll have the option to cancel gives you more power.

3. Be Firm & Confident but Polite

       Even if you are nervous or unsure, act confident and be firm as you negotiate. Weakness (real or perceived) puts the negotiating power back in the other person’s hands, so avoid it at all costs. This simply means you should not act timid when making your request. If you know you deserve a raise, act like it!

       However, this doesn’t mean you should be rude. Nobody likes a jerk. If you become hostile or impolite, people may refuse your request simply because they don’t like you. Be pleasant, kind, and patient and you will be rewarded.

       Another strategy is to use praise to your advantage. When negotiating a raise, show that you enjoy working there and are aligned with the company’s interest. If you’re trying to get a good deal with a company, comment on how you’ve enjoyed using their product in the past. Let people know you appreciate their time and help and they’ll be happy to help you again.

4. Be Ready to Respond

       You should be ready to respond to any number of reactions you get. If the answer is yes, then express your thanks. If the person needs to get someone else’s approval, let them know you appreciate their support. If the answer is no, things get a little trickier.

       If you’re trying to lower your bills or get rid of bogus fees, don’t give up at the first “no”. Restate one of your reasons for why you should get what you’re asking and follow that up with a leading question. Here’s an example: “Well, I’ve been a customer for 3 years and I’d hate to have to switch to [competitor]. What can you do to help me lower my bill (or get this fee waived)?” Do not follow up with a question that can be easily answered with a “yes” or “no”. Push for a “what else” or “how” type question rather than simply saying “Are you sure?” or “OK”.

       Dealing with your employer is a bit different because you don’t want to be so pushy you lose your job. If you think your boss is being unreasonable in denying your raise (i.e., you actually do deserve it), don’t be afraid to ask for more details and insist on your accomplishments once again. Be polite but firm. “After saving the company $25,000/year and increasing efficiency by 15%, a 10% raise is a reasonable award. In addition, comparable positions pay 20% more than my current salary so it is still good for the company.”

       If your boss still won’t (or can’t) budge, offer some alternatives that might not cost more money but are still beneficial to you. Increased vacation time, flexible hours, or the option to telecommute one day a week are a few examples. If these don’t go over well, ask for concrete goals you can achieve to earn a raise and get an appointment to renegotiate in a few months.

5. Be Ready to Walk Away

       Finally, you must be prepared to walk away if necessary. If a company won’t offer you a discount, let them know you can get a better deal elsewhere (be specific) and thank them for their time. That’s often enough to get what you ask for right away (but you shouldn’t abuse it).

       If you are significantly underpaid, work very hard, and have not been able to get a raise, be ready to leave your employer and go elsewhere. I wouldn’t use this as a negotiation tactic though. Even if your current employer offers to increase your salary, they’ll know you aren’t loyal to the company and they may look to replace you. Your best bet is to start looking for a new job without letting your current boss know. Turn in your resignation after you have a firm offer from a new employer and move on.

These Tips Do Work!

       If you think these tips don’t work, I’m proof that they do. Using these strategies, I’ve gotten 10% raises, lowered several of my bills, and had bogus fees waived several times. Again, preparation and confidence are key. You must know why you deserve to get what you’re asking for and be willing to push for it if necessary. Many times, simply asking will get what you want because so many people fail to take that step.

       Have you successfully negotiated a raise, lower bills, or fee waivers? Share your tips and stories in the comments!

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2. Don’t Put Up with Bogus Fees
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       What he found after extensive experimentation was that our brains don’t seem to register or remember duration as much as intensity. In other words, slower removal of bandages is better. You can hear him talk about this in the first few minutes of his talk. I’ve included the video below if you want to watch right now.

How Does This Relate to Budgeting?

       In thinking about Dan’s findings, I wondered if this could be why budgeting fails. Generally, we approach budgeting like ripping off a bandage. We go through every category of our budget ripping a little (or a lot) off of each area all at once. Effectively, we’re making our budgets extremely intense in terms of the pain we experience. Since we seek to avoid pain, we often abandon our attempt at budgeting and proclaim that it doesn’t work.

An Alternative Approach

       What if we made budgeting a bit more like slowly taking off the bandage? What if we kept the pain low (or at least a bit lower) but extended the time it takes? Here’s an example of how this would work.

       First, you’d need to track your spending so you know exactly where your money is going. I’m not talking to the penny – rounded to the nearest dollar is good enough. (I’ve written in the past about tracking your spending.)

       Next, take a look over your spending for the past month (or 3 months). Pick one or two areas you want to focus on saving money (or earning more). You can find ways to cut back, get a better deal, or replace it with something else that costs less. The key is that you keep the pain level low by only focusing on a little bit of “deprivation” at a time. The same approach can be used for increasing your earnings. Rather than going from 40 hours a week to 60, you can find incremental ways to improve your income.

       Then, you repeat this process over and over. Track your spending, review it, pick a couple areas to cut back on, and repeat. It will take you longer to get to your final destination (that unrealistic budget you tried but failed at), but you’ll actually get there rather than giving up.

       I don’t think this would be a smart method for someone in crisis mode. If your spending significantly exceeds your income, you obviously need to take drastic measures right away (cutting back or earning more). But for many people who aren’t in crisis mode, this approach may be much more effective and successful than the all-at-once, cut-back-everywhere budgeting method.

       I don’t think this is the only reason traditional budgeting fails. Wojciech at Fiscal Fizzle talked about ten reasons why budgets fail and highlights some other pitfalls you may have to consider.

Your Take

       What do you think about this idea? Have you used this model for improving your financial situation? Did it work for you? Do you think it’s too idealistic or foolish? What am I missing? Can it be improved? Share your thoughts in the comments and let me know.

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       Jacob is a bit of an anomaly in our culture – he’s a retired 34 year old, but he’s not rich (based on typical standards). He was able to retire early by saving 70-80% of his income for five years. He did not make a ton of money during that time. I think his salary was around $40,000-50,000/year while he was saving. He simply lived very frugally and saved the rest. Now, he still lives frugally but no longer needs to work to cover his expenses. Despite the fact that he doesn’t need to work, he does – and he makes enough to cover his expenses.

Cheap Living

       Jacob lives on about $7,000 per year. He’s able to do this because he’s learned to live cheaply – especially when it comes to the major areas of most budgets (housing, transportation, food, etc.). He doesn’t have a car, finds cheap/free forms of entertainment, and eats healthy meals with little to no meat. He currently lives in an RV with his wife, but he admits it’s not a necessary choice to duplicate his results.

Should We Retire Extremely Early?

       I don’t highlight Jacob as an example to be followed for extreme early retirement. I don’t think early retirement as a goal in and of itself as admirable or desirable for a Christian. (I also don’t dismiss it as a goal because I can see how God could use a person in this situation for full-time volunteer work or missionary work – a self-funded missionary if you will.) I’m highlighting Jacob and his choices because he offers insights that Christians can use to question the cultural norms and make choices that can lead to extreme generosity.

       For example, Jacob’s views on housing, insurance, and “sacrifice” greatly coincide with my own. (I don’t really agree with him on investing, but that’s irrelevant.) He doesn’t see money as necessary to have fun or live comfortably. He avoids waste. He learns new skills so he can make and do more stuff himself. His approach to living cheaply so he could retire extremely early can be adapted by Christians who want to give generously.

       If you want to get a better feeling for what Jacob did and why, check out his frequently asked questions, about himself page, and about Early Retirement Extreme. You can also see his best posts of 2008 and 2009.

How Can We Use Jacob’s Examples to Honor God?

       What I ask is that you read his articles from the perspective of how they can help you better serve God in your finances. Unless God has a specific purpose for you retiring early, that’s probably not a goal that will glorify Him. But we can use the same ideas Jacob used to enable extreme generosity in our lives by reducing our expenses and questioning the cultural norms. If you find something particularly insightful or helpful on his website, please feel free to share it in the comments below.

Related Articles at Provident Planning:

1. Updates to the Free Retirement Calculator
2. How Much Should I Save for Retirement? – Part 1: How Much Income Will I Need in Retirement?
3. Rethinking Retirement
4. How Much Should I Save for Retirement? – Part 2: How Much Will I Need to Have Saved by Retirement?
5. What Should a Christian Retirement Look Like?