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The Principle of Constant Optimization

non_optimal_transportationA few years ago, I was helping a friend with some kitchen renovations. He’s a smart guy with a good career, and he likes to work hard on the weekends. He had done most of the carpentry himself, completely transforming a very small house to make it work better for his growing family and greatly improving the home’s value as well. But as we talked about life over the background task of installing backsplash tiles, he mentioned that he wished they could afford to build an addition someday to get a third bedroom, or possibly move to a bigger place.

This was interesting to me, since I know this couple well, and they are pulling in two very solid salaries while living in a modest house that cost under $200,000 back when they bought it. With similar incomes, Mrs. MM and I lived in and renovated a larger house, and still had enough left over to accumulate a retirement-sized investment pool over nine years – about the same length of time we’ve been friends with these people.

Using my secret identity as Mr. Money Mustache, I naturally began to look for clues as to how this might have happened. I noticed a Honda CR-V and a (financed) Honda Pilot in the driveway. Those are great vehicles if you run a rafting company and need to pull people and trailers up the forest access roads to get to the best rapids, but they are not suitable for commuting to work, and yet that was their primary purpose. Their jobs were in two different cities, and neither of them has ever worked in the city we live in – despite the fact that both job types are available here as well. The recycling bin was piled high with fast food containers, which my friend picks up when returning from late shifts at work, and empty Gatorade bottles. The modern wall-mounted TV displayed the razor-sharp images and broad channel selection that are telltale signs of a premium cable subscriber.

So while I had solved the mystery of where their money was going (to the endless stream of seemingly tiny budgetary leaks that are part of a middle class life), I still hadn’t figured out why these otherwise-intelligent people were continuing to burn money even while they obviously had higher priorities in their lives than Gatorade. I asked a few more questions:

“Say, that Honda Pilot is a pretty posh machine – what made you decide on that one?”

“Well, we’ve always liked Hondas, and when we had the second baby we just figured we’d like a bit more space”.

“That’s cool. Hey, you often mentioned you don’t like your morning commute – have you ever considered looking into getting a similar position here in Longmont?”

“Yeah, I’ve thought of that, and it would be great. It’s just that, you know, I’m in a groove and I like my coworkers at the company in Boulder. I just haven’t really looked around at the opportunities here. Plus it’s only really a 25 minute drive if you hit it at the right time.”

This conversation went on for a few more cycles, and it became evident that the main reason for most of these ‘stash-draining behaviors was not conscious choices that my friends made in search of a better life, but just things that had been locked in at one stage or another earlier in their lives, which never ended up being changed. They were a form of habits.

As I mentally put myself into their shoes, driving to and from work and buying Gatorade for myself, I started feeling uncomfortable. I felt the inefficiency and the daily drain, but I was not able to fix it. And this brought me to a realization of something I have always done, that is not widely practiced. But it is so important, I think it could be considered one of the Principles of Mustachianism:

Practice Constant Optimization in all areas of your life.

When I was younger, I was faced with the typical young person’s perpetual shortage of cash. I had wants and needs, but with zero net worth and minimal income I obviously could not meet them all. The solution for me was to try to meet them, in order of priority, at minimal expense.

But the thing is, your wants and needs change over time, along with the rest of your life situation your income level, and the world around you. Your original way of meeting needs will soon become inefficient, and if you stick with it after it is obsolete, you are wasting your own time and money.

For example, way back when I graduated and got my first engineering job, I needed a place to live. Knowing that driving cars costs money and time, I naturally wanted a place close to work. But I also wanted to share a house with three friends, so we could pool our rent money to afford a really nice house even while paying less than we would each pay for separate small apartments.

The problem was that certain members of the group were party boys who wanted to live within stumbling distance of downtown. I preferred to live near work (which was 20 miles West of downtown), figuring you go to work far more often than you go to the pubs. We settled and got a place in the middle. It was reasonable, as I could bike occasionally and carpool the rest of the time. But the next year when the lease expired, the party boys had matured slightly and were willing to live closer to work. So I took the initiative and found us a nicer house with a shorter commute. Optimization had been performed. One year later, we moved even closer. And so on.

As the years have gone on, I have always felt the nag of any monthly expenses, seeking to reduce or eliminate them. Borrowing money for anything other than a house was obviously out, since that would trigger a monthly interest expense – an easy thing to optimize away. But much more than that came under the microscope and continued on to the chopping block. I compared insurance rates at every policy renewal date. Looked for new ways to eat that would result in better nutrition and lower cost. Ditched my sports car as soon I realized I no longer used it regularly, with my fancy motorcycle following the same path. Both were fun to own at the time, but when the desire for them faded, they were optimized away.

Even now, we always keep a creative eye out for ways to streamline our lives. The mobile phones were switched to prepaid plans. Mrs. MM recently cancelled her monthly Crossfit membership and started paying only for individual visits, supplemented by inviting friends to come join her for workouts in our home gym, saving $60 per month.  We’re keeping our eyes open for a smaller house, since we bought the current house when planning to have two kids, then subsequently decided that one is plenty.

When you practice constant optimization, nothing should be considered sacred, and all of your old assumptions should be challenged on a regular basis. Are there other people out there doing things in a smarter way than you are? Great! You can easily follow their lead. Have your needs or tastes changed as you got older, or new innovations come up since you last bought something? Ideal – another chance to optimize.

Constant optimization may sound tiring when you list two decades of steps out like I did above, but in reality it is incredibly simple and easy. You just have to keep your mind open, asking yourself occasionally, “Is there anything I could change for the better?”. Often, the answer is no, and you can go on in the old pattern. But sometimes your open mind will find things to improve, and you will be far richer for it.

Getting started with a new habit like this can be as simple as saying, “I like to experience new things.” Then back it up by doing it. Take a different route to work as often as you can, until you’ve tried and compared them all. Subscribe to automated updates on the housing and job markets in your areas, just so you always have a mental map of what is out there. Make a list of your ten biggest monthly expenses and tape it to your fridge, just so you know they are all there, constantly using up your money, so they had darned well be worth the resources they are consuming. If they are worth the expense, continue to enjoy them. If they are not, optimize them away. Look at your daily routine from an outsider’s perspective, and figure out if you are really getting the most value from each one of your hours.

An unexpected benefit of all this self-imposed change is that it helps protect you from forming bad habits, which are hard to change once you get them. In fact, change itself becomes the habit, which is a good one to carry with you through your life. The willingness to experience change brings opportunity, wealth, learning, and happiness for most of us who embrace it.

 

  • Kathleen May 16, 2013, 5:44 pm

    Goodness gracious — you talk a lot about commuters. It’s strange — I don’t know many people at all that would commute so far, or even live in a city where they don’t work!

    Reply
  • Rebecca May 16, 2013, 7:06 pm

    Funny that this post appears now – we were recently asked to come up with a “personal brand” for ourselves at work and mine was “Optimizer” I am constantly optimizing everything both at work and home. The only problem with it that I have found is that I have trouble being content in the moment because I am always looking to improve. And it kind of drives my husband crazy because he is “normal” and gets annoyed when I am always wanting to change things.

    Reply
    • Lina May 17, 2013, 11:51 am

      I am also like this. I walk in to a restaurant or a hotel I can probably in 10-15 minutes find things to optimize. The same with workplaces. Luckily my current employer has liked this but I am changing jobs next month so I will see what happens next.

      Or other peoples lives but here I have learned to keep my mouth shut in most cases or I make stories of my own optimization so I doesn’t sound like I am preaching.

      Reply
  • Joe May 16, 2013, 7:31 pm

    In my professional life, as an accountant, I have been trying to learn alot about lean principles. This is classic kaizen, or continuous improvement. Many lean companies see great gains by implementing countless tiny improvements. The cumulative effect of all of those changes yields outsized overall improvement. MMM and many of the people in this community are evidence that carries over to the personal finance realm also.

    Me? I have a long way to go. But, my wife and I finally dumped that cable service a few weeks back. So, we’re on our way. Much more to optimize!!

    Reply
  • CincyCat May 16, 2013, 8:34 pm

    I’m probably approaching some sort of posts-per-day limit, but we pulled the plug on satellite today! I feel like we just gave ourselves an $80-90 / month raise. Oh wait, we just DID! :)

    The customer service rep didn’t even try too hard to talk me out of it when she found out we have other devices that stream whatever we want at a fraction of the cost.

    Since we own the equipment (we’ve had it long enough…), I’m not quite sure what to do with the dish, and the two receivers/remotes. I guess I’ll go check out market conditions on craigslist… :)

    Reply
    • Chris May 21, 2013, 10:58 am

      Even better, considering that $80-$90 is from your Net pay, it’s probably closer to a $110-$125 raise in your Gross pay!

      Reply
  • AndyfromTucson May 17, 2013, 7:50 am

    I think of the constant optimization habit as paid freelance work where I can set my own hours. As the saying goes, a penny saved is a penny earned, and when I save $30 with 30 minutes of effort think to myself “I just earned money at a $60/hour rate.”

    Reply
  • Gerard May 17, 2013, 8:07 am

    Even within Canada, you see different levels of enforcement and individual willingness to break the law when it’s useful. I grew up in Quebec, where we would ride wherever made the most sense, and jaywalk if there were no cars around.
    Once when I was on the 161 bus in Montreal, the *bus* drove down the sidewalk for a block to avoid a construction delay. Good thing those suburban sidewalks don’t have a lot of mailboxes etc.

    (EDIT: oops, this is supposed to be in response to Matt’s comment, which may appear below mine if I did this wrong…)

    Reply
  • Doug Johnson May 17, 2013, 8:30 am

    Awesome post man. I once heard a quote and it went something like, “The moment we settle and get comfortable is the moment we stop growing.”

    The biggest problem I’ve had is trying to prioritize what to optimize first. haha

    Thanks for the good read.

    Reply
  • Maire May 17, 2013, 8:36 am

    Great post. Lifestyle optimization is very important. I live in a large urban area but I have always worked close to home. I spend very little time in the car and have an eight year old car with 52,000 miles on it. As far as fast food, I have 3 teenagers at home and we do buy fast food but it is so seldom that it is a treat for them and they appreciate it. I cannot tell you how many of my neighbors have cherry/granite kitchens that are not used for cooking but for placing pizza boxes or other fast food take out on the counter.

    Reply
  • Hadilly May 17, 2013, 12:11 pm

    One of many who came here via WP, and loving the ephiphany!

    I wanted to recommend Carol Dweck’s book “Mindset” to everyone here. She is a Stanford psychologist who has done extensive research on how people deal with challenges. Basically, people tend to fall into fixed mindsets or growth mindsets. The former tend to retreat from challenges because they threaten, the latter to enbrace them as opportunities to learn and grow. She looks at how this applies to business, marriage, school. It is absolutely fascinating stuff and offers a great deal of insight into how to foster a growth mindset in oneself and, importantly for those of us who are parents or teachers, in children.

    She also makes a compelling case for constant optimization and also being willing to switch strategies as conditions and challenges change.

    Reply
  • Linda May 17, 2013, 8:14 pm

    Another excellent post! :)

    It also reminded me that I had been meaning to cancel my mobile phone contract. And yes, they did offer me a cheaper plan which I declined. Thanks!

    Reply
  • Karunesh Kaushal May 18, 2013, 1:32 am

    This was one of the articles that goes beyond money management and can be helpful in all walks of life.

    I have been applying the Principle of Constant Optimization throughout my life, but not for money. Hopefully, now I have another tool in the box.

    Reply
  • Timothy Mobley May 18, 2013, 10:51 pm

    Although the topic is obviously overly exploited, it is scary to think how many people miss the concept of, as you call is, constant optimization. Another way to focus on the issue is to strive to always live within, or ideally below, your means. At the end of the day, it all about the net income = income – expenses.

    Reply
  • Joe May 19, 2013, 1:54 pm

    Like the idea of optimization. Have to do it slowly though. MMM is like the USA, I’m like a developing country. I want to get to where he is, but first I have to provide reliable electricity, pave the roads and standardize the plumbing. I try to just take away one thing I can do from each article. Going to write down the top 10 expenses, just to know what they are. Kudos.

    Reply
  • Bec May 19, 2013, 9:30 pm

    “The willingness to experience change brings opportunity, wealth, learning, and happiness for most of us who embrace it.” I love these words, they are so true.Thanks MMM for an awesome post!

    Reply
  • KC @ genxfinance May 20, 2013, 7:23 am

    Aww, that’s the thing. We all need to adapt to changes. And there’s this saying that “we are what we repeatedly do” (by Aristotle). And if we kept on doing that same old thing, we can’t expect things to change. Bad habits need to go.

    Reply
  • Friend May 20, 2013, 10:43 am

    Yes Mr Money and I are friends, but I think this conversation from 5 years ago got revamped into an example of wasteful spending. Just a couple of factual corrections. The smart couple moved out of the City he worked in to a town located halfway in between where house prices were half of the town they were living in (allowing them to buy a house instead of wasting money on rent). The location was chosen because it reduced both commutes to under 15 miles, he does it in under 18 minutes at 5am, she under 15 minutes. Both vehicles were chosen because of their long term return on purchase price with minimal operating costs 06 CRV, 08 Pilot (purchased for 25 % under MSRP, 08 purchased in 09) and only after his 04 Accord (paid off) was totalled by a drunk driver and paid out by insurance company. both vehicles will be kept well over 200,000 miles and besides commuting are used for those awesome Colorado activities Mr Money Moustache refers too Ski trips, Desert Trips, Mountain Roads, Camping, Kayaking….and are often full of kids, friends and grandparents. The Flat screen TV is a 32 inch $275 present they gave to each other for Christmas and is hooked up to basic cable bundled with Internet and phone. Both are public servants (She a teacher, He in Emergency Services) both with Advanced College degrees with courses taken, financed and paid off by themselves while working full time. They put away approximately 30% of their gross income in tax deferred investments monthly. The Gatorade is a $3.99 purchases for 18 small bottles one time each month and He doesn’t eat fast food but has a weakness for local ethnic take out (yep spend too much Money on that.) Mr Money I love yaa and we need to get together and BBq in the back yard soon, but I felt compelled to dispel the myth of Wasteful spenders unaware of where our Money is going.

    Reply
    • Mr. Money Mustache May 20, 2013, 12:28 pm

      D’oh! Busted!!

      Dear friend – I apologize for taking liberties with your story. On a blog like this when talking about people I actually know, I try to change certain key details to make them more applicable to a general audience (and less specific and hopefully not embarrassing to the individuals).

      I fully agree that I don’t know the full story of your finances, since we’ve never talked about it in detail. So some of the ideas in this story come from other friends and acquaintances. So please don’t take this as meant to be an exact description/prescription of the REAL you!

      If you feel it’s too close to home, I can take down this story – just let me know.

      (Update: I walked over to his house and talked to him, and he said he was just having some fun with us.. and we’re still invited to the BBQ. Thank goodness!!)

      Reply
      • friend May 20, 2013, 1:27 pm

        No problem, I just thought it was an interesting counter point to your argument and might spur some good discussion on the blog. Can’t have everybody always agreeing as that would be boring. I think a lot of us read your blog because we would love to reach your level of financial security but are trying to make amends for youthful indescretion when it comes to spending. Or are starting to see the light at the end of the tunnel when it comes to clearing student loans. Or are the victim of circumstance when buying a house in a down market and then spending a decade of not gaining significant equity. I wouldn’t have posted if I didn’t think it was worth discussion and I meant what I said about being friends and needing to bbq together soon. I would be happy if you highlighted my response to fire up more discussion.

        Reply
  • Kristi June 25, 2013, 8:09 am

    Love this idea about constant optimizing. My husband says I am always trying to optimize our budget more. I have an example that might be of some use for readers. I am a big animal lover with dogs being my favorite of all. However, pets are very expensive as we found out ten years ago when we had a pet that cost us thousands of dollars in vet bills. Of course we loved our dog and gave her the best life we could. When we had to euthanize our dog 6 month ago, we decided not to get another pet until we were financially independent (14 years).

    Well, like I said I am a dog lover and the house felt pretty empty without one but instead of just giving in and taking on the expense of another pet, I did a little research. I learned our local Humane Society has a dog fostering program where you take in dogs and give them a temporary home until a forever home can be found. This is to help make space at the shelter and allow the dogs a chance to get out of a stressful situation of being at the shelter. Anyway, they provide the kennel, food, vet care, leash, toys, and anything else the dog needs. You provide the time, love, and bring them in when a family is interested in adopting.

    This has been a wonderful experience for our family and has allowed us to meet and interact with many dogs. So far we have fostered 7 dogs and I feel like we have really made a difference. Thanks for always challenging readers to raise the bar and look at everything. We actually have found we like fostering more than owning as we have seen some of these dogs come out of their shell and become much more adoptable because of this.

    Eventually we can then donate the amount we could spend on a dog to the shelter instead. For me I think that is the hardest part of waiting to be financially free, I have that helping nature and it’s hard to put away alot of money when I want to give but I know in the end I will be in a position to give even more long term. Right now I tell myself, that I am giving lots of time, energy, and small amounts of money when we can. Maybe sometime you could write a post about that tough pull of giving now or giving later.

    I bet you never thought your message would extend out to helping animals in need as well.:)

    Reply
  • Ted October 30, 2015, 9:49 am

    MMM,
    I have been reading this blog from the beginning over the last few months and I keep getting this nagging feeling that if I met you, no matter what else I said or did, you would punch me in the face for driving what appears to be your most hated automobile, the Jeep Wrangler. I lost count of how many times you have called out my most beloved 2004 anti-mustachian machine by name (probably about 7-10). I have even told my wife that clearly you think I should sell the Jeep. Well I haven’t sold it, but I have this constantly nagging mustached shoulder-angel with thrift store wings popping up whenever I hop in to go to work or a gig. I usually just distract the shoulder-angel by talking about the stock market or rental house fantasies.

    Anyway I love the blog, keep up the good work!

    Reply
  • kindoflost August 27, 2016, 10:06 am

    You can even write a mathematical programming model to optimize it. And use a bit of Pareto. Say you can buy a $25,000 car or a $5,000 car that will give you 80% of what the pricier car will give you (likely only missing the looks, status, satellite radio, etc). 80/20 is “the” rule. You can almost always get 80% of what you want for 20% of the cost. With limited resources you can buy either one 100%-want at 100% price or 5 80%-wants at 20% price each. If it gets too complicated you use math programming.

    Reply
  • Greg November 1, 2016, 1:32 pm

    Fantastic post. Puts the whole thing right into a great nugget. Bookmarked and sharing!
    Still working my way through from the beginning, 5-10 posts at a time. I wish I could take all this information and mind-meld with my wife so she is right on the same page. We have the same goals and are together on it all, but it would help to have that info dump, lol!

    Reply
  • Reade March 30, 2017, 6:42 am

    I really like this post, because it speaks to more than money, it’s also about taking a look at how you want to spend your time. I used to have a 90 minute commute (one way) to work when I lived in the suburbs. I decided I was giving up too much of my time sitting in traffic. We moved into the city on the subway line and now my commute is 20 minutes relatively stress free. We did have to buy a much more expensive house, but I think we are further ahead from a net worth perspective, since the house has increased in value a lot, I’m saving about $500/month in car expense, my insurance has gone down, we can actually make food at home since I’ve gained over two hours per day, and I get an extra hour sleep per day. Oh, and I’ve lost ten pounds :) Thank you MMM for reminding us we need to constantly try and optimize our life.

    Reply

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