A comment on my post on saving money by packing your lunch got me to thinking. The argument went as follows:
There are better ways to save money. Focus on the big things. Saving a small percentage of high expenses is much more preferable to saving [a] high percentage on small expenses.
While this seems to make a lot of sense on the surface, I’m not sure that this is good advice for the average Joe. Rather, I’d be willing to bet (with no real data to back this up) that for many people, the most profitable (and painless) place to trim spending would be in the arena of ‘small’ discretionary purchases.
That being said, I’d love to hear what you guys think. Is it more important to focus your savings efforts on big ticket items, or should you focus on trimming your small expenses?
No question in my mind that paying attention to the small expenses makes a HUGE difference! Besides, when you watch how you spend $2 here and $15 there, you really begin to dissect your spending habits. And I’m too busy mending credit card debt to purchase big items, so I recognize the savings from restraint on the little things.
Here are my thoughts. Everyone knows that they should work to save money on the big items and most everyone does.
I think that focusing on the small items is most important. If you concentrate on saving on small items you will first find alot of lost money over time. Just as important, you will develop a mindset of looking for ways to save money. That mindset will carry over when you decide to purchase a large item. If I have spent one year packing my lunches and saved over $1,000.00, I am not going to let those savings slip through my fingers by overpaying $1,000 on a new car.
I have focused on being reasonable on cost cutting side. It can only take you so far. However, if you focus on improving your investment capabilities it can take you far.
I think you have to look at both big and small costs to find the balance that meets your life choices.
We opt for a small house in the city rather than a McMansion in the ‘burbs. We choose to be where we are as family (my parents & my inlaws) is within walking distance and the neighborhood city schools are compareable to the ‘burbs. This affords us the possibility of living off just my income and having my life partner be a stay @home. Others might not choose this.
We do many small things to save money (I bring lunch, take the bus rather than a second car) but we have our areas of splurge for the kidlets- a few trips per year to the amusement park, rare Chuckie Cheese excursions, cable etc. We talk to our oldest about choices we are making in regards to finances for the family.
I see the overall quality of both being important.
Matt, so well spoken! I totally agree with your rules.
I just have one thing to add: I have a good friend who garage sales and finds amazing bargains, then afterwards she often treats herself by having caviar (she loves it) for lunch (this is really true). When my friend was a young married woman, one day she was shopping her terminally ill mother. They saw a beautiful expensive comforter. My friend said, “I am getting this for you.” She spends on things that matter.
I have learned alot from April about spending money on quality items that bring you joy. The savings on things you don’t really care about add up so you can spend more on the things that improve the quality of your life or bring you the small daily joys.
As in all things, moderation and balance is key. And of course, the right balance will never be quite the same for any two different people.
Numerically, you’re right that saving on small frequent purchases is likely to be better for the bottom line than saving on big infrequent purchases. (Every programmer knows that the best place to optimize is the center of a small tight loop that runs 50 thousand times, not the big initialization stuff that runs once, since the former improvements have massively leveraged payoff.)
But the law of diminishing returns also applies. Each cut is going to be harder to make than the one before it, and pretty soon you’re getting depressed and resentful, and pretty soon after that you’re basically rebelling…against yourself. I’ve been there, and the prevalence of people who don’t understand that being in that space is both self-destructive and utterly inevitable once a certain level of cutting is reached are the main reason I stopped reading misc.consumers.frugal-living.
My solution? I cut costs wherever cutting costs won’t affect the quality I want, and nowhere else. This has always been my natural inclination, so I won’t say it’s saved me a lot of money vs what I’d do anyway, but as time has gone on I’ve been more systematic and analytical about it, and that’s helped improve the yield by about 10% vs what I was saving in my early 20s.
I buy gasoline wherever it’s cheapest, since gasoline is 100% fungible. I choose to make as many retail purchases as possible in Indiana instead of Chicago, since the extra tax in Chicago adds no value whatsoever to the product itself. I buy lunch meat from the deli counter instead of the refrigerated prepackaged stuff (indeed it’s both cheaper _and_ better-quality that way, so double-win there). And I buy store-brand breakfast cereal and paper products. But when I’m buying peas or corn to make Chinese Pastry, I go for the Del Monte, and don’t trouble myself with how much cheaper the generic is, because the generic veggies consistently make the final dish watery, and no amount of savings is worth ruining the experience of my favorite meal in all the world. Nor do I set my thermostat above 70 degrees during the summer, because no amount of savings on the electric bill is worth sweltering all day while I’m trying to sleep.
If I were a consumer of coffee or alcohol, I suspect I’d be very unreceptive to the notion that a cheaper variety of a superficially-similar product is really equivalent. I don’t drink coffee, but I know that Maxwell House is not a substitute for Starbucks. I don’t drink beer, but I know that Budweiser is not a substitute for Guinness. Which is perhaps more obvious to a non-drinker than the fact that GPC is not a subtitute for Benson & Hedges is to a non-smoker, but nevertheless the latter is equally true for me.
So these are my rules. In application they’ll vary for everybody, but in general I think they’re pretty good universally:
1. Where you can save money without losing quality at all, do so.
2. Where you can’t save money without losing quality, skimp on something whose quality you don’t especially care about.
3. Otherwise, don’t worry about it. If #1 and #2 aren’t enough to get you in-budget, then your budget is defective, and you’re better off adding more income (and writing a more generous budget) than trying to stick to it.
I agree with those who said that you really have to focus on both the big and small items. For example, in many couples, a wife’s spending on clothing may be a point of contention. Then when it comes time to buying a car, the husband has no qualms about spending an extra thousand or two to get the high-tech options he really wants/needs. Uh, not that I’ve ever done that 🙂
Addressing both issues is necessary to really boost savings for most people.
Much of what we nickle and dime ourselves to death is a matter of prioritizing needs & wants & being able to differentiate. How much do we value having the means later in life not to burden family and society vs. having what we want immediately. Satellite TV -need or want? Latte – need or want? Lunch and dinner out – need or want? I believe we as a whole don’t take responsibility for our decisions now that impact us later — in most all things such as diet, exercise, rest, money mgmt, relationships, child rearing………..
For people who have trouble seeing the savings on the small stuff: get a piggy bank (or something similar) and every time you don’t spend $3 on a coffee or when you save $7 at the grocery store, take those dollars and stick ’em in the piggy bank. It adds up pretty quickly — count it at the end of the month.
If you need incentive to start doing it, use whatever’s in there at the end of the month to do something nice. When it gets to be a habit, you can stop doing that and just save the money (or keep spending it — depends on why you’re cutting back).
I don’t tend to buy many big-ticket items, so cutting down on the little stuff works better for me.
I think finding savings on bigger things, especially recurring services (phone bills, car insurance, etc.) is a boost because the impact is both immediate AND sustained, and the products are homogenous enough that it doesn’t seem like a big sacrifice.
I think it can spur one into the cycle of spending more time on getting smaller savings, too.
mapgirl, you summed up my thoughts quite nicely. In reality, I try to do both. As anyone that reads this site semi-regularly knows, I always shop around for bigger purchases (mortgage, cars, life insurance, whatever). But I also try to cut out small unnecessary items. I honestly think that these small things add up to a huge drain on the pocketbooks of many consumers, yet most just don’t realize it.
Hm. I thought Beck’s comment about gray areas made sense, but Thinking about it more, I think I’m more interested in the daily habit of saving and realizing that $60 department store moisturizer isn’t giving me much more value than $7 drugstore lotion. What’s important is moisturizing at all to keep the wrinkles off. I’d rather save the $53 bucks.
It’s those little expenses that really start to add up and make the difference in being able to meet your budget for the month.
Shopping for a good deal on a large ticket item is important, but I think the minutiae of daily life is what eats up your money fastest.
For me, it takes more self-discipline to save on the little things, which is one reason why I like to emphasize that.
It’s a lot easier for me to shop around for the best deal on a tv or car or computer I’m going to buy, than it is to pack my lunch. For a car, I can immediately see the $1000 savings, but day to day it’s harder to see the benefit of saving $5 because, after all, it’s only $5.
So, I need to emphasize more in my life saving on the small things and the benefit that can add up to.
I think the commenter has a good point, it just might not apply to everyone.
Example A: Take a person who’s got a bloated mortgage or who pays $100 bucks for cable television or who has minutes leftover every month on a overkill cell plan… these things are repetitive hits to the pocketbook that might not even be missed, but would really free up some change. Some folks are willing to take a nit picky look at certain (insignificant) things, like lunch or coffee (which isn’t bad, but) without thinking bigger and changing more significant life-level priorities.
Example B: You love Thing-That-You’re-Saving-$3-A-Day-Not-Having and get grumpy or feel that you deserve a reward for going so long w/o it. You buy a new *whatever* that probably eats up all that savings (cause it’s there, natch). Spending is emotional for just about everyone, and sometimes $3 a day is worth the balance and emotional good vibes it brings.
It’s not black and white though. There’s gray in all of this. You save a little on the big, you save a little on the little… you take ’em both and there ya have the facts of life (oh wait, what?).
Sometimes focusing on the small stuff makes you ‘penny wise and pound foolish’. I have a friend who will go out of his way to buy stuff on sale at 3 different grocery stores. He brags about how much he saves on groceries, but he doesn’t take into account the expenditure of gas, wear and tear on his car, or even the amount of time that it takes to fight traffic and stand in line. That time could be spent working or doing something else that’s useful around the house. That being said, the ‘habit’ of saving money is best developed over time with small incremental steps. The Latte Factor that David Bach advocates in his book seems to help motivate a lot of people to start taking control of finances. So, everything in moderation. I tend not to pack my lunch, but I do focus on saving money in other areas of my life.