If you’re looking to save money, do you sacrifice some big things in your budget, or do you look for ways to save $20 or so here and there?
A few weeks back a friend asked me this. He opts for the big line items, while his wife haggles over the price of peanut butter, insisting that economizing will make a difference to the bottom line. (I am making up some details, but you get the gist).
Like all great questions, this one drills down. At its heart, this question is essentially what is personal finance. How does it work. What does it look like for me. And it reveals an interesting gender breakdown, too. I hate to reinforce stereotypes, but when I first started reading personal finance books last summer, my husband and I had the same conversation. (We make this work for us, but this subject probably merits its own post down the line.)
The short answer to the question is you have to do both.
This is also the long answer.
Big Gets His Now
As we all have seen close up and personal by now, the big things will take you down fast and hard. Too-big mortgage? Boom, no house. Laid off? Ditto. Had Madoff on speed dial? Toast. I’m thankful every day to be where we are. But we got ourselves in our own bit of hot water back in 2006, when we rather cavalierly took on too much debt. We didn’t follow our initial plan to take a home equity loan, do our house painting and landscaping, and sell. And then we had our second child, losing much of my income in the process and running through our savings pretty quickly. That $400 extra a month for the loan, plus other payments we’ve since made good (our car, our computer) was a pretty crushing weight. Being able to refinance will slash our monthly fixed payments by $600. In short, this big financial move is saving our lunch.
Small Gets His Later
It would be easy to make re-fi the hero. Cut, and scene. Up to this point in our lives, we have managed to do the big things pretty well. But it’s not the whole story. If we had socked away a tenth of the cash we used to spend mindlessly at Target or CD stores (I do love our now piles and piles of anachronistic discs, but I’m sure I could easily pick out many that should have gone straight back in the bin), that money could have quietly built itself up into some serious ching ching. What could that cash be doing for us right now?
Not caring about the $10 here, $20 there is a dirty trick of the mind that pickpockets your future. If you’re not socking away some savings, then to finance your future dreams, you’ll have to keep borrowing. (We know all about this, as paying down those credit cards is a goal in our immediate future.) You may make it to the end of life just fine that way. Or you may end up a flat broke millionaire. (It’s been interesting to learn that the amount of money itself in question doesn’t matter. If you burn through money, you burn through it, regardless of the zeros involved.) What is guaranteed is that you won’t build up the kind of wealth that gives you the freedom to make different choices. Or to even realize that there might be different choices: Quit your job. Start your own business. Move. Travel. Etc.
Examining the smaller items that make up your budget, though, doesn’t have to be about finding the cheapest deal on every last thing you buy. Coupon talk makes my eyes glaze over, and obsessing over one can of tuna that is $.10 more than another is crazy making. I’m not interested in becoming that person who can’t order what I really want when I’m out. My philosophy is much more in line with that of Ramit Sethi, who advocates “cutting costs mercilessly on the things you don’t care about,” than about making my own laundry detergent. (Although for green reasons, I have to admit I’m intrigued.)
Since we’re not that far into this ourselves, I can’t point to our mega pile of growing wealth as proof that cutting small money wasters works. But I can tell you that we slashed our monthly grocery bill from $800/month to half of that just by switching to a chain/discount grocery store, buying their advertised specials, and using their coupons.
And that’s money, once this re-fi goes through, that we can start to sock away for bigger things.
Post Script:
(If you’re afraid that having to budget will make you into that guy haggling over $0.25 worth of rice in a diner, or that jerk who never tips, or that crazy woman who is losing her shit in the grocery store one aisle over, or that you’ll crush your creative, impulsive zest for life — I hear you. And I am planning more posts that deal with managing these things with savvy, humor, and grace. Or, barring that, with a good stiff drink.
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Tags: freedom5 Comments
These are tough times and every penny saved…is penny earned!
Thanks for the great read!
Very well done. I needed to hear that bit about the cavalier attitude about the $10 here and the $20 there. Perhaps not coincidentally I also minimize the donuts I eat. A little more discipline in the present does add up.
Wow, that almost could have been me writing that post. We ran up too much debt in 2005-2006 and never followed through with our plans to sell our house. In 2007, my husband’s job was is danger and he received another great job offer on the West Coast. We moved, but it nearly broke us with nine months of paying both rent in the West Coast and a mortgage in Michigan until we sold the house last year.
For us, cutting costs with both big and little things help. We live in a small apartment, sold both our cars, watch our spending and don’t use credit cards. But we do pay for our son’s expensive preschool, since it’s a temporary cost that reaps big rewards. It’s all a matter of priorities. Meanwhile, we hope to be debt-free by 2011. It’s a marathon, not a race, so we add to a savings account and don’t budget so tightly that we can’t afford shoes.
@Thebe: Thanks for the inspiration. Glad things are easing up for you. Now that we’ll finally have some breathing room, and can start saving and setting some goals/priorities, I’m actually a little intimidated to take the next steps. Pent-up demand and all (shoes/clothing being one category, actually). But excited, too. I hope we’ll join you in the debt-free club by 2011!
@Dennis: Yeah, after awhile it’s like, donuts, what did I ever see in you?