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Should You Sweat “The Small Stuff?”

12/26/07 posted by Lazy Man    

This is a common question in personal finance circles. Personal finance guru David Bach made the question popular by writing about people’s daily spending habits. He calls it the “Latte Factor” because so many people spend a few dollars a day on their morning specialty coffee. It doesn’t have to be limited to coffee. I’ve known people to buy their lunches for $10 a day. Imagine the savings of making your own coffee and lunch at home. Those simple changes add up to hundreds of dollars a month. If those savings are invested, they could be worth hundreds of thousands of dollars over time.

Often times when people realize this, they change their spending habits. The question is when do you stop trying to save every penny?

I struggle with this at times. I find myself looking at every penny that I spend and scrutinizing whether it’s a necessary expense. I have to admit that it’s not a comfortable frame of mind to be in.

Like many things in life, balance and moderation is the key. However, I think how vigilant you are with small expenses depends on your income. If you are high level corporate executive, you will probably find that saving a dollar here and there is more work than it’s worth.

On the other hand, if you are living on a fixed income, you may find it worth a lot of your extra time to save a dollar or two. I try to position myself somewhere in the middle.

I look for easiest things that I can do to save money. I find that this often gives me the best value for my time. Some might know this phenomenon as the 80/20 rule or the Pareto Principle. For example, I’ll buy generic foods rather than spend time clipping coupons for brand name products.

How much effort do you put into saving money on small purchases?

Lazy Man has been a lender at Prosper since February 2006. His lending has been written up in the Globe and Mail, Canada’s largest national newspaper. He is the author of the personal finance blog, Lazy Man and Money. He enjoys watching Boston sports while sipping diet cola


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7 Responses


Printans | December 26th, 2007 at 9:34 am

I made a “resolution” last year. Don’t take a penny for granted. Now that I have respect for the smallest amount I feel a lot better off.
Sometimes I see where I’ve spent some amount foolishly and I’ll think “I just wasted what I received from 2 lenders this month” ($3-4).
There are also times when I’ll see a coin on the ground and pick it up. It may not be much, but it’s money I didn’t have yesterday.
Respect the penny.


Chrisfs | December 28th, 2007 at 12:49 pm

Keep track of the small stuff. I used to give myself $20 a day to spend for money and what ever may come up. At the end of the day, most if not all of the $20 was gone. Once I made a budget and cut back that amount, I lived just as well and put money in the bank. You have to know where it’s going before you can get a handle on it.


FourPillars | December 30th, 2007 at 11:22 pm

I thought you were anonymous? Your name is in the Globe & Mail article - assuming that is your real name.

Mike


Lazy Man and Money | December 31st, 2007 at 12:15 am

“assuming that is your real name” = poor assumption. I’ve adopted it on Lazy Man and Money since people don’t always seem comfortable calling me by “Lazy.”


Brip Blap | December 31st, 2007 at 2:31 pm

Actually I don’t even think the distinction is so much small vs. large purchases as ‘by category.’ I barely pay any attention to how much I spend on meat, when I buy meat, for example, since I buy organic/natural/free-range/etc. stuff that’s terribly expensive. On the other hand, I’ll shop for the cheapest possible cotton undershirts.

I did decide that struggling to save money on small purchases had declining rates of return and gave up on it.


FourPillars | January 2nd, 2008 at 9:33 pm

Not a bad pseudonym…

BB - I agree - you really have to balance your available free time with the amount of money you can save.

Mike

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