Let’s say you need to cut back on your spending.
You turn to money-saving gurus to get some advice on making your money stretch further. All the personal finance experts seem to agree on what you need to do — cut back on little expenses here and there, so that you can save money on the everyday things you buy.
Once you’ve made these cuts, your newly freed-up money will flow like water and you’ll be able to afford all the things you dream of, right?
This kind of nickel-and-dime money saving advice is a pet peeve for many experts in the personal finance realm, in part because following the make-small-daily-cuts advice requires a major time commitment. You may very well be able to reduce your spending by changing your small daily spending habits, but this kind of advice tends to ignore the fact that there is a cost to your time.
While there is nothing wrong with paying attention to the small amounts of money you “waste” on a daily basis, you can save more money and waste less time by cutting back on the things you spend big money on, such as housing.
Here are the most common pieces of time-wasting money advice that you can feel comfortable ignoring, and what you should do instead:
“The Latte Factor”
This term, which was originally coined by financial expert David Bach, refers to the fact that small, regular expenses add up to large amounts. The classic example is buying a $5 latte five days a week, which adds up to a waste of $1,300 per year on coffee, although any kind of small, regular luxury can theoretically be cut for similarly big savings.
There is nothing wrong with Bach’s math in determining that a daily $5 expense turns into a yearly $1,300 expense. The problem is that this kind of advice seems to miss the point. The people who actually spend $5 every single day on coffee are not the ones who are paying close attention to where any of their money goes. Cutting out small luxuries like this will not make a dent in the finances of someone who is not keeping track of her money, since she’s unlikely to save each and every unspent $5 until she has $1,300 to put in the bank.
All this tip does is make people feel guilty for enjoying small luxuries or time-saving conveniences. According to Mindy Crary, a Seattle-based financial planner and money expert, “Spending $40 a month on something that makes your life easier or more enjoyable isn’t going to prevent you from reaching your financial goals. I’ve never seen a latte habit make or break somebody.”
As long as you are aware of how much you spend on lattes, conveniences, or other small, regular, and “unnecessary” purchases, then you can feel free to disregard people who wag their fingers over this kind of spending.
According to certain reality shows, it is apparently possible to get hundreds-to-thousands of dollars’ worth of groceries for next to nothing by taking advantage of both coupons and store sales that make coupons go farther. Considering the fact that coupons are completely free and come directly to you in the mail (or even online or to your smart phone), this seems like a no-fail method of freeing up money in your budget.
Unfortunately, the reality of clipping coupons does not have much in common with the incredible savings that extreme couponers enjoy on TV. To begin with, collecting, cutting, and organizing coupons takes a great deal of time, and it becomes even more onerous if you are trying to stack your coupons on top of store sales. This kind of work is worthwhile for anyone who has more time than money, and who actually enjoys the game of using coupons. If that doesn’t describe you, then it’s just going to be a chore that wastes your time.
In addition, you will be hard pressed to find coupons for fresh food, like meat, dairy, or produce, meaning you would be saving money on foods that are not as healthy for you. Rather than changing your food-buying habits to accommodate coupons, it makes more sense to stick to purchasing the fresh and healthy foods you already eat.
Cherry-Picking Grocery Sales
Unlike clipping coupons, cherry-picking grocery sales can save you money on fresh foods and the items you already buy. With this strategy, you peruse the weekly circulars put out by each grocery chain in your area to determine who has the best prices on various items.
Each store will offer what’s known as “loss leaders” — advertised items that have a great sale price to get you in the door. The $1.99/lb chicken breast will entice shoppers to come to the store advertising it, and most people will just complete the rest of their shopping in the same place. Grocery cherry-pickers will plan their grocery shopping at several stores on the same day in order to take advantage of each chain’s loss leaders and get the best price for every item they buy.
This strategy can certainly work, but it takes a great deal of time. To begin with, you need to have a good idea of what a normal price is so that you can recognize a good sale when it happens. That often requires you to keep a price book or similar accounting to get a sense of what you normally pay for groceries. Then, the actual reading of weekly circulars and the driving around to various grocery stores adds many hours to your regular food shopping, not to mention the additional cost of driving to several stores every week.
Finally, the amount of money you can save by either cherry-picking sales or clipping coupons is relatively low, despite the extreme examples you might see in the media. That’s because food purchases are a relatively small part of your monthly budget. If you spend $800 per month on groceries, a 10% cut of your grocery spending is only $80, and it will cost you time to reach that $80 savings. For most people, the savings is not worth the time spent.
Running All Your Errands in One Trip
Every driver hopes to improve fuel economy and make those expensive trips to the gas pump fewer and farther between. Which means you can find any number of suggestions for ways to improve your fuel efficiency. While it certainly makes good sense to keep your tires properly inflated, keep your windows closed over 55 miles per hour, and keep a safe distance between you and the next car, some fuel-efficiency advice is merely a waste of time.
For instance, saving all of your errands up for a single day of driving will certainly reduce the number of miles you drive. However, this kind of errand-planning can cost you time, since you will be stuck running errands all at once, rather than spreading them out throughout the week. If you have a day to devote to errands, this is certainly a reasonable method for making a slight improvement to your fuel economy. But it is only a slight improvement, meaning it’s not worth your while if you are happy with how you currently handle errands.
Looking for Better Deals Before You Buy Anything
While the internet has made it possible to quickly comparison shop, it can often be a double-edged sword. It is very easy to find yourself refusing to buy something until you can get the very best deal. This means you often waste minutes or hours searching for a slightly better price online, only to score a couple of bucks off the original price. Unless you truly enjoy deal-hunting and can’t afford to spend the two dollars you have saved, this is a waste of time.
In addition, cheaper options sometimes also take longer. Just this spring, I ordered the cheapest ant traps available on Amazon to deal with the unwelcome colony that was making itself at home in my kitchen. The traps I bought were being sold by a third-party vendor. I saved about $3, but it took a week and a half for the traps to arrive, meaning I had to deal with ants for nine more days than I would have if I had just spent $3 more and bought the traps directly from Amazon.
DIY Car and Home Maintenance
People with basic car and home maintenance skills do have a leg up over the rest of us when it comes to saving money. Knowing how to change your own oil or tile your own floor can be a great way to save money.
The problem is that learning to do-it-yourself is not a quick process if you don’t already have the skills. You will need the time to learn and practice before you are completely comfortable handling these sorts of tasks. If you are not someone who enjoys learning these sorts of things, then it will be a tough slog trying to become competent.
In addition, you will often need to borrow or buy the proper equipment to do it yourself, which adds to the cost or the time involved. All-in-all, your time is often better served by letting someone else handle the car or home maintenance, since the financial savings will not make the time commitment worth it.
Where to Focus Your Money-Saving Energy Instead
In general, cuts to your daily expenses will result in small savings. That’s not a bad thing in and of itself, but it makes much more sense to find ways to save money on bigger expenses, since you’ll see much larger savings. It is easier to save $200 all at once than to stress over 50 different $4 purchases.
So, how do you decide where to cut expenses? Start with your largest expenses, and figure out a way to reduce them. For instance, your mortgage or rent is most likely your largest single monthly expense. Downsizing is a common suggestion for reducing this expense, but since that also takes money and time to implement, you might also consider less extreme ideas, like taking in a roommate, or putting part of your space on Airbnb. Similarly, you could explore the option of refinancing your mortgage, or negotiating your rent payment with your landlord.
Go through a similar thought exercise with each of your largest expenses. For instance, you might also commit to ride sharing to reduce your transportation expenses. Look for big changes that net big savings.
Focusing on these larger expenses will save you more money and cause you much less stress than trying to recoup the amount you spend on lattes.
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