One of the things we hear about all the time is how penny pinching can add up. The thought is that if you forgo some of the smaller purchases, and find ways to save on the smallest things, you can see big savings over your lifetime, a la David Bach’s Latte Factor.
But will pinching every penny really lead to untold riches? Will clipping coupons to save 50 cents on several purchases eventually lead to wealth? Can being a savvy saver put you on the path to financial freedom? Unfortunately, penny pinching alone probably isn’t the way to wealth, or a lifestyle that you enjoy.
Penny Pinching can Help You Identify Money Leaks
While merely pinching pennies is unlikely to transform your financial situation, the scrutiny that it engenders could help you change your spending behaviors, and shift some of the focus to saving your money. If you examine every dollar you spend, it will be practically impossible to avoid noticing some of the ways you are using your money. You might find some money leaks that need to be plugged up.
Make a concerted effort to know where your money is going, and shave off as much as you can. Pay attention to your money, and where it is going. You might be surprised to discover how much of your money is leaking off into the ether.
This doesn’t mean that you have to stop spending on everything that you deem unnecessary. In fact, a couple months of penny pinching can help you figure out your own financial priorities. Where do you feel deprived when you are pinching pennies? What things don’t you miss? If you miss having a morning donut, perhaps you can add the donut back in two or three times a week. However, if you find that you like brown-bagging it instead of always paying for greasy fast food for lunch, that’s a change you can keep.
Decide what is most important in your financial plan. Do you want to contribute the maximum to a savings account or a retirement account? Is it important that you save up for a vacation next year? Your penny pinching can help you see where your true desires lay, and can help you chart a course that allows you spend the money on things that are most important, and live the life you want.
What are You Doing with the Money?
More on Frugality
One thing you have to be careful of when you are pinching pennies is to make sure that you are truly putting the money you save to good use. Pay attention to the coupons you use. It’s not really penny pinching, and you aren’t really saving, if you use a dollar off coupon to justify buying a five dollar item you had no intention of purchasing until you saw the coupon.
Also, be aware of how you could use the money to augment your efforts regarding preparing for the future. Add the money you save from penny pinching to your retirement account. An extra eight dollars a week, at a 5% annual rate of return, over the course of 40 years, adds up to an extra $52,765.34. Of course, you aren’t going to retire on that money. But if you combine it with your other efforts to boost retirement savings, or boost your emergency fund, it could add a little more cushioning.
Could You Save More with the Bigger Stuff?
Some people focus so much on pinching their pennies with the smallest purchases that they neglect the big stuff. Could you save money each month by refinancing your mortgage, or by shopping around for the lowest insurance rate? Finding a way to save big could offset the costs of life’s small pleasures, and render some of your penny pinching unnecessary. Indeed, cutting out all the small things that you love from your life can lead to dreariness, and dissatisfaction with your situation.
Don’t forget, too, that you can also make more money. Indeed, you are more likely to build more wealth when you earn more money and put it to good use than you could ever make pinching your pennies.