One of the things that we often hear is that it is important to pinch pennies, saving every last cent we can. The idea is that these small savings, added up over time, result in huge savings that can lead to you having vast wealth. Or at least lead to financial freedom.

However, can saving such small amounts of money — even over time — truly lead to riches? Whether “riches” for you means a million dollar nest egg, ¬†or whether it means just having enough to be comfortable, or whether it has a completely different meaning altogether, the choices you make can determine whether you achieve your personal definition of wealth. However, the decision to pinch pennies might not be what gets you in the millionaire fast lane.

Even Added Up, Do All Those Pennies Really Make a Difference?

For sure, saving a few cents here and a couple dollars there can make a long-term difference. You could end up with a little bit more each month to save, or to pay down debt, or whatever. However, penny pinching might not be as effective as considering the bigger expenses that might be draining your wealth away.

Consider: If you are pinching your pennies to save $10 a week, you are saving $520 a year. Not bad. But what if, instead of focusing on pinching your pennies, you refinanced your home (no cashing out) to a lower interest rate. I could save $150 a month if I refinance my home at a lower rate, and did it for the 25 years remaining on my mortgage. That’s $1,800 a year. If I did that, even if I didn’t pinch my pennies, I’d be saving $1,280 a year. I’m planning on switching to a high deductible plan this year. As a result, I should save $275 a month on premiums. That’s money that can go right into a HSA that will grow and benefit me. That’s a little better than saving $3 to $6 a week by avoiding a trip or two to the pastry shop to enjoy one of life’s simple pleasures.

What If You Pinch the Right Pennies?

Penny pinching can help if you are pinching the right pennies. Some experts suggest that you waste between 10% and 15% of your income each month. Instead of trying to pinch pennies on things that you enjoy, perhaps you should look at what you consider waste. The U.S. Census Bureau says that the median income in 2009 was $49,777 a year. That’s $4,148.08 a month. If you are wasting 10% of that, you should be able to recover about $415 a month.

Instead of looking for pennies to pinch, look at your expenses on a larger scale, and consider how they line up with your priorities. Look for money wasters in your budget, and work toward reducing the things that you don’t care about that much. In my case, I’m wasting money on interest on my mortgage, my health insurance premiums, and probably some of the things I buy that I don’t particularly care if I have.

Cutting out the big money wasters is likely to help me save more in the long run. And, if I cut the big wasters so that I can keep enjoying the things I like, I’ll be living a life I’m more satisfied with.

What do you think? Is penny pinching worth the effort?



Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.