Small amounts matter

This article is the fifth of a fourteen-part series that explores the core tenets of Get Rich Slowly.

Getting started with smart personal finance isn't always easy. It's one thing to read about the steps you should take, but it's another thing to actually do them. Your debt is so overwhelming or your saving goals so lofty that you begin to believe that the only way you'll ever get where you want to be is by winning the lottery.

Part of the problem is that we live in a society that idolizes the Big Winner. Nobody celebrates the guy next door who bikes to work, grows his own food and cooks his own meals, shops at the thrift store, and gets all his books from the library. That sort of life isn't glitzy. Yet it's that sort of life that can (and does) lead to true wealth.


This image was submitted by GRS reader Karen L.

Starting Small

I can't remember the first thing I did when I decided I was tired of being buried in debt. But I do know one thing: It was something small. When I became concerned about my finances, it was months before I had any big decisions to make. But there were tons of small things I could do right away.

It's true that it's important to save money on the big stuff, like a home or a car. Any time you make a large purchase, your opportunity to save is magnified. But large transactions are rare. How often do you spend more than $100 on anything?

You have more opportunities to save when shopping for groceries. You can clip coupons or buy in bulk or shop for store brands or compare unit pricing. And you can do it today. Saving fifty cents a week on milk might be inconsequential as a one-time occurrence, but over the course of a year, it amounts to $26. Taken together, many such small economies make a real difference. Small amounts matter.

Maybe you save fifty cents a week on milk by using a cheaper brand, save $4 a week by clipping coupons, save $2 a week by taking the bus to work on Fridays, save $25 a month by dropping to basic cable, save $47/year by canceling your subscription to The New Yorker, and save $100 during the summer months by growing your own vegetables. These are small changes, but these choices alone would save you over $750 a year.

Remember: A penny saved is more than a penny earned. You earn pre-tax dollars, but you spend after-tax dollars. So what? Well, depending on your tax bracket, you might have to earn $111 or $133 or $150 to actually put $100 in your pocket. Assuming you're in the 25% tax bracket, saving $750/year is like giving yourself a $1000 raise!

Starting small has an interesting side effect. As you get in the habit of cutting costs on one thing, you find that you can transfer that skill to other parts of your life. One small step leads to another.

An Uncertain Future

Some folks frown on frugality. They equate it with being “cheap” and consider it beneath their dignity. Others are unwilling to make sacrifices today when the future is so uncertain. They're not willing to “live like that” when they could get hit by a bus tomorrow. I think this is crazy for a couple of reason:

First, spending is not the same as happiness. Second, most of us are likely to live a long time. Which would you rather do?

  • Prepare for a long life by saving and investing, but then die tomorrow.
  • Spend money you don't have now, and then be unable to afford what you need when you're older.

Recently, I had a chat with an acquaintance who runs an adult foster home. She told me anecdotes about her elderly residents who've run out of money. Their quality of life is not high. If you think it's a burden now to give up your cell phone or to take the bus, try having to pinch pennies on necessities when you're 70. Or 80. Or 90.

Remember: Don't confuse frugality with depriving yourself. If pinching pennies makes you feel lousy, then loosen up. Spend a little more. I am not advocating “retail therapy” or spending above your means — I'm telling you that it's okay to spend more for your favorite brand of yogurt or to get your favorite cut of beef. If you don't like shopping in thrift stores, don't.

There's real value in boosting your income — I don't deny that. But frugality is an important part of personal finance, too. And for each of us it's different. I might be able to cut back on clothing and transportation, but I'll probably always spend a lot on food. On the other hand, food may be a perfect place for you to cut costs, but you're not willing to compromise on your wardrobe.

Frugality doesn't mean living like a pauper. Frugality is a good thing. Thrift is a responsible choice. When we restrict our spending on the unimportant, we're able to indulge ourselves on the things that matter most in our lives.

This is the fifth of a fourteen-part series that explores my financial philosophy. These are the core tenets of Get Rich Slowly. Other parts include:

Look for a new installment in this series every Monday through the end of the year.

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Neil
Neil

Love this thread.

Thrift + Savings +Time = Wealth

I mean at the end of the day isn’t that what it all comes down to? And I agree being thrifty does not have to mean deprivation, however, it may mean exploring alternative sources of entertainment and leisure, it may mean coming up with more creative ways to not entertain yourself but also to make ends meet. Which, I can say from experience has only enRICHed my life. Really.

Erika
Erika

I heartily agree with the idea of letting oneself indulge (responsibly) on occassion. Frugality is like having a good diet. You don’t want to deprive yourself or put too much will power in to it; if you do, you’ll just giving up. Instead, you just need to determine what things are most important for keeping you happy. For example (both a diet and frugality example!), my husband and I will buy a pack of fancy cookies that cost as much as or more than a larger pack of lower quality cookies. We enjoy the expensive cookies a lot more, so… Read more »

Hudster
Hudster

Had I discovered your blogsite earlier, I would have been salivating to get a piece of your previous post. Nonetheless, this is a good place to jump in. Definitely good threads. Frugality probably sounds and looks worse than it really is. It does not seem to be a curse for a few wealthy people I have met. Penny wise and pound foolish can be the curse when the driving force is to cut costs at all costs. For example, I lived with someone for several years who had no problem asking me to drive with her across the state line… Read more »

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ewrfv7ty2igq

My approach to frugality is that it is a game. I track my expenses and look at monthly and yearly totals. I enjoy the satisfaction of successfully keeping expenses down.

You know, all those stores at the mall – they are really conspiracies put together by the all of the employees. They want to retire on your money! Don’t fall for it. Keep your money and retire sooner.

JP
JP

Like my grandfather would say: “Take care of the pennies and the pounds take care of themselves.”

Sam
Sam

If you have got an exciting goal that you are working towards (paying down debt, saving for a first home, saving for a vacation/trip, saving to build your dream retirement home) I find that the denial of the Starbucks or the new shoes or the new/leased car can be enjoyable. I know that by denying myself I am rewarding myself in the long run. I think a lot of folks just don’t know where they stand when it comes to finances, they don’t know how much they owe in unsecured debt, how much they owe in secured debt, how much… Read more »

Anne-Marie
Anne-Marie

Let me explain my lifestyle and how I save and how the little things can add up, yet still be able to buy better quality and more expensive items. I love Starbucks coffee. But at $1.89 a cup twice a day, that can certainly add up. ($117.00 a month!)….So now I buy it from the supermarket. I can buy 1 pound of Sarbucks coffee from the supermarket that costs $16.00. Sure sounds like a lot, BUT I’m saving $100.00 a month! Still having my luxury, yet still saving. I do the same for lunches. I put $5.00 away a day… Read more »

TJP
TJP

Also remember the time value of money and interest. When you spent $1 a day, most people think this accounts for $365. This estimate is only half correct. You must also account for a year’s worth of missed interest, which may be between 3 to 10%, depending on how well you manage money. So the $365 sum turns out to be $400 assuming you would have invested the money wisely.

Just imagine this same outcome over the course of 20 years. That’s why wealthy people understand that small amount count.

Great post, not enough people stress the importance of small savings!

Neil
Neil

I do agree…small amounts do matter…as a student…i used to save up nickels in the 1 liter pepsi / coke bottles…at the end of my first year…i took the bottle to walmart where they have those coin change machines..and all teh pennies went into the machine…I got back $ 54.25 which was quite surprising.

I used to buy some grocery and my camping sleeping back ( $ 20 ) from Walmart.

Lesson Learnt:- Small amounts do matter..Save up your pennis you never know when you might need them 🙂

Nikhila Pai
Nikhila Pai

I don’t go into debt with large purchases. I am the type of person who spends exactly what she earns by charging $5, $10 and $20. While I might hem and haw over spending $50, I barely blinked or considered the $30 purchases until I got my credit card bill for $1500-2000 a month on ‘stuff’ that disappeared into my mouth or got lost in my home. I wasn’t going into debt, but I wasn’t saving either and found myself on the treadmill or spending my next month’s earnings before I saw it. Cash saved me and my fiance. Paying… Read more »

Beth @ Smart Family Tips
Beth @ Smart Family Tips

“When we restrict our spending on the unimportant, we’re able to indulge ourselves on the things that matter most in our lives.” I think this aspect of frugality is really important. I’ve been reading Greg Karp’s 1-2-3 Money Plan (on J.D.’s recommendation) and this is something he underscores throughout the book. Frugality and saving money don’t have to be about depriving yourself. If the focus is on saving small (or large) amounts on all the things that don’t really matter to you, then you’ll have more money to spend on the things that really do. This concept has changed my… Read more »

Jeff
Jeff

Frugality is so much more too. It allows us to concentrate on what we decide is important instead of physical things that aren’t. If you own a farm, buy a tractor, if you don’t have a farm you don’t have a tractor. Seems obvious? How many people have a boat and only got boating a few times a year, or have skis and never ski or have a garage full of stuff they never use. Or throw away dozens of items a month out of their fridge. More physical stuff makes life more difficult…so if you have a farm, buy… Read more »

Dotty
Dotty

I agree that small amounts matter. But if you save .75 cents at the grocery store by clipping a coupon, and then go into another store and spend that .75 cents, you haven’t saved a thing, right? My question is: how do you actually *save* what you’re saving by being frugal or by buying on a deal? I know that if I get a 50% off discount on a shirt, I’m not putting away the other 50% in my savings. Should I be? Should I be considering those small savings found money? Or should I be thinking that since I… Read more »

Tyler Tervooren
Tyler Tervooren

@Dotty (#3), “how do you actually *save* what you’re saving by being frugal or by buying on a deal?” I think the answer to that question is different for everyone. How much are you saving already? What’s really important to you? If you’re saving enough already, maybe you’ll feel a bit too restricted trying to direct every penny you save while shopping into a savings account. If you’re not and you genuinely want to save more, then you need a system that will facilitate that. Maybe you can keep a notebook and quickly jot down your savings each month on… Read more »

Foxie || CarsxGirl
Foxie || CarsxGirl

Loving the emphasis here, it’s great to remember that “extravagant expenses” don’t necessarily correlate with “horrible finances.” Overall, my money skills aren’t bad and we’re doing pretty good, but the spending on the cars can’t be classified in any other way other than “over the top.” But we love it and make it a priority, right next to saving for me. 🙂 If I get money, I like to split it between my car savings and my other savings, and then I never feel guilty about spending my cars’ money on them! (Yeah, they have their own accounts, like kids….… Read more »

Little House
Little House

Thanks for mentioning the person riding their bike. Last year when gas was peaking out at $5.00 a gallon, I started riding a lot more. My husband and I were able to start saving some money and paying down debt. Of course, it wasn’t all because of my bike riding. But this was a small start.

Small starts are important!

Tomas Stonkus
Tomas Stonkus

J.D.: Thank you for sharing your thoughts about money. I could not agree more.I just started noticing, that most of my saving could come on skipping on random desire to buy some food, or a snack, or even a book. Those things do add up. I believe that most people understand that small things add up, however the biggest challenge that most of us have is not seeing the big picture when we make that purchase. At least I am guilty of that. A great technique to make yourself realize how much your HABITS are costing you is to put… Read more »

rachel
rachel

I love the “back to basics” you’re doing, JD – it’s really helpful to have even the obvious stuff stated clearly and consisely as an aide-memoir if nothing else… i am fortunate to only have debt in the form of my student loan at the moment but i am trying to desperately save up for a small deposit for a house (well, bigger the better, right?) and i am trying to increase my income – but frugality is easier and much more immediate! also, just wanted to say thanks for the work you do here, i love GRS and check… Read more »

Alexandra
Alexandra

I hope that Tenet #6 is “Big Amounts Matter More”. No matter how many coupons you clip, or how many lattes you skip, this will never outweigh making careful, well-thought out decisions about the BIG things in life. The best thing to cut back on? Your house. Only buy enough house to fit you and your life. No empty rooms, guest bedrooms, etc. That extra $100,000 you save will equal all the lattes you can drink while living in that house. I still scratch my head at people who obsess over little things like coupons and cable bills, but at… Read more »

Caitlin
Caitlin

@Dotty (#3) I agree with Foxie – you are still ahead the $0.75, even if you don’t pop it into a savings account. Unless you say to yourself “Hey, I have an extra $0.75, I think I’ll go waste it” and then spend it on something you would not have purchased anyway, then you’re ahead. Saving $0.75 on bread and then putting that $0.75 toward milk still saves you $0.75 overall. If you’d rather see the savings, Tyler has a good idea about tracking the amount you save and putting those amounts into your savings account each week/month. I personally… Read more »

ami | 40daystochange
ami | 40daystochange

I like the idea that frugality is more than just cutting off all unnecessary spending. For me, using frugality on one aspect of my spending to enable a desired purchase makes both the frugality AND the purchase more fun. So, for example, if I want to buy a particular book (because I know I’ll keep it), I scan my day-to-day expenses to see what little things I can cut and, based on how much I save each day, how long it’ll take me to save up the purchase price. That way, the small daily sacrifice doesn’t seem burdensome – and… Read more »

J.D.
J.D.

@Alexandra (#9)
Shhhh! You’re anticipating! 🙂 We’ll cover big amounts next week. You’re right. They’re important. But too many people dismiss small changes as meaningless, but they’re not. They form the foundation of good personal finance. They help you develop habits that will stand you in good stead for the rest of your life. Small changes come first, I think.

hanna
hanna

Have you ever read the children’s book “A Chair for My Mother” by Vera B. Willians? Probably not… but it’s a great book for giving children the message about saving up for something important and all the ways a family can cut costs and contribute. My kids love this book in spite of the anxiety they feel that this family lost everything when their house burned down. *Spoiler Alert* 1) It’s a great lesson (for parents) on why you need home owner’s or renter’s insurance 🙂 2) It’s a great lesson in charity and giving your extras to those who… Read more »

Kandace
Kandace

When I was trying to build up my saving account, I tucked those savings from coupons, sales, etc. into my savings account. It helped me focus on how much I was spending, what I could be saving, and if I really needed to buy what I was buying.

Avistew
Avistew

I think the “don’t deprive yourself” part is important. Before my husband and I came up with an actual budget, we were just trying to spend as little as possible. We were doing things wrong. We made sure to get the cheapest of everything, and we ended up cutting the wrong things out. For about 6 months, our entertainment “budget” was 0. We were not allowed to spend money on eating out, buying a book, movie or game, going to the theatre, having a drink somewhere. We were not allowing ourselves to buy treats either (no candy, no cookies, no… Read more »

Alexandra
Alexandra

Sorry J.D.! 😉

Angulo
Angulo

I have to agree with Alexandra #9 regarding that “big amounts matter more”. While I save 35% of my income into my retirement and a mutual fund,I still spend almost as much on gambling at the casino… I have absolutely no debt of any kind and live extremely frugally to the point of being considered cheap by my co-workers… Yet I still have this guilty pleasure which is literally my only excuse for going out of the house other than for errands. If I didn’t spend so much on gambling maybe I would be able to alleviate my anxiety over… Read more »

Kristin @ klingtocash
Kristin @ klingtocash

It’s because of this principle that I love David Bach’s books. All of his books include a chapter on the latte factor and how those little transactions really add up to some big money.

I started buying my husband really good coffee beans and a thermos. He takes a pot of coffee with him each day. This saves us over $1,000 a year. Invest that money over the course of your life and it’ll make a huge difference in your savings.

Kristin @ klingtocash
Kristin @ klingtocash

@ Doty (#3)

I have a budget each month. If I save on a category, it either allows me to stretch my dollars further or take the left over money and use it for savings or debt repayment. You need to have a plan for those savings and apply them to your plan.

Tyler Karaszewski
Tyler Karaszewski

Given only your two options: 1) Prepare for a long life by saving and investing, but then die tomorrow. 2) Spend money you don’t have now, and then be unable to afford what you need when you’re older. I’d actually choose the second. I bet most others would as well. 😉 But, like some of the other people here have mentioned, I’m not sure how much I agree with you on this point J.D. You use a collection of examples to arrive at an effective $1000/year raise. I see that and think “Eh, that’s not really a huge deal”. If… Read more »

Rob Bennett
Rob Bennett

My experience is that the small expenses that are repeated many, many times count for a lot more than the large expenses that are repeated rarely. Yet 80 percent of our money management efforts are directed to the rare, big items.

This is one of the reasons why I am pro-budget. It is only by looking at the numbers that this reality clicks.

Rob

elisabeth
elisabeth

I was reading along with JD’s list of “small changes” thinking, no, I have to buy the organic milk, but yes to using public transportation, yes to going down to basic cable, yes to using coupons, but oh no, not giving up the New Yorker subscription! — for about a dollar an issue I get so much to read (plus we recycle them to our local hospital waiting rooms) that it actually seems like a very thrifty purchase. But, that just goes to prove that everyone has different indulgences. And even if making these kinds of small thrift choices may… Read more »

Ross Williams
Ross Williams

I think the mistake people make is trying to control their spending rather than taking control over their desire to have things. If you develop a lifestyle that is within your means, you don’t have to be constantly telling yourself no.

Start by throwing out your television. You will discover that you have a lot less things you think you need.

Dustin | Engaged Marriage
Dustin | Engaged Marriage

“Spending is not the same as happiness” says it all for me. When we put our focus on our true priorities in life (our spouse, children, spiritual life), it becomes much easier to let go of trivial spending in order to build a solid financial foundation.

Frugillionaire
Frugillionaire

I think the *psychology* of starting with small amounts is just as (maybe more?) important as the pennies saved. If you’re not used to cutting back, it’s much easier to start with your latte than your Land Rover. Once you realize, “hey, this frugality thing’s not that bad,” (ie. giving up a luxury didn’t make you as miserable as you’d thought), you’ll gain the desire and confidence to tackle bigger expenditures. Also, the opportunity to save on BIG expenses tends to occur once in a blue moon. It’s nice to be able to take some steps (however small) toward your… Read more »

ebyt
ebyt

I guess ever since I started to really care about money (vs. my free-spending ways in college), I’ve realized that it’s easiest to be frugal where you can rather than trying to do something unsustainable. For example, I don’t own a car and don’t need one right now – I can walk to work. That saves me hundreds of dollars a month on parking, insurance, gas, and a car payment. I also don’t spend money on things other people my age do such as drinking and partying every weekend. On the other hand, I just bought myself $60 body lotion… Read more »

IngaG
IngaG

A great post. And just a little illustration to some of the life approaches you touched: My mother knew how to be frugal in many respects, but she also had pleasures she refused to sacrifice. Her lifestyle in many ways was an example of balance. She always bought very few things and only those she truly needed. She never accumulated clutter and she came from poverty, knowing exactly how to make life beautiful on a limited budget. But that is also why she treasured luxuries and experiences. She may have only owned 6-8 pairs of quality shoes for several years… Read more »

Gee
Gee

Regarding big expenses vs. small ones…

I don’t understand why you can’t save in both areas. They aren’t mutually exclusive concepts.

And sometimes, when you make a mistake in a big purchase, you have to live with it. But everyday frugality involves making amaller puchasing decisions all the time. So there will always be a new week when you can cut that grocery bill or not let food spoil.

K at Resqdebt
K at Resqdebt

This is quite useful advice and demonstrates why this site has the following that it has. Being able to save, and more importantly to developing the mentality to want to save, is vital to the mission of being debt-free.

Mike Wachowski
Mike Wachowski

Don’t neglect to “Focus on earning more vs. solely focusing on cutting costs.”

I’ve been able to build a freelance career that nets $300,000 per year, which is a better strategy than focusing solely on reducing my Netflix subscription or saving 50 cents on milk (both of which I’ve done as well to maximize savings).

Far easier to earn thousands than to cut thousands.

Greg
Greg

@Tyler “Given only your two options: 1) Prepare for a long life by saving and investing, but then die tomorrow. 2) Spend money you don’t have now, and then be unable to afford what you need when you’re older. I’d actually choose the second. I bet most others would as well.” If I were single, maybe (but probably not), for me the comfort of knowing I will leave my wife and kids in as good a financial position as possible is worth the risk of a little sacrifice now. For those that think it’s only the big expenses that matter,… Read more »

Rick Francis
Rick Francis

@Dotty (#3), wrote;
“how do you actually *save* what you’re saving by being frugal or by buying on a deal?”

By limiting yourself to enough! You don’t have to spend just because you aren’t broke!

Money will accumulate in your checking account if you are spending less and earning the same amount. Move it to savings as you see fit.

If you can’t resist spending when you see a bit extra in your checking account then move some money to savings when you are paid and use frugality to make it to the next paycheck!

-Rick Francis

Suzanne
Suzanne

Well, I’m single and it’s all the MORE reason to prepare for my own future. No one else will! I won’t have kids to bail me out if I spend it all now. I can’t believe anyone would rather have nothing when retirement comes (or not retire at all) than spend it now since there’s a very small chance you’ll die young. Now if you’re a smoker, are morbidly obese or have some genetic propensity to die early, maybe I can understand not caring about your “golden” years. But for the rest of us, life is truly bleak for someone… Read more »

Oleg Mokhov
Oleg Mokhov

Hey J.D., Better to achieve a small goal than plan (but not do) a larger one. Small steps are not only easier to do psychologically (less daunting), but they establish a foundation to achieve bigger goals. You’re building your ladder. The more steps you build, the closer you’ll be to your big goal. Much more effective than just trying to jump up to that top window that is your ultimate goal, then getting frustrated and quitting – or not trying to begin with because it’s too high. However, I also think that you should analyze your steps and make sure… Read more »

chacha1
chacha1

Like Gee above, I think doing both is important but the whole point of discussing small amounts and big amounts separately is to give readers the chance to review what they’re doing and decide what, if anything, they want to change. I have to assume that most readers of PF blogs in general read because they think they still have something to learn … no? Frankly, I think it’s essential to micro-manage the “small stuff” at any time, but crucial if your income is low. This attentiveness can pay off big time once income starts to go up. I’m fortunate… Read more »

HollyP
HollyP

Great post, JD!

nickyt
nickyt

Love this post!! Since starting to follow your site I have done alot of thinking about the “little changes” I could make to help our budget and in doing so discovered what was REALLY important to our family. We don’t need to go see the latest release as none of us like the crowds of the theater. Instead we can wait until the movies come out on DVD and rent them using our Netflix account. Plus, we can get pizza and candy and popcorn for home and have a better time on the couch where we can talk during the… Read more »

K
K

Disagree with many that state big items are important and small items are not worth the time/effort. It is not the $$ amount of a purchase but the ideology that matters. If a person is not thinking frugally while making purchase decisions on a daily basis on small things, there is no way they will think frugal when buying larger things. Case in point: I consider myself frugal as I clip coupons, think about saving $.50 for milk etc. and I chose to buy a compact car while buying a car. My not so frugal co-workers who would rather pay… Read more »

Patty - Why Not Start Now?
Patty - Why Not Start Now?

You’re so right. We do live in a society that idolizes the big winner, which leaves so many people feeling stuck because they can’t live up to that. The truth is small amounts matter in every area of life: money, health, work, relatationships, etc. And when we shift to that mindset it’s such a relief, and we actually have a sense of moving toward goals (and having more fun.) So thank you once again for being the voice of reason!

John Steed
John Steed

A few posters have suggested that it’s better to focus money-saving efforts on big (and usually infrequent) purchases rather than smaller, everyday purchases. However, I don’t think that it’s an “either-or” proposition, it’s more of a mindset about spending money. I try to follow a few simple rules. The first is to “spend money on purpose” — that is, spend it on what you value most. For example, my wife and I value tasty, nutritious food so we are willing to spend money on fresh, high-quality ingredients. However, we save money because we don’t eat out often, and I usually… Read more »

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