Are you pinching your pennies? I hear the saying all the time from people in all walks of life, but does it really matter that much? Can pinching your pennies really make a difference in your personal financial life? Let’s take a look.
Where to pinch your pennies
To start off let’s look at habits people have that can be categorized as optional spending. I know, some of thing on the list may not be optional to you and each person has to make that decision for himself or herself. So here we go, things people do on a daily basis that are optional: buy a Starbucks latte each morning, eat out for lunch, drive to lunch each day, download an MP3 song, smoke a pack of cigarettes (some smoke two!), make a stop at the bar, or stop by the convenience store for a soda and a snack. These are just to name a few and surely there are many others to look into but these will do for our example.
Cost of NOT pinching your pennies
Just by changing your habits and pinching your pennies a little more you could end up with some big changes in your personal financial life. First let’s look at what a Starbuck’s Latte costs each day. For the sake of argument let’s only buy one coffee 5 days a week and on weekends we’ll make our own. Each regular coffee costs around $2 so we are saving $10 per week and drinking the coffee that the office has for free or making it at home. On an annual basis you save about $520 a year. It doesn’t sound like much but let’s move on.
During lunch very day at work you go out and grab a bite to eat. Let’s say you are trying to be frugal and go to fast food every day. Or even if you want to be healthier and go get a $5 foot long at Subway you still add chips and a drink and it comes to around $7 a day. Throughout the week you would end up spending about $35 and in a year totals to$1,820.
Don’t forget that because you drove to lunch you are using extra gas. You might only make a round trip of about 5 miles but that is 25 miles a week and will roughly cost you an additional $3 a week to drive depending on the price of gas and what type of car you drive. It doesn’t sound like much but there goes another $156 per year, not to mention you drove an additional 1300 miles and the wear it has on your car and the cost of maintenance.
What about the smoker. Say you only smoke a pack a day. A pack of cigarettes could cost you about $5 per pack. That’s $35 a week because you probably don’t take the weekends off. During a year you could spend as much as $1,820, not to mention the higher rate you will pay for health insurance, life insurance and other related health problems. Wait, there is a bright side, you may die at a younger age so you won’t need to save as much.
You could go on and on finding all kinds of way to start pinching your pennies through numerous things you spend a few dollars on, that you may not really need that really add up. For example, that drink with your buddy after work might cost you $10 a few times a week, totaling $30 a week or $1560 per year. Or something as simple as buying a soda at the local convenience store for $1 every afternoon 5 days a week 52 weeks a year another $260. You get the idea, but does it really make that big of a deal to start pinching your pennies and cut out some of those expenses? Would it be worth it in the long run?
Pinching your pennies for profit
Let’s look at the numbers. Say you just buy a latte, go out to lunch and go out for a drink a few times a week. That sounds reasonable for some people, right? Well, if you add it up, latte $520 a year, lunch $1,820 a year, and a few drinks $1,560 a year, it totals $3,900 per year. Over a ten year period that would be $39,000. What if you invested the $3,900 per year earning a rate of 9% over that 10 year period, what would you have? In ten years that would be worth $69,000. If you were 30 years old and were going to retire at 60 you could save for 30 years that would be $628,295. What if you are 20 and could do this for 40 years, you could save a total of $1,600,515! In my book that would really help out with my retirement.
Pinching your pennies and making small changes could result in big changes down the road. Now is a good time to get started, setting some goals and creating a budget will help you get there. Why not start today and build for your future?