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January 04, 2008


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Amazing how fast it goes sometimes, isn't it? I find myself wondering how we can spend so much at Target every week and yet, when I go there it seems everything I buy is "necessary".

I think watching the pennies is important as well. I was once told by a small business owner "watch the pennies and the dollars will take of themselves" I think there is a lot of truth in that.

I hate to say this but it's because she's Dumb. MP Dunleavy buys houses without calculating how much the payment is. So you are surprised she spent $10k? She's not very smart.

She just bought an expensive home $200k+ and got into a bidding war. She bought without running numbers, I think that will hurt her more than $10k blown. Considering it takes 30 years to pay off and she is charged 6% interest on the extra $10k she paid for the house. Hmm...that adds up way faster.

Friends look at me like I am from Neptune when I tell them I literally send in $10 to by Sharebuilder brokerage account using BOA BillPay.

They say, "It is so small and not even worth the time." It is worth the 5-seconds to send it off and I will attest that sending in $5-$15 here and there in addition to the $100-$500 big additions adds up to a huge amount.

I send in $5 to by sister's UTMA account as well. Just think, you have $111.87 in your checking after you have paid all of your bills and you need NOTHING for the week except for a gas fill-up and maybe a dinner later in the week, why not send in $21.87 to clean up the checking account?

Large things are important because they are large, but they are also usually the most recalcitrant at reducing. Small things are important because they add up and are much more flexible.

To Michael:

I'm a business owner as well, mid-sized with about 70 employees. The counter to what you said is "don't be penny-wise and dollar foolish" - and from my experience most people who do concentrate on the pennies are dollar foolish. What do I mean by that? I know a number of people who are very frugal and have a hard time parting with large amounts of money under any circumstance, and have are extremely debt averse. But if you want to succeed in building a business you can't have these traits. You have to be willing to sink a lot of money into the endeavour if you want it to become lucrative even though it is very high risk - any start-up business is risky, whether you're a doctor starting your own practice or a plumber starting his own plumbing business or a wall street tycoon starting his own private equity firm. CEOs that concentrate on little things (i.e. micro-manage) almost always fail. Read up on the strategies and styles of successful business leaders and you'll see they focus only on the larger things. The average person could focus on their pennies and maybe save $1000 or $2000 a year, or they could use that time to focus on bigger things and try to bring in an extra $10,000 or $20,000 a year. And frankly, that is not much extra side income for anyone to bring in if they're focused.

I think the point here is that people are aware that big items cost money, and they'll be alert for the best deals. However, they don't realize that all the small items add up.

A CEO, as per the above example, will hire good employees, and trust that they will do their job. They don't just pull random people off the street and ignore them. They make sure that reviews are done of those that directly report to them regularly to make sure they're doing their job (which, in turn, means the people they hired must be doing their jobs). Compared to personal finance, I see this as setting up a budget and making sure that the spending is within reason. A CEO will notice when one division is underperforming, and at that point will start researching why until the problem can be located and fixed--which might mean delegating, but it might mean micro-managing. Once fixed, he can go back to regular reviews.

So, it's not necessarily concentrating on all the pennies all the time, but being aware of where the pennies are. If I have $30 in my fun budget, I can spend it however I deem fun. But when my fun budget starts going over, I need to find out why.

Livingalmostlarge, I tend to agree with you.

I can buy one or two $30 purchases on a whim. But $30 a day is ridiculous. She made a trip - any trip is a major expense in my book, you need to have at least a vague idea how much a trip would cost you and if you are OK with it. $30 for a party is pretty generous. Again, how many such parties did she go to? Shoes for a child? Kids grow out of shoes quickly enough, how much did she spent on one pair? How many such pairs of shoes she bought? Nothing wrong in going out to a nice restaurant occasionally, but it is not a minor expense, so she should've counted it. $30 is not pocket change or "little thing".

'Penny wise and pound stupid' is a mantra of many of my friends. The botton line is that 'pennies' are pennies unless they spiral out of control and become dollars, which is hard to do in most cases. Buying a coke from the vending machine instead of Costco is a nonissue, as is buying an occasional $40 lunch. Such expenses will always remain a very small hit to your overall budget. If one is completely lost as to what he or she is actually spending - like the couple from the article - he should review expenses every month and see where the missing $1000-$2000 is going. Very simple.

Michael really hits it with his comment. Instead of focusing on how to spend $2000/year, one would be a lot wiser to focus on how to make extra $10000-$20000/year. I used to focus on the first. Then I realized that on my salary I will never meet my goals regardless of how good I am at saving money. Then I changed to focusing on how to make money, and much higher nominal saving rate followed, as did a higher net worth.

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