Saving Money: Perfection vs. "Good Enough"

[blackomen]

I tend to think in terms of the 80/20 rule: 80% of your desired outcomes come from 20% of your efforts..  80% of the value you get comes from 20% of your spending, etc.  (The exact numbers are not that important but the idea is that the majority of the value you get comes from a minority of your efforts or inputs.  Of course, what minority that actually contributes to most of your results may not always be obvious.)

When it comes to saving money, I tend to focus most on keeping my large expenses down..  Housing and Cars are the main areas.  I try to minimize my monthly expenses (mortgage, insurance, internet and phone bills, etc.) while maintaining an acceptable standard of living.  However, a lot of times, I could care less if I missed a $0.50 coupon for oranges in the papers or got gas from a gas station charging $0.10/gallon higher than the cheapest gas station in the area.  If I was craving oranges and a $0.50 coupon for them fell into my hands from the sky, I would still of course use it but I won't spend a ton of time searching for it.

Is this a dangerous mindset?  I tend to put a ton of effort into getting the most value out of the big ticket items but these small expenses do not receive a fair share of attention.  Sure, the small expenses could add up if I don't pay attention to them but there's an opportunity cost to that attention.  The same effort could have been spent further optimizing my larger expenses or figuring a way to earn more money (side job/business, career development, etc.)  Is my way of thinking dangerous or still in line with the Mustachian philosophy?

Also see article: Macrofrugality vs Microfrugality.

(I'm a Macrofrugal type by heart.)

[Cheddar Stacker]

I like it; approved by this mustachian.

I tend to focus on smaller things since some of the bigger stuff is harder to change quickly. Also because there are so many small things in my family's budget that it tends to be over half our monthly expenses and it needs to be monitored closely.

I use this approach at work heavily though. I try to please 80% of the people 80% of the time with 20% of my efforts. Let the rest fall where it may. I can't devote too much of my time to the PIMA clients and co-workers, so I don't care if they don't approve of my philosophy/strategy.

[homeymomma]

I can't see how you could do it any other way. There's always a trade off in terms of effort, and I think the cost savings at a certain point are not worth the effort. I would assume even the most mustachian person on here would have a limit where they draw the line. But everyone will draw it at a different place. Having a higher income will allow you to draw the line higher and higher while still maintaining what appears to be a mustachian savings rate. I don't think it's a dangerous mindset at all, but simply part of the bigger project of determining what your priorities in life are.

[galliver]

I think that's basically my approach, too.

I think the one big...aspect that can easily be missed with this approach, and that I have trouble with, is "additive" habits. $1 isn't a lot. But $1 coffee every weekday is roughly $20/mo. $5 isn't a lot, but $5 every workday is $100+/mo. Maybe you're good on your weekday habits but like to have a nice-ish date on the weekends, that's $50/week or $200/mo. But of course most people aren't that regular...maybe it's a date one week, and work lunches another because it's a busy/stressful week, maybe one month you go to the movies with your friends and another you go hiking 100 mi away. None of these are worthless or that bad, on their own, but it's easy to justify things with 'well it's not like it's a regular thing for me...'

That's my experience, anyway.

[Sebastian]

sounds like more of the mindset of jacob over at ERE. You should check him out maybe you'll like that better than MMM. I tend to lean more on Jacob's side as well.

[golden1]

I agree, focus on keeping the big things down first and don't worry as much about the little stuff. 

Nothing gets me more aggravated when you see someone with large debts and a big car loan or oversized house talking about their big sacrifice is cutting the cable bill.  I get that you have to start somewhere, but you really aren't going to make big progress with small changes.

[James]

I had it opposite about 5 years ago, pre-MMM. I scrimped on many small things, had no cable, didn't eat out much, but had a big house on a lake, new van, newer truck, etc. Just crazy. Now we have old cars, cheap house, and still keep our routine expenses on the small side. But I realize when looking back that the money I wasted on the house and vehicles was many times the amount I scrimped in small purchases. It's not that we shouldn't watch the smaller purchases, but the big items certainly get the biggest bang for the buck so to speak. And many of our smaller expenses arise out of those larger items, like maintaining the house, furniture, keeping up with the neighbors, etc.

[DoubleDown]

I think that's a reasonable approach, as long as your overall goals (e.g., savings percentage) are being met. As galliver points out, it can be important to pay attention to all the "little things" adding up. I've known folks that waste an astounding amount of money on "little things" when you look at them all combined. But as long as your overall spending is in line with your values and goals, it's all good.

Maybe it's an oddity of mine, but even though I could easily afford some little things, I still can't stomach over-paying for some things just on "principle." For example, when vendors are selling a single 12-oz. bottle of water for $3 - 4 at a festival or something, I'd have to be extremely thirsty and unprepared with water of my own, or unable to find a drinking fountain nearby, to open my wallet for such a wasteful (but small) thing.

Finally, there's the waste and impact-to-the-planet overall aspect-- to use a ridiculous example and then you can scale down from there -- even if the Buffetts or Romneys could afford to use 200 paper napkins per person per meal, I'd be bothered by that kind of consumption/waste.

[Rural]

I think I'm of a similar mindset -- optimize the big things, see to it that there are very few of the small things, then find a pretty darn good system for things like groceries, set it and forget it. That means I buy only store brands (with exactly one exception, for barbecue sauce), and don't worry about coupons.


We don't have any of those little 'additive' habits galliver mentioned, but the trip one month, movie another month thing could be a problem for us, and eating out for supper when the schedule gets hectic is a point of weakness. I keep an eye on this by checking expenditures monthly. It helps to do everything on one (rewards)credit card -- easy to see spending at a glance and see if a problem is developing.

[gobius]

I'm more of a fan of the macrofrugality in the article you posted.  Microfrugality seems to take a lot more effort for (likely) less results.  In the past I have probably had larger "small costs" than my co-workers, but since I have lower housing costs and no car payments, I save a ton more (even though most out-earn me).  Then again, I have larger "big costs" than my siblings, but save a ton more than them too since they blow their money on the small things.

I like Jeff Yeager but he's more of a "microfrugalist" than I am.  I figure if I just avoid going out to eat and keep my housing/car expenses low, I will be fine.  I have a generally frugal attitude, though, so I don't have many small expenses and don't like to spend money.  I suppose if someone likes to buy things a lot, trying to find savings in every small purchase may help him/her.  Or some people just like the challenge/adventure of saving every little bit.

[hybrid]

I'm pretty darn confident that I won't get down to living on 25K like our dear blog owner, even if I give myself a bump for healthy care costs (we are older than the MMM family, so we can reasonably expect to pay more for that). That, and we have made a lot of decisions that are hard to undo, like living much closer to work when our jobs are in different directions from our home, our home we love is a good bit larger and less optimal than some, etc. etc.

But we made most of the big changes (the 80%, as the OP describes it) and for us at least that is enough. I'm at the point where my optimizing is no longer plucking the low hanging cut-the-cable-bill stage, it's how to use a little less electricity each month. If I never get there I am still pretty far down the Mustachian road all the same.     

[William]

I think your approach is just fine.  When you're on your deathbed, are you going to regret not fretting over little purchasing? 

Probably not.

[blackomen]

I think I'm of a similar mindset -- optimize the big things, see to it that there are very few of the small things, then find a pretty darn good system for things like groceries, set it and forget it. That means I buy only store brands (with exactly one exception, for barbecue sauce), and don't worry about coupons.


We don't have any of those little 'additive' habits galliver mentioned, but the trip one month, movie another month thing could be a problem for us, and eating out for supper when the schedule gets hectic is a point of weakness. I keep an eye on this by checking expenditures monthly. It helps to do everything on one (rewards)credit card -- easy to see spending at a glance and see if a problem is developing.

As for small expenses that occur frequently and add up, I lean towards using systems rather than sitting down to make a decision each time.  An example is food.  Right now, I limit myself to eating out no more than 4 meals a week and track my spending on food on Mint each month.  If my food expenses are still too high, I cut it down to 3 or even 2 times a week.  It's a lot less of an overhead than thinking each time how much I've spent on food this month and whether I can afford it before deciding to eat out or not.

As for the 80/20 rule, I actually learned it from Tim Ferriss although the area I apply it to most heavily is personal finance..  gotta check out Jacob @ERE sometime..



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[CarDude]

sounds like more of the mindset of jacob over at ERE. You should check him out maybe you'll like that better than MMM. I tend to lean more on Jacob's side as well.

Yup. I had that approach for a while (I'm from the pre-YMOYL era) and it gave me a chuckle years back to see Jacob talking about it on ERE. Some things never change.

[Wildflame]

The way I do it is pretty simple: each month, I know roughly how much money should be coming in, and how much money I want to have going out.

If at the end of the month I have less money left than I expected, I investigate, and pay more attention for the next month.

In practice I've found that I'm pretty good at avoiding wasting money on autopilot.

The reason this works is because I've set a savings goal that is reasonable - around 50%. I could definitely manage 55% (in fact, my actual savings rate bounces between 50%-55% without any extra attention from me), and 60% might be possible with real effort - but it's not worth it to me, because the extra time and stress required simply outweigh the benefits of faster saving and earlier FI. I always remind myself that FI is ultimately about improving my quality of life, and my quality of life doesn't get much worse between 0% and 50%, a little between 50% and 55%, and a lot between 55% and 60%. There's just not that much fat to cut, because my income is low and my expenses are lower. About the only thing I splurge on is eating out, and you'd have to kill me and grill me to prevent me doing that.

As regards any individual decision to save or expend effort, I use 50% of my hourly rate as a basis. Unless it is worth at least 50% of my hourly rate in dollar savings for the time I'd have to spend, I won't bother. This means I would take an hour's detour (by bike) to return a $10 item I didn't need, but wouldn't bother for a $5 item (I'd try and bundle it with other chores or just forget about it). I wouldn't skip one gas station for another unless I could save something like 10c a litre (40c a gallon?) by doing so. I wouldn't go home for a voucher unless it was worth a lot of money or I hadn't gone far.

It is entirely possible that once I am 'retired' that I'll see it differently. Perhaps then spending becomes more a game of how much you can avoid spending, and you have more time free for such aggressive optimisation.

[arebelspy]

sounds like more of the mindset of jacob over at ERE. You should check him out maybe you'll like that better than MMM. I tend to lean more on Jacob's side as well.

I disagree.

While I think that Jacob's approach doesn't focus on little frugality tips, so he agrees with the OP in terms of not worrying about microfrugality, I think it's because of a TOTALLY different reason.

OP seems to be ignoring the small items, whereas Jacob avoids having to deal with them via having everything part of a system.

Read this article by him to see more of what I mean: http://earlyretirementextreme.com/the-forest-versus-the-trees.html

I've designed my life so that little AND big items aren't an issue.  Think about the ice cream analogy: if you are overweight and trying to diet, you can use willpower to resist eating the ice cream in your freezer OR you can just throw it out.  Now you don't have to think about eating it, because it's not there as an option.

I think the OP's idea of focusing on big wins is a good first step, I don't like the cop out of stopping there.  It's one of the things that bothers me about Ramit Sethi - he talks about just optimizing big items and skipping everything else.

IMO, the best way is to design your lifestyle so all those things are encompassed in a system, then you never give any thought to any of them. I put no effort into reducing spending (we spend all that we want, and never give a second thought to throwing gobs of money at things), yet still spend only ~20k annually due to our designed lifestyle.

OP has a great idea for a start, IMO, not a finish (and from my reading of ERE, I think Jacob would agree with both myself and the OP - it's not about clipping coupons at all.  I'd never bother with that.  But it is about minimizing those expenses due to the overall way you've structured your life).

Something to think about, hopefully.  That ERE article is a good one, I'd encourage everyone to go read it if you've made it this far but didn't click on the link.

[homeymomma]

Agreed about structuring your life so you have fewer micro frugality issues that crop up. If you make a habit of bringing a water bottle with you from home, you aren't faced with the dilemma to buy one when you're out.

Both of the OPs examples, however, reminded me of the phrase, "penny wise, pound foolish." I think it's easy to get sucked down the road of saving money in ways that don't actually save you money. Couponing is a good example- I don't do it because when I've tried, I end up spending more because it's not something I would have bought otherwise, or it's a more expensive brand. The time required to efficiently coupon comes across as slightly ridiculous for anyone who has a life to live. Lol.

And the gas thing- tons of people spend more in gas driving to the cheapest gas station than they save by getting that $.04 difference per gallon.

[Hedge_87]

I agree that knocking out the big stuff first is the way to go. We just completely rearranged our life (still working on a few odds and ends) the savings have been amazing so far. On the little stuff I agree it is more time consuming for the amount of savings gain but doesn't mean you should still work on it.
Because $1saved=$1 saved. Your vanguard account doesn't care where that dollar came from.

Having said that. If trying to squeeze the budget tighter is causing you to stress and you are already saving a good chunk of income. Then I say good enough start enjoying life.

[Cheddar Stacker]

Thanks for the link arebelspy. Very on point. Good read.

I now see the difference very clearly. Macro eliminates the need for micro management if designed properly. Makes sense.

[rocklebock]

When I got started, I focused on the "little things" that add up quickly but are easy to just stop doing - like daily lattes, buying lunch at work, shopping as entertainment, etc. A lot of that was just changing some bad habits. Then I did some things that require a little more effort but make a big difference, like switching my phone plan and planning out my grocery shopping. Finally I ramped up to bigger stuff like refinancing a mortgage, paying off so-called "good debt" that really wasn't, and starting a consulting business on the side. So at this point, I don't worry too much about saving $.50 on oranges - if I'm within my $50-$75 weekly target for groceries, everything is fine.

[Datastache]

When I started tracking my finances in earnest last year, I was really struck by how the macro elements really are, well...macro. Rent eats up a huge amount of my income, for instance.

By nature, I'm more inclined toward the microfrugal approach...making a lot of smaller daily choices can seem less intimidating than making a single larger choice. But yeah, there's a lot to be said for balancing your attention to both pieces of the puzzle.

[Cassie]

We also generally take the macro approach. We do focus on some small things.  For instance I will cut or print out a coupon for a buy one get a meal free at a restaurant as long as it is someplace that is not more expensive then what we intend to spend. We don't eat out more often because of this but merely take advantage of an offer.   Once a year I will shop around for car/home insurance to make sure we are getting the best rate.

[Emilyngh]

In my opinion, focusing on macro first is a good idea.   And this includes macro in the long-term sense (eg, cutting one's phone bill by $50 a mo is macro if it will save this without any future effort for years).   However, once the macro is cut down, depending on one's spending patterns the micro can still add up to nothing to sneeze at and should be looked at as well in most cases, IME.

[MrsPete]

Makes sense to me. 

You can never put HUGE EFFORT into every single aspect of your life.  You'd burn out from exhaustion.  So put your effort into the things that benefit you (in this discussion, save you the most money) and are a good balance of savings vs. spending. 

Examples from my own life:

- I could save money by baking my own bread, but it would take a couple hours a week.  On the other hand, I can buy bread at the day-old bread store for pennies.  Bread is not a big deal in my life, I do not get any special gratification from making bread -- so I'll continue to buy it, though I could save money.
- My husband and I used to fight constantly over mowing the yard.  I found someone who'll mow it for $40 every other week.  It's not ideal:  We could mow it ourselves for less, and I'd really like it to be mowed every week . . . but we aren't fighting anymore, and that is worth every penny. 

[blackomen]

sounds like more of the mindset of jacob over at ERE. You should check him out maybe you'll like that better than MMM. I tend to lean more on Jacob's side as well.

I disagree.

While I think that Jacob's approach doesn't focus on little frugality tips, so he agrees with the OP in terms of not worrying about microfrugality, I think it's because of a TOTALLY different reason.

OP seems to be ignoring the small items, whereas Jacob avoids having to deal with them via having everything part of a system.

Read this article by him to see more of what I mean: http://earlyretirementextreme.com/the-forest-versus-the-trees.html

I've designed my life so that little AND big items aren't an issue.  Think about the ice cream analogy: if you are overweight and trying to diet, you can use willpower to resist eating the ice cream in your freezer OR you can just throw it out.  Now you don't have to think about eating it, because it's not there as an option.

I think the OP's idea of focusing on big wins is a good first step, I don't like the cop out of stopping there.  It's one of the things that bothers me about Ramit Sethi - he talks about just optimizing big items and skipping everything else.

IMO, the best way is to design your lifestyle so all those things are encompassed in a system, then you never give any thought to any of them. I put no effort into reducing spending (we spend all that we want, and never give a second thought to throwing gobs of money at things), yet still spend only ~20k annually due to our designed lifestyle.

OP has a great idea for a start, IMO, not a finish (and from my reading of ERE, I think Jacob would agree with both myself and the OP - it's not about clipping coupons at all.  I'd never bother with that.  But it is about minimizing those expenses due to the overall way you've structured your life).

Something to think about, hopefully.  That ERE article is a good one, I'd encourage everyone to go read it if you've made it this far but didn't click on the link.

Also, in terms of my spending, I like to think in terms of maximizing the average utility I gain per dollar spent.  (In Economics, utility refers to the usefulness you gain from purchasing something, that usefulness can come in the form of pleasure, increase in standard of living, safety/security, etc.)

Say you're currently homeless but you can afford to rent a place.  You look at a $500/mo studio.  The utility that the $500/mo you spend is tremendous.  Then you look at a 1 bedroom apartment for $1000/mo.  While that place will be more pleasant to live in than the $500/mo studio, I don't think the difference going from being homeless to living in a studio is the same as the difference from upgrading your studio to a 1 bedroom apartment.

Now, I don't give a precise, quantifiable number to measure the utility of anything (i.e. this $3.00 hamburger has a utility of 10)..  but more along the lines of an intuitive comparison of utility (i.e. the $2000 used Honda Civic has greater utility per dollar than the $20,000 used BMW although the BMW has more utility overall.)

Keep in mind that Utility is subjective between 2 people.  If you've just ran a mile in the sun, that bottle of iced cold water in the vending machine will have far more utility to you than for another person who just finished another bottle of ice water 2 minutes ago even though the price is the same for both of you.

That being said, it would be quite cumbersome to analyze every single purchase over their utility per dollar but in general, the bigger ticket items has a much higher probability of being audited or scrutinized for an intuitive measure of Utility per Dollar.  I usually won't bother with items costing less than $10 unless  they're frequent, recurring purchase.  Over $100, this sort of analysis is mandatory.

[arebelspy]

You're starting from spending and trying to reduce it.  I take the opposite approach.

I never try to reduce my spending.  I spend whatever I want.

I just don't want very much.

From MMM's latest blog post:

So instead of running a “budget”, where you allow yourself a certain amount of waste allowance or “fun money” in various categories every month, I enjoy starting with the idea that Zero is the ultimate budget. Then you carefully evaluate each potential expense and happily admit it only if it truly meets your goals.

Start at 0 and go up.  You won't do the big purchases or little ones.

When you're starting with a bunch and trying to cut down, you'll be unhappy or have waste.

YMMV.

[Hotstreak]

I can absolutely relate to the macro vs. micro discussion.  I recently moved to a new city and my apartment rents for about $350 more than my old place.  To put that in perspective for myself I could have a coffee and lunch every single work day, and still spend less on that stuff than the increase in my rent!

Wow though, it sure is HARD to find a new place, pick up and move, when it's so easy to just re-sign the lease and keep where I am.  Even though the new city is more expensive I am probably $200 over what I'd pay for a similar place back home, which seems huge when I think that $2400/year is about 10% of my take home pay.

[NewStachian]

Is this a dangerous mindset?  I tend to put a ton of effort into getting the most value out of the big ticket items but these small expenses do not receive a fair share of attention. 

I've started to adopt your model. Clipping coupons for $0.50 doesn't make much sense when mortgage + travel > 75% of my budget. The marginal return for effort spent just isn't there for me. The pie chart on mint.com really helped me think this way. (I say 'help' because it has greatly increased my quality of life at very little cost)

But, I view it from a frequency perspective. When grocery shopping, I do this once a week, so I'll try to find things on sale, but I'm not going to kill myself over a little savings. However, if it's something I'm buying daily I will take a hard look at it. I used to buy egg sandwiches at work for about $3 every morning then found an awesome omelette muffin recipe that makes over a dozen healthy egg muffins for roughly the same amount. So, I make them and bring them to work. So, that's a savings of over $60 a month which is definitely worth it. The muffins are also way more delicious and way healthier.

[golden1]

Both of the OPs examples, however, reminded me of the phrase, "penny wise, pound foolish." I think it's easy to get sucked down the road of saving money in ways that don't actually save you money. Couponing is a good example- I don't do it because when I've tried, I end up spending more because it's not something I would have bought otherwise, or it's a more expensive brand. The time required to efficiently coupon comes across as slightly ridiculous for anyone who has a life to live. Lol.

I hate couponing with a passion. 

a) If I am looking at a bunch of coupons in a newspaper or online, I am looking at a bunch of advertising, seeing things that I want but don't need, which violates the whole "low-information diet" idea. 
b) You have to organize them and carry them with you, and it takes time to clip them.
c) In the case of food, most of the time they are for a bunch of processed crap that I don't need. 
d) They get you in the door with a good coupon, and then you are tempted to buy stuff you don't need.

The only time I use a coupon is if it is for a specific item that I am already committed to getting.

[stripey]

I have a reasonably good wage and what amounts to no debt. My happy medium is that I am guided by what I call the 'benefit-to-bother ratio' so it's more about effort than impact sometimes.

Mail-order toilet paper that is slightly cheaper than what I'd otherwise pay for environmentally conscious toilet paper which also donates 50% of profits to an international aid NGO? Yes please- cheaper, socially responsible AND delivered to your door so less effort on my part = triple win.

$0.04/litre off fuel on shopper dockets when I use less than 40L a month and I have to go hunt for the correct service station? No, because the bother and irritation exceeds the <$2 I would save.

Wrangling a cheaper deal with the mobile phone plan (by $15/month!) by investing 30 minutes with them on the phone and asking them to be competitive? Yes please = little bother, lasting benefit.

Keeping hot water in a thermos to avoid re-heating the kettle every time throughout the day I want another cuppa? Yes please, as the effort is practically zero (yes, it's quite nerdy, and means I don't have to wait for the kettle to boil half a dozen times)

You get the drift.  One of my favourite savings is a warning for perfectionists: 'The Perfect is the Enemy of the Good'. As I have perfectionist tendencies, this is a good reminder for me.

 

[Thegoblinchief]

I'm definitely closer to arebelspy's philosophy. A lot of the lifestyle choices we've had (homeschooling, scratch cooking, general dislike for crowded places, mystified by shopping) eliminate challenges. Occasionally being on my bike instead of the car means I miss out on roadside deals, but whatever. I don't care.

Outside of home improvement and other large things that we save up for, we live below the poverty line and are perfectly happy and healthy.

Obsessing about saving money gives MONEY too much importance. Money is just a tool. Change yourself and everything comes around quite nicely.

[arebelspy]

Obsessing about saving money gives MONEY too much importance. Money is just a tool.

Big +1.

Money just isn't that important in the grand scheme of things.

[DoubleDown]

Obsessing about saving money gives MONEY too much importance. Money is just a tool.

Big +1.

Money just isn't that important in the grand scheme of things.

I'm neither agreeing nor disagreeing with this view, but isn't that mindset nearly polar opposite of MMM's views? I wish I could remember some specific posts to back this up, but I seem to recall MMM essentially espousing that money is pretty much the most important tool in our society, and once you have it, you can do all kinds of important things with your life. Without it, you're stuck on a path of dependence on others for your well-being and even survival. Clearly any of us is free to disagree with MMM's philosophy, yet this is a pretty central tenet to his message I'd say.

I certainly agree that seeking "money" (in the negative sense of seeking material things, or where your heart lies) is a bad thing, but in the positive sense as a tool to optimize your own life and have the potential to do good in the world, it's perhaps the most important tool there is.

[Cheddar Stacker]

Obsessing about saving money gives MONEY too much importance. Money is just a tool.

Big +1.

Money just isn't that important in the grand scheme of things.

I'm neither agreeing nor disagreeing with this view, but isn't that mindset nearly polar opposite of MMM's views? I wish I could remember some specific posts to back this up, but I seem to recall MMM essentially espousing that money is pretty much the most important tool in our society, and once you have it, you can do all kinds of important things with your life. Without it, you're stuck on a path of dependence on others for your well-being and even survival. Clearly any of us is free to disagree with MMM's philosophy, yet this is a pretty central tenet to his message I'd say.

I certainly agree that seeking "money" (in the negative sense of seeking material things, or where your heart lies) is a bad thing, but in the positive sense as a tool to optimize your own life and have the potential to do good in the world, it's perhaps the most important tool there is.

I believe you are correct DoubleDown in attributing that sentiment to MMM as I recall a similar post. I agree money is an important tool (Thegoblinchief even called it a tool in the quote).

However, I believe Thegoblinchief and arebelspy are saying a more powerful tool than money is eliminating the "dependence" on money itself. When you need it, it becomes your master. When you design your life properly to avoid the need for money (pretty much the essence of what many people here attempt to achieve) you become your own master.

[Prairie Stash]

The problem with 80/20 is putting it into practice. A lot of the small things are recurring, so monthly they're insignificant but annually and over a decade are big deals. I'll illustrate with a common example: bank fees (my pet peeve). 7 years ago I paid bank fees of $10.95/month, small money.  After a few hours of being on the phone I eliminated them, not worth the effort that month. After 7 years I've saved $924, so now my hourly wage is about $300/hour for the time on the phone. According to the 80/20 rule I shouldn't have bothered, it's well under 20% of my income. According to hourly wage I should have (side bonus was doing the same for the wife years later, it was easier the second time).

Personally I think that was a Macrofrugality decision, I perceive disagreement will come when people only consider the amounts and not the time scales. Cable, cell, utilities all work the same.  For me it's usually a few hours of work and then I'll save hundreds over the next decade. It's barely noticeable on the micro (monthly level), but I think macro.

[DoubleDown]

I believe you are correct DoubleDown in attributing that sentiment to MMM as I recall a similar post. I agree money is an important tool (Thegoblinchief even called it a tool in the quote).

However, I believe Thegoblinchief and arebelspy are saying a more powerful tool than money is eliminating the "dependence" on money itself. When you need it, it becomes your master. When you design your life properly to avoid the need for money (pretty much the essence of what many people here attempt to achieve) you become your own master.

Ah, makes sense, thanks for the explanation! That is a sentiment I agree with (eliminating the dependence on money)

[arebelspy]

Yeah, my point isn't that money is terrible, it's that it's just a tool.  Nothing more.

Is your hammer worth worshiping?  Is your hacksaw worth dedicating your life to?  Would you obsess about your screwdriver?

Money should be on the same plane as those tools.  It's not something to focus on, it's something to learn how to use well, and then use it when it's the best tool, and don't worry about it the vast majority of the time.

It is a tool people are bad at using, due to psychology around it.  But you can get good at using it, and then not worry about it.

I'd be surprised if MMM didn't agree with that.

[Breaker]

Reading the thread it seems to me that people who don't focus on the small savings are in reality missing some big savings and MOST important are not adapting an MMM attitude toward money.

Most of my big (macro) expenses are set.  Mortgage being the largest.  Food is about the same every week.  Insurances are what they are.  I am careful when I buy this stuff in the first place.   So unless someone comes up with a way to eliminate the need for such things I don't expect to make any big changes.

The little things are where I can make a difference and I can do that on a daily basis.  I don't go out of my way to get/use coupons but if one shows up in my inbox or at the store in front of what I'm buying, I'll use it.

I take exception to the premise that it is too much effort to watch small spending.  Everyday, I make a quick decision on purchases.  It is automatic and fast.  The only place where I have to take any time/effort is if I run across something that I want but wasn't planning to buy at this time. 

I guess what I'm saying is that I don't understand the argument that paying attention to the small stuff is so much effort for so little return, he chooses not to bother. 

It is the repetitive nature of the small purchases that tend to make them important in a budget.  Also I think that the attitude of saving needs to be practiced daily.  The people I know who are in debt are the ones who often say "It only cost $2.00" and spend the money.  True enough if the extra $2.00 is seldom spent but NOT true if those small expenses occur daily.

Besides it can be easy and fulfilling to track small savings.

Jan

 

[HappierAtHome]

I have a reasonably good wage and what amounts to no debt. My happy medium is that I am guided by what I call the 'benefit-to-bother ratio' so it's more about effort than impact sometimes.

Mail-order toilet paper that is slightly cheaper than what I'd otherwise pay for environmentally conscious toilet paper which also donates 50% of profits to an international aid NGO? Yes please- cheaper, socially responsible AND delivered to your door so less effort on my part = triple win.

$0.04/litre off fuel on shopper dockets when I use less than 40L a month and I have to go hunt for the correct service station? No, because the bother and irritation exceeds the <$2 I would save.

Wrangling a cheaper deal with the mobile phone plan (by $15/month!) by investing 30 minutes with them on the phone and asking them to be competitive? Yes please = little bother, lasting benefit.

Keeping hot water in a thermos to avoid re-heating the kettle every time throughout the day I want another cuppa? Yes please, as the effort is practically zero (yes, it's quite nerdy, and means I don't have to wait for the kettle to boil half a dozen times)

You get the drift.  One of my favourite savings is a warning for perfectionists: 'The Perfect is the Enemy of the Good'. As I have perfectionist tendencies, this is a good reminder for me.

I think part of what you're saying here, which really resonates with me, is that even small savings are worth a lot more when they align with other values such as reducing your environmental impact.

I'll go really far out of my way to save very little money if it reduces my impact on the environment - such as getting the bus instead of driving, whereever possible. I see using a thermos instead of boiling the kettle six times as a very good example of that kind of saving. 

But if something is a lot of effort and doesn't have any other benefits (like being environmentally friendly, or fun!), I'll only do it if it saves a reasonable amount of money.

[Hedge_87]

From a very practical guy I just want to say thanks arebelspy.  That is a great analogy for me.

[ChrisLansing]

Why can't you start with the Macro items then deliberately pay attention to micro items now and then?   It doesn't have to be one or the other. 

We paid our house off about a year ago.  Our cars several years ago.   We have our "big" items bought and paid for and we have relatively low "wants" (and I agree with arebelspy about wants)    But we still were not saving much because we weren't really paying much attention to the small expenses.    We found that we could be saving about $1,000 per month (from just over $3K per month)  but we realized that we could only do it by looking at small outlays, as our big expenses are either "paid" or relatively fixed (though it's still worth looking at utilities)  A lot of small items are in our "grocery" budget.    I don't advocate coupon clipping, but paying a attention to small purchases, and deciding to do without some of them can really add up.   

You've already seen to the 20% of items that will account for 80% of your expenses.   There is nowhere left to go but micro.   You are either satisfied with where you are at, or not.    If not, it's now only the micro expenses that will provide any savings.   

[rmendpara]

I tend to think in terms of the 80/20 rule: 80% of your desired outcomes come from 20% of your efforts..  80% of the value you get comes from 20% of your spending, etc.  (The exact numbers are not that important but the idea is that the majority of the value you get comes from a minority of your efforts or inputs.  Of course, what minority that actually contributes to most of your results may not always be obvious.)

When it comes to saving money, I tend to focus most on keeping my large expenses down..  Housing and Cars are the main areas.  I try to minimize my monthly expenses (mortgage, insurance, internet and phone bills, etc.) while maintaining an acceptable standard of living.  However, a lot of times, I could care less if I missed a $0.50 coupon for oranges in the papers or got gas from a gas station charging $0.10/gallon higher than the cheapest gas station in the area.  If I was craving oranges and a $0.50 coupon for them fell into my hands from the sky, I would still of course use it but I won't spend a ton of time searching for it.

Is this a dangerous mindset?  I tend to put a ton of effort into getting the most value out of the big ticket items but these small expenses do not receive a fair share of attention.  Sure, the small expenses could add up if I don't pay attention to them but there's an opportunity cost to that attention.  The same effort could have been spent further optimizing my larger expenses or figuring a way to earn more money (side job/business, career development, etc.)  Is my way of thinking dangerous or still in line with the Mustachian philosophy?

Also see article: Macrofrugality vs Microfrugality.

(I'm a Macrofrugal type by heart.)

My dad always said "Your mom knows how to save $1, but doesn't know how much easier it is to make $10."

Now, this can't be taken at face value, but I learned what he meant was that Mom tended to focus on cutting expenses and being frugal on the spending part of the equation, while not being too savvy on the income part.

At the end of the day Savings = Income - Expenses, so $1 saved is the same as $1 earned (more like $1.25 earned, but same idea ignoring taxes).

You can't get rich by cutting expenses. If you spend $30k/yr, you have a maximum addition to savings of $30k. However, the Income side of the equation is unlimited, relatively speaking.

If you enjoy cutting coupons, and saving $.50 here and there, then by all means go for it. At the end of the day, this is a good way to live as it means you are always thinking about getting the most "bang" for your buck.

I agree it is possible to improve your situation through saving, but for long-term wealth and true FI, you need to work on your Income factor. I personally am frugal in the sense that I like to buy nice things on sale. Calvin Klein tie on sale for $40? No way. Calvin Klein tie on sale for $20? Yes, please!

I don't cut coupons, or scan the papers much at all. I buy all my groceries at Trader Joe's and honestly don't really look at the prices (as long as the total ends up between $300-400/mo and I don't throw much away, I'm satisfied). I buy nice clothes, but only when they're on sale online (I rarely go to actual stores to just look around). Brooks Brothers shirt for $90? No thanks. Brooks Brothers shirt for $50? Yes, please!

Personally, I don't want to retire early and be a rich troll living under a bridge (for lack of a better metaphor). I hope to be wealthy, have nice things, do fun things with people I care about, and give back in some way.

I think the best way to make sure you're on track is to set an overall goal (e.g. save 40% of net income), and then find out a way to reach it.

There are a handful of ways to save money, but a million ways to make money.

[gobius]

Reading the thread it seems to me that people who don't focus on the small savings are in reality missing some big savings and MOST important are not adapting an MMM attitude toward money.

Most of my big (macro) expenses are set.  Mortgage being the largest.  Food is about the same every week.  Insurances are what they are.  I am careful when I buy this stuff in the first place.   So unless someone comes up with a way to eliminate the need for such things I don't expect to make any big changes.

The little things are where I can make a difference and I can do that on a daily basis.  I don't go out of my way to get/use coupons but if one shows up in my inbox or at the store in front of what I'm buying, I'll use it.

I take exception to the premise that it is too much effort to watch small spending.  Everyday, I make a quick decision on purchases.  It is automatic and fast.  The only place where I have to take any time/effort is if I run across something that I want but wasn't planning to buy at this time. 

I guess what I'm saying is that I don't understand the argument that paying attention to the small stuff is so much effort for so little return, he chooses not to bother. 

It is the repetitive nature of the small purchases that tend to make them important in a budget.  Also I think that the attitude of saving needs to be practiced daily.  The people I know who are in debt are the ones who often say "It only cost $2.00" and spend the money.  True enough if the extra $2.00 is seldom spent but NOT true if those small expenses occur daily.

Besides it can be easy and fulfilling to track small savings.

Jan

I think if you have MMM's attitude of questioning the necessity of purchases and ERE's idea of a "system" (what arebelspy describes), you don't have a lot of small expenses.  It depends on the person.  I really don't have a lot of small expenses, so clipping coupons and bargain hunting isn't going to save me much.  My siblings all have small-spending vices (eating gas station food every day, going out to eat all the time, going to the bar, etc).  They either need to change their attitude or watch their small expenses like a hawk (preferably the former).  My parents have issues with big expenses (huge house, nice cars and a Harley, big camper, etc).  They would do better to cut the big expenses.

I don't know where you live, but I do question the premise that a mortgage is fixed.  I just moved into a smaller home and my mortgage is now $360/mo less than it was (not to mention less utilities and less driving due to location); I will pay off the house probably 5 years earlier.  It's a bigger pain to find a new house than it is to make those small daily decisions, but the savings are huge.  You may already live in an optimized small home, within biking distance to work and groceries, but I know I certainly wasn't before buying my new house.

[galliver]

I think I like the idea someone stated above: first, fix the big leaks (too much house? too much car? too much cable? etc) then fix the habits (commuting? lunch? coffee? etc) and then once you have the basic lifestyle down you can run the numbers on progressively more minute/less obvious things. Especially that aren't routine.

[Cinder]

I think the whole idea of 'big vs small' needs to be looked at on the same scale... You can't directly compare saving 10k on purchasing a smaller car vs a $1 daily cost if you just think $10k is Macro and $1 is micro. 

Like it was stated above, if you look over your past spending (eg in mint) and look at the relative cost of things. 

That's one thing that I'm trying to keep balanced right now, putting everything in the same scale 'units' before comparing.

[Melody]

I like it; approved by this mustachian.

I tend to focus on smaller things since some of the bigger stuff is harder to change quickly. Also because there are so many small things in my family's budget that it tends to be over half our monthly expenses and it needs to be monitored closely.

Me too. Also because most of my categories are small - i.e. my budget is 17 small categories. Even rent is only about 30% of spending (could get it to 20% with major sacrifices like increased commute or more roomates)... so I can have more of an impact focusing on the small stuff.

[ranjan82]

I tend to think in terms of the 80/20 rule: 80% of your desired outcomes come from 20% of your efforts..  80% of the value you get comes from 20% of your spending, etc.  (The exact numbers are not that important but the idea is that the majority of the value you get comes from a minority of your efforts or inputs.  Of course, what minority that actually contributes to most of your results may not always be obvious.)

When it comes to saving money, I tend to focus most on keeping my large expenses down..  Housing and Cars are the main areas.  I try to minimize my monthly expenses (mortgage, insurance, internet and phone bills, etc.) while maintaining an acceptable standard of living.  However, a lot of times, I could care less if I missed a $0.50 coupon for oranges in the papers or got gas from a gas station charging $0.10/gallon higher than the cheapest gas station in the area.  If I was craving oranges and a $0.50 coupon for them fell into my hands from the sky, I would still of course use it but I won't spend a ton of time searching for it.

Is this a dangerous mindset?  I tend to put a ton of effort into getting the most value out of the big ticket items but these small expenses do not receive a fair share of attention.  Sure, the small expenses could add up if I don't pay attention to them but there's an opportunity cost to that attention.  The same effort could have been spent further optimizing my larger expenses or figuring a way to earn more money (side job/business, career development, etc.)  Is my way of thinking dangerous or still in line with the Mustachian philosophy?

Also see article: Macrofrugality vs Microfrugality.

(I'm a Macrofrugal type by heart.)

Interesting article. I'm a little bit of both but primarily a macro-frugal since I don't buy too many processed foods so coupons don't really work for me but I don't like paying full price for anything. It's funny because I used to be the opposite of macro-frugal... buying big ticket items based on the max monthly payments rather than the grand total. I think in the long term macro-frugal habits pay off with larger returns.