A penny saved is not only a penny earned.
In monetary terms, it’s actually about 1.33 pennies earned (if you are in the 25% federal tax bracket).
That alone should be enough incentive to cut back on $5 lattes ($6.25 pretax), $5 in fuel per frequent grocery store run, $25 in monthly haircuts ($31.25 pretax), and $90 in monthly smartphone data plans (make it $112.50).
While you’re at it, tack on another 10-20% for your respective local, state, and sales taxes. And another 20% on top of that if you carry a monthly credit card balance. When all is accounted for, it’s not inconceivable that a penny saved is actually about TWO pennies earned for many folks.
Factoring taxes and finance fees in to every dollar spent should be enough incentive to pull back and look for wiser frugal alternatives, but it’s usually not. Submit pieces of evidence #1 through #1,000: the dismal average U.S. personal savings rate of 5%.
Here’s a tip that I’ve been using for years that I have found extremely inspirational and it might just stick with you as well.
Convert those pre-tax earnings in to hours worked.
The latte is no longer a $5 treat, it could be $10 in pre-tax earnings, which could be equivalent to at least 1 hour of work (we’ll use $10/hr. as a baseline here).
Would you be as likely to run to the grocery store 3 times a week if you knew that each time you did, it would take 1 hour of work to fund it?
How about paying for a haircut vs. cutting your own hair, if it meant that you had to painfully sludge through an entire Monday afternoon just to fund it (and then immediately have that hair start to grow back).
And that smartphone plan? 2.5 days per month vanished in to the sands of time, never to be found again.
Welcome to an enlightening exercise that I like to call “expense value as time worked”. It turns the monetary value of your expenses in to something that most of us value even more: our time spent on this earth.
Ending the exercise right there works for me, but if it still isn’t impactful enough for you, you could take it a step further and turn it in to a lifetime number:
- 50 years of lattes or grocery store runs 3 times per week = 3,900 hours (1.875 working years)
- 50 years of haircuts (maybe balding is a virtue) = 3,000 hours (1.44 working years)
- 50 years of smartphone plans = 10,800 hours (5.19 working years)
And those are just some of the small things!! Sobering stuff. I would have gone in to transportation and housing costs if not for the fear that I’d be directly responsible for a massive uptick in the non-Olympic sport of “cliff-jumping-without-parachute”.
Of course, all of this doesn’t even begin to factor in the opportunity cost of missed compound investment returns on your savings over time (although I have previously run the post-tax numbers on haircuts, smartphones, and cable TV). In other words – I am going easy on you.
“Just treating myself” and “I work hard, I deserve it” don’t quite have the same meaning when you take this perspective, do they?
Now, there are a rare few who might actually love their jobs to the point that they want to work them for the next 50 years and can’t conceivably imagine alternative ways to better spend their time than working them in order to pay off superfluous expenditures…
Me? I’d rather be choosing a la carte from a menu of volunteering/walking my dog/exercising/spending time with family or friends/cooking/eating/drinking/kayaking/biking/building/creating/napping/bonfiring/relaxing/reading/blogging/dreaming/traveling/exploring/breathing. And then, maybe, just maybe I would take a break from those activities and use $5 of my savings once a year to purchase a latte – and gratefully savor EVERY. LAST. DAMN. SIP.
” I would have gone in to transportation and housing costs if not for the fear that I’d be directly responsible for a massive uptick in the non-Olympic sport of “cliff-jumping-without-parachute”.” Hilarious quote, thanks for the morning laugh.
Glad I could add a little humor to your day.
I used to do that before but since I don’t get pay by the hour anymore, I stopped. Maybe I should calculate my hourly rate and start comparing expenses to hours worked.
Maybe it will help me save more money.
Yes. Highly recommended.
A great reminder on the value of cutting expenses and turning those into assets. I especially liked your point of the opportunity costs of expenses. If you can cut a $100/month coffee habit and turn that $100 into debt repayment or investments, the impact on your wealth will be enormous.
Cutting expenses, especially the little things, can all add up.
Yes smartphone plans are a big one. Trying to convince my wife to switch to a cheaper provider like Republic wireless. Have you done any research or use these providers?
We use Tracfone. Just switched to them. More details coming shortly.
Great post. 1.875 years of work for 50 years of lattes really makes a statement. There are very few things for which I would be willing to work nearly two years of my life. Thanks!
Concept further explained by Joe Dominguez and Vicki Robin in “Your money or your life”. Good read!
That book can be life changing. Highly recommended.
“50 years of smartphone plans = 10,800 hours (5.19 working years)” Sheesh. As if any of us middle age folks would live that long. I’m glad I never started on the smartphone monthly plan. Thank you FreedomPop.
Great article…explains why I have cut my own hair for over 20 years now, do my own gardening and practically every other DIY project that doesn’t seem too overwhelming. I’m doing all of it for early retirement, or at least the possibility of early retirement. :) AFFJ
$10/hr? I knew something was off when a smartphone cost 10% of someone’s income. The justifications usually run the opposite way, I earn $40/hr, this latte costs $5, it would cost me more than 8 minutes to make it myself… Except it takes time to get the latte and $5 is really $10 and why not just heat milk to boiling in the microwave and pour your burnt coffee on top of it? The true cost of groceries has to include the hour I spend shopping, which is often more than the money paid for groceries.
Everything looks huge and expensive in the face of time. ;)