Save! Be Frugal! A penny saved is a penny earned. There’s a plethora of maxims meant to encourage us all to save our money for a rainy day. To hoard our excess funds so that we can spend them at a later date and enjoy their usage. But, is saving our money a waste of our money?
The most obvious way that saving money could be a waste of money is in lost opportunity cost. If your money is tied up in some CD or savings account that you don’t have ready access to, what opportunity are you going to miss out on that could make you even more money. If you can’t take advantage of an opportunity to make money, your savings is wasting those potential profits.
But, that isn’t the real issue. Potential profits don’t necessarily mean lost profits. Maybe that opportunity doesn’t perform as expected and you earn less than you would have in the CD or savings accounts? No, I don’t think that theory holds up. Sure, you might miss out on a potential profit boon, but I wouldn’t encourage not saving for that purpose. In fact, having a readily accessible savings could make it easier to take advantage of an opportunity like that.
But, let’s think for a moment about what we do to save money. The easiest way to do that is to just have it taken directly from your paycheck and into a 401(k) or to set up an automatic transfer from your paycheck to a savings account. Easy. A little bit of set up involved, but very little effort thereafter. That’s hardly a waste of money! But, let’s look at the opposite side of the spectrum. You’re pinching your pennies, saving as much as you possibly can and then some. You don’t want to miss out on an opportunity, or you want to pay your debt off super fast! You go so far as to start collecting pop cans. (assuming you live in a state that has a deposit.) You walk down the street and throw the cans you find into a bag. Maybe you even hit the parks and poke through the trash cans there. Every week, you spend several hours looking for cans.
How much is your time worth? If you’re spending several hours a week for a few bucks worth of cans, are you making a good use of your time? Isn’t your effort to save a few bucks a waste of potential money doing something else? Heck, you could deliver pizzas for a few hours a week and make much more than that. Not to mention the other ways to make extra money. You can make money selling ebooks, or working some overtime, or consulting, or just about any second job, or make money on twitter, or even *ahem* blogging. Sure, the cans are an extreme example. But, one used to put a spotlight on my point. What saving practices are you employing that are a waste of money? Which of them are worth your time, effort, and resources? And which aren’t?
If we are going to attempt to create a super financial situation, we have to make our saving machine as efficient as possible. It doesn’t hurt to question your tactics. Find the ones that are causing you to waste your money and find a better use of your time. Not only will it make your money saving efforts more efficient, but I think it will free up some time to do things that you want to do. Like spend time with your kids, or walk through the park and not look for cans!
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A lot of interesting questions. Too many to answer, but a few thoughts that add to your post:
My grandmother has always said “Take care of your nickels and dimes, and the dollars will take care of themselves.” – saving little by little has an amazing effect. Of course, I realize there are losses on this (not only lost opportunity, but also inflation)
I personally still employ a “piggy bank” system. I gain absolutely no interest, of course, but I also don’t lose anything. After a certain amount of time I have $1000 sitting in my can and it is a psychological boost. (I also have a great benefit in that I live in Japan… deflation means my money is worth more no matter what).
Your time question is brilliant. How much is time worth? The question (as far as I am concerned) is not how much is your time worth, but rather what is the opposite of your time worth?
ie. if we are looking at someone who has the motivation to take a second job delivering pizzas in the evening compared to the same person collecting cans, well yes, the pizza gig is far better.
But what if we are looking at a person who watches TV for 5 hours in the evening vs. that same person collecting cans? Well now there is not only a financial benefit over TV, but also a physical one.
As for me? I am conflicted… what I really want to do in the evening is go jogging. But instead, I make about $50 per hour teaching.
And yes, I could use to shed a few kilos.
Thanks again for hosting the carnival. I didn’t know about your blog until then, but I would like to keep dropping by.
Andrew @ 101 Centavos says
All good questions. One of the reasons we don’t do coupons is the return on time ivested
I think of it this way…We’re all gonna die one day,and money can’t buy you a lot of things,especially immortality. So I say…Just enjoy life and don’t worry about it too much unless you have things you’re saving up for,or want to invest it into something.Either way…It’s just money.
Saving money is for fools. Smart people invest their money and use it as a tool to generate more wealth.
Just saving isn’t going to get you anywhere. CD accounts pay about .5% in 2012. Get real.
Take your $$$ and find someone with money problems. Then offer to buy their sports car, boat, jet sky, ATV, Motorcycle, or other silly toys for about 1/2 the real value. Then take that thing, clean it up and list it for sale online, eBay, Craigslist, Advertise it locally, etc. etc.
Sell it for DOUBLE what you paid.
Double your money, then repeat. I’ve been doing this for years and making $20,000+ per year profits just buying and selling stuff.