If we are talking discretionary spending, there is probably no expense that is more discretionary than tips. After all, you are under no obligation to tip, and by eliminating tips you could theoretically save 15% or more of your dining-out costs, not to mention reducing your costs for everything from pizza delivery to getting a hair cut.
Although you could potentially save a bundle by reducing the tips you hand out, that wouldn't be the right thing to do. Here are my reasons for trying to tip well:
1. Other People's Income - Many personal service jobs don't pay very well. Waiters, cab drivers, barbers and other service providers often receive a large portion of their income from the tips their customers decide to pay. The amount you tip your waiter is probably not a huge deal for you, but for your waiter your tip could mean the difference between a good and a bad evening.
2. Better Service in the Long Run - Especially if you have an ongoing relationship with the establishment in question, if you give better tips the service you receive may be better in the long run. So, from an economic perspective, your tips may create a substantial value for you. Of course any specific value you would get is hard to quantify.
3. It's Part of the Price - Like it or not, in today's economy tipping is expected. It's part of the price. When you buy a service and are quoted a price, always figure out the real price including any taxes, tips etc. and if you don't think that that total price is fair, don't make the purchase.
Because of the three reasons outlined above, I make it a point not to try to save money on tips. In fact, I make an effort to tip a little bit on the high end (although no extravagantly so).
In spite of my comments above, I find that these days tip jars are proliferating faster than fungi. You can find them everywhere. In fact, the fast food Chinese restaurant that I sometimes go to at work now sports a tip jar, not to mention your neighborhood Starbucks(es). I find those requests for tips to be annoying given the really brief contact and minimal amount of work involved on behalf of the service provider. I keep those $1 bills to myself.