For some people, saving small amounts of money on a daily basis can mean the difference between making ends meet and getting into financial trouble. My wife and I are lucky enough not to fall into that category. We lead a pretty modest life style, but I am not the type take a bagged lunch to work with me to try to save some cash. For one thing, lunch is my chance to get out of the office and actually see the sun - doesn't happen a lot these days. For another, spending social time with my friends and colleagues is both fun and productive for me.
But never mind all that - trying to cut out small amounts of money out of the budget simply doesn't make a lot of financial sense for us. Take for example the month of February: during the past month slightly over 90% of our spending was non-discretionary. About 50% of our non-discretionary spending went to childcare, 20% went to rent, and the rest was spent on utilities, medical expenses, groceries, fuel for the car - you get the picture. If we needed to drastically slash spending the only way for us to do so would be to rethink our childcare situation and to move to a less pricey neighborhood. Short of that, any changes we made would be cosmetic. Apparently, I am not the only one in this kind of situation.
There are those who subscribe to the latte factor theory, believing that saving small amounts regularly eventually yields a big pile of cash. Maybe so. The theory is certainly tempting, and I too am fascinated by the prospect of riches with minimal effort - I have even created this nifty little latte factor calculator a while back to demonstrate the impact of such a saving strategy. However, I have now come to believe that small amounts have a way weaseling their way out of your wallet and never get to pile up and compound over time. Yes, it's probably possible to take some aggressive measures to eliminate such spending leakage, but for folks with our spending characteristics and income level, this hardly seems like the wise thing to do. I think we are better off holding off on buying a new car or buying a mcmansion if meaningful savings are our goal.
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