Thursday, March 05, 2009

Why Reducing My Lunch Money Really Wouldn't Matter

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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Anonymous said...

I agree with you as far as the savings aspect goes; however, I think that the latte factor can be useful for setting spending priorities. Looking at the ways that you can make small reductions in spending, without having much negative impact on your quality of life can often let you find other areas where you can make correspondingly small increases in spending for a larger positive effect.

If skipping lattes three days a week will fund happy hour once a week (which it probably won't, but that's beside the point), then it may be worthwhile to do. Or not.

Dana said...

Ahh, I can't help but comment on this, and say that first I'm a cheapskate, but on this subject of small versus big money, I'm with you. The part where you said getting out at lunch is the only time you see sun? Wow, I so totally relate to that.

Where I used to work, people have 10-bucks-a-day Starbucks habit, and translate that into a year, the amount is gigantic. But when you go out to get these coffees and lunches, most of the time, you're not paying for the food/drink itself, but for the mental release and socializing opportunities it provide. Plus, work can be so stressful that short of pacing outside the building a few times a day like a lunatic, getting coffee is an excuse to get air. That or smoking. Or therapy. Which is way more expensive.

See? I'm cheap after all!

Bottom line, compare some coffee money to the losses we've all suffered in the past year in the market. Not only that, but what most people used to blow on Vegas, weekend bar trips, parking tickets, dates that don't go well. When choices allow, we should still focus on the bigger stuff, no? If we're really stuck in the rut of the Japanese for 10 years, then I'll consider the alternative. But right now, I'm not down with this:

Mr. ToughMoneyLove said...

I'm going to push back on this. When I stopped going out for lunch two years ago, two good things happened. I lost 52 pounds and gained $140/month. To me $140/month is not chump change. As for the social thing, I already spend 8-9 hours/day with work colleagues. Why do I need more? Lunch with clients - OK - but I don't need to socialize with co-workers for an hour per day. If you need sun, eat for 30 minutes then go for a walk. I've done that as well.

It does matter.

frugal zeitgeist said...

I bring lunch and eat at my desk. That doesn't mean that I don't socialize: I round people up for coffee a couple of times a day and it's a nice little break for all of us. Cost-wise, it makes a huge difference: the lunches (and breakfasts) I bring from home run about $2 to 3$ per day in total. Some of my colleagues drop $10 per day or more, and that really adds up.

Of course, your workplace's culture matters: in some environments, what I do would lead to isolation and being left out of the loop about what's going on. Where I work, it's not a problem.

Shadox said...

Wooooohh. I see I hit a raw nerve with this one. Still, I am going to have to stand my ground.

Ren - I agree that it's all about priorities, and I do agree that if you really were able to hang on to those small amounts, over time, you would be able to save a bundle.

Dana - Yeah, you know $10 a day for Starbucks is probably a habit you want to kick anyways. Yes - this is really the only time I get out of the office while the sun is shining. 4 days this week, I didn't even manage to do that and had to have a frozen lunch microwaved... :-)

Mr. Tough - I am not going to argue diet issues. I have no opinion on the matter, and it's another topic altogether. However, my point was that if my wife and I cut out every last CENT of discretionary we would reduce our spending by less than 10%. The impact of reducing small expenses is really minute for us in the big scheme of things. Forget this walk outside thing - it's not for me, unless you are talking about a hike in the mountains - in that case I'm game.

Frugal - again, in theory I agree with you. You can save money and it will add up over time. However, even if I take your numbers: 22 work days a month multiplies by 7 dollars you save per day - it's not silly money, but it would not make a dent in our over all budget: 3 kids, rent, two cars... that's not where the big savings are. From my perspective, better to go out to lunch, pay $5 - $10 and return to work recharged and ready to work another 6 or 7 hours.

Maybe we are talking about a different kind of work day here, or may our financial lives and priorities are just too different to agree upon. Regardless, I will reiterate my main point: cutting out ALL discretionary spending would reduce our spending by less than 10%... to save big, we would need to make a big change.