When you think of penny pinching, do you think it means being like Scrooge? Do you imagine leaving a few coins for a tip and haggling over a two-dollar shirt in a thrift store? If so, try a new way of looking at it. Even Donald Trump admits to being a penny pincher, but you can be sure that he isn't buying his shirts in a thrift store.



Penny pinching, or frugality, is simply the practice of looking for the less expensive alternatives, and ways to pay less in general. It doesn't mean sacrificing things you want and need. In fact, when you buy things for less, you get more money left over to buy more of what you want!

Of course you can pinch pennies by not eating out or washing and reusing plastic bags. You can clip coupons and buy dishes at rummage sales. The problem with this approach is that it doesn't enrich your life, which presumably why you would want to save money to begin with.

The other problem is that it isn't very cost-effective, at least if you measure the cost of your time. For example, if you spend an extra three hours to clip coupons, look at ads, and run a route of several grocery stores to catch the best sales at each, you might save just $30 on food that week. That's not a very good return on your investment of time. If you make more than $10 per hour at your job, you are better off just picking up three hours more at work and not worrying about coupons.

Penny Pinching - A Better Way

To really make it worthwhile, frugality has to start with the big things, and the recurring costs. In the example above you saved $30 for several hours of effort. Compare that to the following example.

Suppose you are looking for a house. You take the time to list what you really need in your new house to be happy. Then you list the cheapest houses that meet your criteria. Then you contact several banks to get the interest rate down to 6.25% from the 6.75% you were expecting to pay. Total extra time spent: three hours.

By finding a cheaper home and interest rate, let's say you only have to borrow $120,000 at 6.25% instead of $140,000 at 6.75%. The mortgage payment would be $169 less per month. That's a savings of $60,900 over the thirty years of the mortgage. If it took you an extra five hours of effort, your penny pinching made you about $12,000 per hour.

It's the big stuff that makes a difference when penny pinching. But the small stuff is the big stuff when it is repeated over and over. This is why it can makes sense to save money on groceries. You buy them every week, after all. How you save money makes a difference though.

Unless you really enjoy clipping coupons and looking at sales flyers, why spend hours per week doing it for such a small gain. You have better uses for your time, right? Instead, invest just an hour or two to figure out which store is cheapest for the things you buy. Then shop just there, and buy more of the things you use and like when they're on sale. You could still save $20 per week, with no additional investment of time.