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How much does penny pinching matter?

Do small steps save enough or should you look for big cuts?

By Teresa Mears Oct 8, 2009 6:18PM

If I had $4 for every day I hadn’t had a latte, I’d have a nice nest egg. Because, let’s see, that would be 365 days times 30 years of adult life… Wow, $43,800 plus the power of compounding …


Except I don’t drink lattes. And giving up a latte every day for a year wouldn’t pay even half my property taxes. I’d better look elsewhere for savings.


The “latte factor,” popularized by David Bach, author of “The Automatic Millionaire” and other personal finance books, has become a synonym for the small money leaks that could be draining away our cash without us noticing. And it’s certainly important to find and plug those small leaks.


But, in some cases, plugging the small leaks and giving up lattes (or soda or bottled water or candy bars) doesn’t really make much difference.


Whether the “latte factor” matters, and how much, is a topic of perennial debate among personal finance writers and bloggers. interviewed several personal finance authors on the topic “Does penny pinching pay off?” Not surprisingly, the answer was a resounding yes, no and maybe.

  • Danny Kofke, author of "How to Survive (and Perhaps Thrive) on a Teacher's Salary," believes that cutting small expenses can add up to big savings and better spending habits. "Small steps are the best way to form habits that will stick," Kofke says.
  • Jeff Yeager, author of "The Ultimate Cheapskate's Road Map to True Riches," believes penny-pinching alone is "cut from the same cloth as fad diets" and does not fundamentally change a spender's habit of living beyond his or her means. "Small savings, aka 'the latte factor,' are largely false economizing and have led many Americans into their current financial crisis," says Yeager.
  • Harrine Freeman, author of the book "How to Get Out of Debt," suggests you start with the smallest penny-pinching tactics and graduate to bigger steps, such as a smaller house, "Everyone should pinch pennies no matter what your situation to ensure you live well below your means," she says.

Many people can’t save money by giving up lattes, manicures, massages, eating out, going to movies, etc., because they never did any of those things to begin with. Can they find a “latte” in their spending that would make a difference in their financial lives? Or is that just a waste of time and should they focus on big expenses and go straight for a cheaper car or a smaller house?

David Ning at MoneyNing says the latte factor is totally true and also totally misleading. “The real key to wealth is how much you can accumulate,’’ he says, “but it’s amazing how many people get hung up on how much they are spending. If you ever want to retire comfortably, start accumulating wealth by directly thinking about how much you are keeping, not necessarily about how many pennies you are spending.”


Patrick at Cash Money Life thinks a few small changes in your financial life can really add up, and he recommends several, ranging from high-yield savings accounts to programmable thermostats. “You don’t need to take on 2 extra jobs to earn more money and you don’t need to live like a monk to save money,” he writes. “Sometimes the answer is as easy as making a few small changes and applying them consistently to your financial plan. Over the course of a lifetime, these changes, and others, can result in thousands of additional dollars in your pocket, instead of someone else’s.”


Aryn at Sound Money Matters says cutting out the daily latte is a good start, but don’t expect that alone to get you out of debt. “Getting out of debt requires more than simple cuts,” she writes. “It involves changing your attitudes about money, changing your lifestyle, and cutting many expenses so you’re living within your means again. Trimming that $5 a day is a good start, but it won’t solve the problem unless you’re exactly $1,300 in debt due to your addiction to drinking high-calorie frothy beverages five days a week for the last year.”


Where do you stand? Are you finding that pinching pennies makes a real difference, or have you had to look for bigger cuts, like a smaller house and an older car? Or did you find pinching pennies a good start toward a generally more responsible financial life? Where have you found the best bang for your buck when it comes to savings?


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