Elizabeth Kerr is sweating over the apathy toward small change

Elizabeth Kerr is sweating over the apathy toward small change

By Elizabeth Kerr

I’m seriously worried about a disturbing trend that I am seeing more and more lately.

I hear it in our conversations and I even see it in some of the comments that appear on this site and on my columns.

It’s apathy toward the small savings we might be able to make in our everyday lives.

"Why bother it’s only $12, it hardly seems worth the effort". Or: "I earn a good wicket - why should I mow my own lawns?"

It seems as though unless you can generate hundreds or thousands of dollars in a single savings transaction then it’s just not worth the bother.

News flash everyone – it IS worth the bother!

Don’t you all know that small savings add up to big savings overtime?

The $9 savings that bringing your own lunch each day makes, or the $4 you might get at the petrol station with your grocery docket are as worthy of your effort as the big savings you might be able to make.

All $1s are created equal and they will all work as hard as you ask them to, regardless of how much company they keep.

If you’re still convinced that small change doesn’t afford you much these days then have a look at some of NZ’s top listed companies on the share market.

The sum of $0.50 can buy you a share in A2 Milk, $2.86 The Warehouse and $6.50 Fisher & Paykel Healthcare.

So the next time that you pick up some milk at the red shed and put it in your fridge you may be reminded of the power of your small change.

Apathy works both ways

It’s this same apathy toward small change that gets people suckered into buying stuff as well.

The cheap little knick-knacks at the counter, the cashier suggesting we donate $3 to charity with our purchase, the gym membership for just $7.50 per week...yes, yes these amounts might sound small at the time of the transaction, but if you were to add them all up and save them instead, it would amount to a lot more.

One reader commented that it’s all very good and well to save on the small stuff but that’s not really going to get anyone to financial independence. Where are the real circus tricks for achieving early retirement? they challenge.

Here I’ll tell you. Lean in really close now...Spending less is the trick!!!

Your investment decisions make up the other half of course.

But if your expectations are for more and you don’t have an income that supports more, then you are going to be miserable eventually when you come crashing down to your own reality that you either need to earn more money or need to spend less. As they say, the easiest dollar earned is the one you can save.

Cheap versus Frugal

If you’ve decided from now on to start collecting as many dollars as you can, you might be tempted to cross the invisible line from Frugal to Cheap.

The difference is ill-defined but I liken it to going to a fast-food outlet, say McDonald's, for dinner. You can eat a Big Mac Combo, which is cheap, but 10 minutes later still be hungry. It would have been frugal to have used that money and bought some eggs and tomatoes/onions/salad and made a huge omelette at home (and your waistband will thank you as well).

♦ Cheap people really focus on the price of something. They are often spotted bragging about the savings they made on a purchase. "It was $50, reduced to $5. It would be a crime not to buy it." Or something to that effect.

♦ Whereas frugal people focus on buying only the things that are parts of their lifestyle design at the best value.

Funny story: Does everyone remember when Dr Martens shoes emerged as the "must have" school shoes in the 80s?

There was no way I could afford a pair.

But one day family friends boasted that they knew a shoe maker who could make replica ones at a fraction of the price.

Naively I agreed, and when they arrived they were the ugliest imitation Dr Martens shoes I have ever seen.

The sole was a lard-like rubber substance and the stitching the wrong colour yellow!

Worse still they had no grip at all on the bottom and I was forever sliding over when it was wet.

It was obvious I had tried hard and failed and for that I was teased mercilessly. Cheap karma sucks.

♦ Cheap people will say no to spending money whereas frugal people will say yes but keep within their budget.

Take eating out for instance: Cheap people will go to the cheapest place to eat or decline your invitation to join you every time you ask, whereas frugal people will go anywhere but order within their means.

I knew a couple once who were always buying from the $2 and $5 shops.

Their house was like a treasure trove of broken plastic toys and useless bits and bobs that they really didn’t need - think cheap doilies for the couches, shampoo rings for washing the kids’ hair, plastic foot wrappers for slipping over their slippers when going outside and my all time favourite a solar powered hand held fan that ran off batteries.

The truth is they didn’t need all that stuff and it added no value to their lives, but because it was cheap they still brought it because in their mind a few dollars here and there didn’t matter to them.

♦ Cheap people can ostracise themselves.

For example, no one appreciates their lawyer wearing a tracksuit to the office when they’re paying a handsome hourly rate for their service.

People expect their lawyer to wear a modern suit and by not conforming to that behaviour the lawyer could undermine their career and be unconsciously selling themselves short.

If you are in an environment that calls for a certain standard then you need to consider how frugality can apply and watch that you don’t cross that line. (If you’re not sure email me).

Collecting extra packets of sauce from McDonald's, stealing the toilet paper and coffee sachets from hotels, paying for two plates at a buffet to feed 4 people and lying about their kids age to get cheaper entry to Tony-Town are all embarrassing and slightly immoral ways of saving money. Frugality does not break the rules or the law.

As a final note...

One person’s cheap is another person’s splurge. So, keep this in mind if you find you’re under the spotlight from well meaning friends.

When someone tells you to "live a little – you only live once" that doesn’t mean spend up large. It’s an invitation to let them know your goals and how that runs counter to where you want to be.  Tell them you have a plan, and if they can't support you, find more supportive friends.

Next time you have the opportunity to make a small saving, I want you to celebrate and covet it the same way you would a larger saving.

Make a tally of all the little dollars over a week and put it to work by transferring that money into your money machine.

Saving small amounts of money is really the easiest to save so go on embrace those small dollars and send them to work for you like happy little minions :).

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Corporates do it too Elizabeth.   You see outfits who can't manage the small stuff.  This is common in DHBs and Local Government.   So what they do is to come up with a grand scheme.   But if they can't manage the small stuff, they can't manage the grand scheme either.   Delusional.

I agree with you.   Many businesses often view the deficit differently though because they can just set out to make more money to cover it by increasing future sales targets.    Many of the many of the middle squeeze who are employees can't do this realistically therefore its easier for them to just keep more of the dollars they have - hence the inspiration for this weeks column.  :)

A good article Elizabeth.  I give my grandchildren money for Christmas and their birthdays - they didn't like my choice of present - but the condition is that we go out for lunch and the pictures - I pay - but the first thing we do is they have to put 10% of what they receive into their Bank account before they can spend the rest on whatever. They love "their day" with Grandma.  The eldest is now 13 and so I told him that now he has to learn about not spending all that is left over, so at the end of the day it is back to the Bank we go!!  The point is his Mother chastised me for telling him what to do with his money!!  You can't win Elizabeth.

Patricia, they sound like very lucky grandchildren indeed.   I used to have days with my Gran when i was young and they are amongst my favourite memories.   That is some smart lifestyle design you have there!   
As for money, there is a lot you can teach them by just talking about people you see and companies you visit when you're out and about.   Rather than talking about how he spends his money you could skirt around the issue by chatting about how interest works, when is a good and bad idea to take out loans  etc...

Euro has a good deal on lunchtime bluffies, if anyone in Auckland forgot to pack their lunch.

Could never work it out  had a number of nurses working for me on modest wages  They would spend on two or so take   away coffees a day...I bought a Nespresso but they still bought the take aways..Could it just be the feelgood factor to go out a buy an expensive drink  I did the sums for them...still did not get it!!
Any ideas?

I personally think getting a coffee is the new "popping out for a fag".  It's a chance to take perspective on what you've been doing and what you want to do next.   It has become a time-management ritual.

For goodness sake - let people buy a bloody coffee without the sanctimony!

I bet not many coffee drinkers do the maths ... so yes one can "buy bloody coffee without the sanctimony" but the result might just end up being a retirement without the income.
Coffee might only cost $5 a drink but it is a good example of apathy.

Is that after Tax 5$....plus the compounded opportunity loss on investment, per cup, plus time wasted..or not?

$5 x 20 a month x 12 months, very simple math, I make my own, $1.50 a day.

Assuming it is redirected into locked down savings/investment. 
The next stage is The Automatic Millionaire concept where an AP is setup as a replacement to the Latte Effect. 

Buying Coffee = apathy, a lack of motivation.
Mostly your articles are average but this is just baseless prejudiced sermonising.
Plenty of sheep on this site for your flock though!

SK - the apathy wasn't the coffee.... the apathy is the $5.   Hyperthetically if instead of coffee they brought scratchy/lotto tickets i predict the sentiment to this would be different.

What if we were all frugal? 
There needs to be a bit wastage floating around in an economic system, which helps the poor and those not locked into the corporate rat race. E.g. The ancient concept of Gleaning where the poor could gather left over crops the harvesters left behind. 

I dont think we need to worry about that.  When it comes to consuumerism for everyone that doesn't buy something there are plenty of people who will pick up that share for themselves.
However i don't disagree with you..... and a column on charity, tithing, money & religion will be coming up soon.

On the other hand, to further borrow from MMM - a millionaire is made $10 at a time?

Love MMM - wise words indeed !!

A 7% compound return AFTER inflation, tell me more.

The stock market total after-inflation return from 1871 to 2014 was 6.91%

At $10 per day, thats 100,000 days, or 273 years.  Good luck with that.  Pennies are great, but to be a millionare you need to be earning big buckeroos.

Investing the money in stocks at 7% after-inflation return turns $10/day into $1,000,000 in 45 years. So if you work from ages 20-65 and save and invest just $10 each day then you will have the equivalent of a million dollar in today's money at retirement

good luck with that. the drops are more significant than the rises, due to compounding.

I always think about saving the chump change.  I can spend thousands of dollars on a new piece of equitment, after plenty of investigation and shopping around, weeks of weighing up the options, and then I'll go and do the same for something that costs a hundred bucks.  Or at the supermarket I'll study the prices to see which brand is actually a better deal.  I'm pretty sure I'm mental, but I can live with it.  If I can get 30% off at the supermarket, to me thats better then the miserable 4% I can get from the bank.
Yet if I do go out for a meal, I'm going out to have a good a time and enjoy myself and I'll order something that I really want to eat and drink.  If I'm going out and trying to save money I'd rather stay at home, to me it defeats the purpose of going out if you are constantly thinking about the cost.

Agree - it comes down to lifestyle design.   

Main course and a few drinks at a good restaurant, Giapo's on the way home then a single malt when you get back. Cheaper than a 3 course meal out and much nicer.

Savings are easy to come by. The AA estimates the cost of operating a new large car at about $40/day and a new small car at $20/day. So just running a smaller car will make you $2million over 45 years. Of course, if you have been reading Elizabeth's column, you'd know that nobody should buy new :) 

Someone has to and I am one of them. I worked hard for thirty years and lived within my means and now I am enjoying it. If no  one spends there would be a lot more unemployed.

and Gordon, after a couple of decades, there would be no used cars left for anyone to buy second hand. You are doing good duty for your fellow countrymen with no thanks it seems :-)

I don't give a stuff whether anyone thanks me. I have worked and saved hard and now I am spending it on myself, helping my kids and relations and giving to charity. If it helps others who supply me goods and services then that is great. I certainly am not scrimping to leave it all to the kids. They will still get far more than most.

Thats actually the best you can do.  if you do it for social reasons (thanks) ...then it distorts the market.  likewise if everything is left to the kids (more grandkids), it is better for them to wait for the windfall from inflation and compounding than to bother working for themselves.