Should you sweat the small stuff?

There’s nothing like a new tax, new fee or price hike to make you feel your budget is being “nickel-and-dimed to death” — especially when your income isn’t increasing as well. The shaky economy has many people “counting every penny”, but does that mean we’re losing sight of the dollars?

Little things add up

In the past couple of years, we’ve been inundated with tips to save money, like turning down our furnace and skipping our daily dose of gourmet coffee. We comparison shop for groceries, cut coupons and keep a close eye on gas prices. We strive to use less water and energy, and that bit of product left in the container annoys us like never before.

However, when you do the math, small cost saving measures may be more of a moral victory than a financial one. Take the weekly roller coaster ride of gas prices for example. We feel good when we save a few cents a litre at the pump, but a 50L fill-up saves only a dollar or two.

Furthermore, personal finance blogger Trent Hamm of the Simple Dollar ran some numbers to see if some frugal measures were worth the time and effort. His results? Line drying clothes instead of putting them in the dryer saved him about 36 cents per load. Following the “if it’s yellow, let it mellow” toilet flushing rule saves just over $10 per person per year. What motion-sensing lights? They’re good for safety, but energy efficient bulbs were better. Readers weighed in on both sides of the proverbial fence: some argued the habits weren’t worth their time while others saw them as valuable. (Visit the Simple Dollar archives for April for details.)

If you’ve been following the financial media for the last couple of years, you may have seen some similar debates — like is it worth it to clip coupons, or ease off the gas pedal to save fuel? There are no easy answers, and there are other things that affect our habits like the enjoyment or satisfaction we get from a task or helping the environment. Taken together and over a long period of time, these small savings can certainly add up.

However, when it comes to our budget, many frugal moves simply aren’t show-stoppers.

Rethinking priorities?

Frugal habits are a good thing — unless we’re focussing our time and energy on the “small stuff” and overlooking the bigger picture.

Consider our cars, for example. The weekly fluctuation of gas prices may stay top of mind, but what about insurance rates or repair and maintenance costs? Calling around for quotes and talking to your insurance broker could easily save you as much as the weekly gas price game.

Here are other some areas where a little attention can have a big payoff:

Insurance. Are you sure you have the best price on your home, auto and life insurance? Take some time to review your coverage and rates. Try a few online quote generators for comparison, or talk to a broker about the best policies and prices for your needs.

Mortgage. It’s a major expense, yet many people don’t do enough research before getting into one — or they overlook opportunities to save by refinancing. (See Home buyers underestimate mortgage costs for more details.)

Loans. Are you getting the best rate? Getting distracted by monthly payments rather than overall expenses? A careful look at your loans can save hefty amounts of interest.

Investments. Even one per cent can make a big difference on your returns when you consider the compounding potential of the decades ahead. Financial experts warn to watch out for management fees and rates of return — especially in provinces with a newly introduced HST.

Taxes. Your tax return isn’t found money: you’re loaning your cash to the government instead of investing it or paying down debt. If you’re getting money back every year, talk to your payroll department about how adjusting how much tax is being withheld from your pay cheque.

Or avoid paying taxes altogether. Experts like Gordon Pape still warn that we’re not taking full advantage of Tax-Free Savings Accounts as investment vehicles. (Think you’re up to speed? Try Pape’s TFSA test to find out.)

Your salary. Many people only have one income stream, but they’re often too afraid to ask for a well-deserved promotion or raise — or negotiate their salary when accepting a new position. They’re not easy steps to take, but they can result in hundreds or even thousands of extra dollars. (For tips, see The salary negotiation dance.)

Extra income. Rather than wasting hours on penny-saving measures, many experts argue we could be using that time to earn more money instead. Putting in some overtime, taking a part time job or starting a side business can make more room in the budget than cost-cutting measures. (See Turn talents into cash and How to start your own online business for ideas.)

Communications. Cable, phone, cell phones, long distancing calling and internet are regular expenses we don’t think much about, but they’ve been creeping up lately. Check your usage to make sure you’re not paying for more than you need. Also, while companies are required to tell you about increases, beware they may not tell you there’s a cheaper package or pricing plan — it’s up to you to ask.

In addition, sometimes our habits can get in the way. For instance, shopping at three different grocery stores to get the best deals may take priority over proven strategies like creating a meal plan. Many people are willing to invest time researching potential purchases, but not to tracking their spending and expenses.

The bottom line?

So should you bother with “the small stuff” or focus on the big payoffs? It’s not an either/or situation — and there’s something to be said for balance. Looking at the “big picture” can help us figure out which strategies work for us, which don’t and what possibilities are left to try.

Photo © PIKSEL

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