I was at the grocery store and instead of buying my usual brand of sandwich bread, I bought a different kind that was a little bit cheaper. Savings: $1.53. Booyah!
I thought, “I just saved $1.53 on bread… I should treat myself to some delicious chocolate-caramel candies that will get stuck in my teeth and make me fat.” Bye bye $1.53 of savings.
There is a Difference Between Not Spending and Saving
Okay, so none of that stuff actually happened. When I go grocery shopping my girlfriend puts stuff in the cart and I pay for it. I try to buy things on sale when I see some deals, but in general my grocery bill is usually about the same every month.
If I save $1.53 on bread, but spend $1.53 extra on candy then I haven’t really saved anything. If I save $1.53 on bread and am cost conscious in all my other purchases then I’m closer to saving $1.53, but I’m not quite there yet.
Until that extra money makes it’s way to paying off debt, a saving account, an investment account, a small business venture, or something else then you haven’t actually realized the savings. Money saved on one thing and spent on another non-essential item isn’t money saved at all.
You Need a Purpose for Saving Money
There are two stages of spending money. There’s the “keep the lights on” spending (place to live, food on the table, transportation, etc) and there are higher purposes (saving for retirement, starting a business, travel, buying your kid a horse, a $200,000 racing pigeon).
Your higher purpose is up to you. Some people want money for retirement and some people want a racing pigeon. Your goal doesn’t matter.
What matters is how well you minimize your “keep the lights on” expenditures and maximize the money to goes towards your personal higher purposes. If you save money on food at the grocery store and spend more on food at McDonalds, you haven’t saved anything extra towards your higher purpose.
Think about that next time you “save” money. First, are you really saving that money or are you spending it elsewhere? Second, what’s the end goal of that $1.53?
Readers: What is your end goal whenever you save a buck or two?