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Saturday, February 6, 2010

Should We Sweat the Small Money Stuff?

Over the years, as we've studied this magic called finance, we've run across the notion of not worrying about how much one spends if the amount being spent is below a certain threshold. One famous author says to never worry about a spend of less than $10. Another shared that his threshold changed upward as his net worth increased (it was at $100 at the time of his writing).

I've been puzzled by this approach. I understand the general concept... it isn't worth spending time thinking about saving pennies, but so many times it is easy to make an informed decision quickly that it seems foolish to not do it.

For example, let's say I want to buy a can of Coke. If I buy it at a convenience store, it will cost $1.49 and that is well below a $10 threshold so these experts claim I shouldn't worry about it. But I know that I can buy that very same can of Coke at the grocery store, which I will be happening to visit anyway, for $0.89 and if I buy a 6 pack it will cost me $0.59 per can. But going with the $0.89 price, that is a differential of $0.60!

In a given year, I would conservatively estimate that I make 100 similar decisions. At $0.60, that is $60!

The authors that share the $10 rule should also add one more part to it, time. In the 2 seconds it takes me to decide to buy my can of Coke at the grocery store rather than the convenience store, I've saved $0.60. Time well spent.

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