A penny saved
Posted by Tad Johnson - Mar 11th, 2008 at 19:03I believe it was Benjamin Franklin who coined the phrase “a penny saved is a penny earned”. In today’s economy, this isn’t quite true. A more accurate version is “a penny saved is a little more than a penny earned”. This extra, of course, is interest.
Compound interest is a pretty magical thing–it turns a little bit of money into a lot of money over a long period of time. This is why we all save money in Roth IRAs, 401(k)s, and the like. There’s just one little problem–saving money is no fun.
Sadly, I don’t have anything to offer that somehow makes saving as much fun as, say, a weekend in Vegas. What I do have is human psychology that affirms spending money isn’t nearly as fun as we think. I read about this most recently in the books Stumbling on Happiness and Deep Economy.
The thesis goes like this : we think that buying that new car, or new computer, or new pair of jeans will make us happy. More so, we think that the really expensive car/computer/jeans will make us really happy. But once we buy them and the initial glow has worn off, we discover that even a Porshe is just another car. And that brand new iMac is just a vehicle to the same old internet. And those designer jeans feel about the same as the less expensive pair.
For the vicenarian, understanding this psychology can be a powerful tool in happily saving money. Since you know (once you’ve read the above books) that buying stuff doesn’t make you as happy as you expect, you can more comfortably choose not to spend. Or, to be more precise, you’ll spend your money on the things that really make you happy (dinner with friends) and less on the stuff that won’t (expensive gadgets).
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If you dig deep enough, it is possible to find an element of fun in saving. Is it just me, or is it really exciting to count the coins in your change jar, or to see how much interest you earn month over month in a savings account? I recently put myself on a budget, and yes, it’s even exciting to see that I’m staying within my limits (I may even have enough left at the end of the month for a new pair of shoes!)
Comment by Erin — March 12, 2008 #
I think you’re exactly right, Erin. There is a certain sense of accomplishment in seeing your bank account end the month with more than you started. Glad to hear you’re having good success with a budget!
Comment by Tad Johnson — March 12, 2008 #