Updated on 06.17.09

Avoiding Spending Is Not The Same As Saving Money

Trent Hamm

I’ve written often about the value of changing routines. Eliminating a routine that involves spending money needlessly, or substituting a different routine that involves spending less money, is a great way to cut your spending.

In fact, any time you make a choice to reduce your spending, you’re taking a powerful step in a financially healthy direction.

But it’s just a single step. Alone, reducing spending cannot bring about positive financial change in your life.

Let’s say that, much as I used to do, I visited a coffee shop each morning and spent $5 on coffee. I realized that this was something of a waste of my money, particularly given how I didn’t really enjoy each visit – it was just pure routine.

So I gave up that routine.

Suddenly, I’m spending $25 less a week – $100 less a month. That change in behavior made a big change in my money, right?

Not yet.

I could easily take that $25 a week and just do something else unnecessary with it. Since I have all of that free money now, why not buy an extra book or two at the bookstore once a week? Why not pick up a couple bottles of great dinner wine on Fridays? Why not go out to dinner on Saturday night?

After all, because I’m not spending as much, I have the money.

So I start spending that $25 a week on something else – and I’m right back where I started, just making ends meet.

Merely cutting your spending is not enough. You have to do something financially productive with that money.

So let’s rewind the clock. I make the choice to kick the coffee shop habit, trimming $25 a week from my spending.

Immediately, I set up an automatic transfer from my checking account to my savings account – $25 a week.

Then, at the end of each month, I scoop that saved $100 and put it towards my debt. Or I leave it alone and forget about it, knowing it’ll serve as an emergency fund. Or I start putting $100 a month into my Roth IRA. Or I keep adding more to it, saving up for a house down payment in a few years.

The first action – the one of avoiding spending – is powerful, indeed. It gives your finances breathing room. It frees up your money to be used for other things.

The second action, though, is the deal maker. When you choose to take that free money and put it towards something financially productive, that’s when real change begins to happen in your life.

Keep that in mind this week. Try to find one significant way to trim your spending. As you pass through the days, look for areas where you’re spending more than you should and not really getting value from your dollars.

If you figure out a thing or two, that’s great! But it’s just the first step. Go the rest of the way – figure out how much you save from that positive move, then invest that money in something financially positive in your life. Steer it into a debt overpayment. Put it into your emergency fund. Stick it into your 401(k) or a Roth IRA.

Do something. Move forward. Turn your positive personal action into a positive financial one.

Good luck.

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  1. SavingFreak says:

    Great post. This is why effective budgeting is so powerful. It identifies the needless spending areas and then allows you to reassign that money to something productive before you even have a chance to spend it.

  2. This post is great. Also here’s another topic you can talk about that goes along the same lines. You can call it “Avoiding spending is not the same as saving money #2”. This would be focused on business owners:
    You have to spend money to earn money. It is way too common for starting businesses to be so concerned about saving money that they cut things that would turn them a profit. For example, when I was a sales rep, it was my job to call to set up appointments, then go on them. The problem was, I was a student at Uni and I had a limited-minutes contract with Verizon (before they had the $99/mo unlimited plan). To make it even worse, I was on a family plan with my father, mother, sister, and grandma. I always went over my minutes so in an attempt to save money I started making less calls. And therefore I set up less appointments. And therefore lost money. Another example is a for-profit school who decides to start a music program but in their attempt to save money, they buy all their instruments from India (bad quality, in case you didn’t know) or they under pay their music teacher resulting in a new music teacher every year.

    Here’s one last example that shows that these ideas can also be brought to the non-business lifestyle: Knives and Tools. People spend small amounts of buying poor quality knives thinking they are saving money. But the reality is, the average lifespan of a knife is 18 months. So people end up replacing them over and over and over and over again (and also risking physical harm; a dull knife is the most dangerous knife) when they could have cut out a bit more cash (pun intended) to begin with and bought knives that are guaranteed forever (like Cutco’s Forever Sharpness guarantee where they will send a rep to your house to sharpen it free anytime you need, they will also replace any broken tools, no questions asked, not “lifetime” but literally forever). The same can be said about Snap-on tools, or Cutco’s cookware, or energy efficient lighting/appliances/etc.

    Hope you use this :) Feel free to quote me.

  3. Todd says:

    As usual, this a fantastic article. After my turning point a few months ago, I am starting to see “some extra cash” each week in my checking account. To HELP keep me from spending the money foolishly (as I would have in the past), I recently opened a second checking account at a different local bank and got a $50 bonus for doing so. It is a totally free checking account. As of today, I plan to send in an extra payment to either of my 2 credit cards or my car. Thanks to the readers here, my debt is not affecting my personal life as much any more. I have a new motto regarding the issue, “HINDSIGHT IS 20/20.” Keep up the good work as I look forward to seeing the comments from others.


  4. Studenomist says:

    I have done this before and believe we all have at one point- saving money on one area only to throw it away on another meaningless purchase. My take is that if I save money on unnecessary purchases (eating out, new clothes) I put it towards savings or towards something that adds a lot of value to my life (vacation). You can argue that a vacation is not needed but it is something that I love to do and since I see the direct value in it I don’t mind spending the money.

  5. Michael says:

    I’d like to see you write a sequel: saving money is not the same as securing your future.

  6. tadeusz says:

    This post lacks two words: time preference. There’s little difference between buying coffee on Monday, or buying books of Tuesday.

    OTOH saving, that is ability to postpone your consumption for years makes a real difference. You gain tons of flexibility and you earn profit by different forms of ledning to people who are more eager to spend now.

  7. Juli says:

    If you had a savings account linked to your checking account, you could do a transfer each paycheck. Periodically transfer the money to a more difficult to access account, such as a money market…

  8. Sierra says:

    Just this week I’ve noticed an interesting shift in my finances: suddenly, the cash allowance I have each week is piling up unspent. About a month ago, I stopped spending money, and now I have a large and growing pile of 20s where normally I’d be scraping for change by midweek.

    When I noticed this I thought, “Oh! I have all this money? What should I do with it? I should spend it on something good…” and then realized I don’t have to spend it at all. I can just throw it in a savings account.

  9. beth says:

    making more money is many times overlooked when it comes to improving financially. It requires being uncomfortable long enough to build a business that provides unlimited income potential. It’s worthwhile for my family and for the families I help.

  10. beth says:

    1. save in a mutual fund(actually earns 10%),
    2. spend less than I earn
    3. and make more money

  11. Great post! I find it easier to skip that trip to Starbucks if I have a goal in mind as to where the money is going to go. For example, a while back my husband and I decided it was important for us to go on a date night once/month. In order to do this we needed to figure out where the extra funds were going to come from in order to be able to pay a babysitter for the 5 hours or so that we were going to be gone. Therefore, we both decided to cut some costs (I gave up my morning coffee run a couple times/week and he gave up going out to lunch a couple times/week) and because we knew where the savings were going (to provide us with a stronger marriage) we didn’t mind changing our habits as much.

  12. Cecilia says:

    Oh no! I am definitely guilty in this article. I actually thought that giving up something (e.g. eating out) will make me feel better. I did feel better until I used that money for other else. Although I considered it as a reward for myself, I still feel guilty after buying that “saved” money for other stuff.

    Lesson learned here: Spend wisely.

  13. Amanda says:

    Instead of moving the $25 to a savings account and then once a month paying $100 towards your debt… why not just make the $25 payment on your debt each week…? Then balances that accrue interest daily will get more of an impact – you won’t be paying interest on that $25 each week that you owe on the card while the money sits in the bank.

  14. Oskar says:

    True however sometimes i think an overlooked part of personal finance is the ability to focus your spending on the things that give you the greatest pleasure. Savings come first (at least 20% of income is a good basic rule) then I think the key is more focusing spending on the things you enjoy doning and less about saving more…

  15. FruGal says:

    Great article, and so true! I just started to seriously look at my finances and while I am spending zero dollars currently, it hasn’t affected my savings. My goal is to be debt-free and have $10,000 in savings within a year. I’ll definitely keep this article in mind as I try to save.

  16. This is so true Trent… it’s a great practice to remove unnecessary spending from our budget but wasted effort if we don’t use the money wisely.

    No coffees on the way to work but pub stops on the way home are wash. Why stop the coffee habit in this scenario but if the money is being saved and used for emergencies or debt reduction then we’ve gained ground.

    Thanks for sharing,

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