Through this, I discovered that the impact of saving is highest when you focus on the big wins.
I'm trying to say that you should focus on sacrifices that will provide the greatest savings.
If you've been tracking every single dollar that leaves your wallet, great! You'll be able to identify the big ticket items. That's step one.
For me, housing, transportation and food were the biggest contribution to spending. Collectively, these 3 components make up 45% of my total monthly expenses. Out of this, food alone used to make up 20-25% of total expenses.
So I started scrutinising these 3 components, and the only component that I felt I could really experiment with was food.
You see, growing up my dad used to chant this mantra: "Save on anything, but food" (he probably meant don't starve yourself just to save money). But with the backing of a paycheck and a voracious appetite, I pushed that mantra to its limit.
I would dine out at restaurants close to 10 times a month, spending at least $25-$50 each time. In total, I spent $800 per month on food alone. (Yea, and one wonders why saving is such a difficult task.)
Soon after realising this, I eliminated this habit from my lifestyle and I cut off $300 from my food expense every month. That's a big win ($300 x 12 = $3,600 per year).
$3,600 per year is equivalent to owning 85 shares of Coca-Cola (which has the ability to appreciate in value and oh, it produces dividends too).
So, I got obsessed and took my scrimping further. I stopped buying $5 lattes and penny-pinched along the way.
The penny-pinching made me miserable. Not only did saving on lattes and shaving off a dollar on other meals made me gloomy, it provided the least impact on savings.
It made no sense, and soon I added those little treats back to my lifestyle.
Instead, I continued to search for big ticket spendings (like my dining out habit) and I identified 'shopping' as another category that was costing me $100-$200 per month and eliminated it - another big win.
That's a saving of $2,400 per year.
Did these big wins make me miserable? Slightly. Did it have a great impact. Definitely.
Did the penny-pinching and latte-deprivation make me miserable? Definitely. Did it have a great impact. No.
What I'm trying to say here is that if you are serious about reducing expenses, focus on the big ticket items because that is what's going to make a difference.
Clipping coupons and saving a couple of cents here and there is not going to make an impact. And heck, if a cup of latte makes you happy, by all means go for it.
Big ticket items will differ from one individual to another, so it's your job to identify your own big wins.
But that's what puts the "personal" in personal finance.