A short while back, I wrote a number of posts that were focused on getting control of your personal finances. In one of those posts, I described the idea of spending money as a way to save money. Think of this post as a real-world follow-up to that with a concrete, simple example.
Spending to Save
At first glance, the idea of spending money and expecting to see your savings account balance go -up- seems to make no sense. It might even look that way at second glance and beyond, too. If you learn how (and when) to put it into practice, though, you will buy more based on value and less on cost and the stranglehold that your finances have on you will start to loosen.
Here’s the idea: Identify an expense that you have today that is repetitive (like buying a coffee every morning at the convenience store). Then, find a way to reduce the cost of that expense as much as possible. If a one-time purchase is required to reduce the repetitive expense, how long will it take for that one-time expense to be returned through ongoing savings? The quicker you get the money back, the bigger the impact of making the purchase and the more valuable that purchase is and will be.
For simplicity’s sake, let’s assume that there are two people living in a household and each person buys one coffee every day of the week at a cost of $1 each. That’s a total cost of $7 per week, per person, or $14 per week total. $60 per month. $730 per year.
What ways immediately come to mind as ways to reduce the recurring costs? Sure, you could find a coffee rewards program where you get every 7th coffee free, but that only reduces the YEARLY cost by $104. What about making your own coffee at home with pods? You’ll need to spend about $60-$100 on a brewing machine and coffee will cost you about $.75 each. If you buy the coffee pods in large quantities, you can get that “per cup” cost down to about $.50.
This is a way to save by spending. Let’s assume you invest $60 in a brewing machine and you save $.25 per cup of coffee. That means you will save $.50 per day or $3.50 per week. In a little less than five months, you will have paid for your coffee machine and will be continuing to save $.25 for every cup of coffee you brew.
Going Even Further
In the example above, you would save about $120 after the first year, spending about $610 instead of $730. For each year afterward, would save about $180 per year (assuming you never have to replace the coffee machine). Here’s how to take that direction, and savings, to an entirely new level.
Instead of buying a coffee machine to make coffee using pods, buy a standard drip coffee maker and use ground coffee and filters. A basic, programmable drop coffee maker will run you under $30. A pack of filters that will last you about 8-9 months will cost you a few dollars. A tin of coffee will run you anywhere from about $6 – $10, depending on exactly what you like to drink. And, that tin of coffee could get you a month’s worth of coffee!
If you brew two “cups” of coffee per day using an inexpensive coffee maker, you will spend as follows: $30 for the machine, about $5 for a year’s worth of filters, $120 for ground coffee for the year. Add that up… that’s a TOTAL of $165 for a year’s worth of coffee for the first year, and $125 per year going forward. That’s a savings of $600! Every year!
Not A Perfect Solution
Admittedly, example #2 isn’t perfect. It does not account for cream or sugar, doesn’t account for more expensive “name brand” coffee, and assumes you will make only two “cups” worth of coffee each day. If you don’t own travel mugs, you’ll need to buy those if you’re going to be taking the coffee with you when you leave the house, so that’s another expense as well. While the example is accurate for what it does account for, it isn’t going to apply to many people – and that includes me!
The Real World
I bought a $30 Mr. Coffee on sale for $20 at Target. It uses the round paper filters (disposable) and also included the gold screen filter (reusable). We only use the paper filters because A) cleaning the reusable filter is messy and always leads to at least some coffee grounds going down the drain and B) there has been a fair amount of research showing that paper filters help to absorb some of what are known as diterpenes that can raise your cholesterol.
We buy paper filters in packages of 200 (last about seven months) for about $2. We buy the McCafe ground coffee in a 30oz tin for about $9. Each day, we brew eight cups of coffee (which results in two “mugs” of coffee for each of us) and we use two tins per month. If we extrapolate all of this out for a full year, we are spending $216 per year on ground coffee and $3 on filters. I drink my coffee without cream or sugar, she uses only a creamer with some sweetener in it. I believe the sweetener ends up costing about $25 per year. That all adds up to a total cost of roughly $245 per year for all the coffee we care to drink.
Where Can You Save?
What opportunities can you find in your own life where spending some money could save you money over the longer term? For us, we were making coffee from pods and not really thinking about how much we were spending on it. The allure of moving to drip brewing through paper filters for the health benefits was part of why we changed, but the savings in front of us certainly didn’t slow down the change for us!
Leave your “finds” in the comments below as to where you were able to save yourself some money over time by spending some money now! And don’t forget to subscribe for future articles!
Good analysis, Mark! I also think the concept of spending to save is not widely known so glad to see you brought it to light.
My latest “spend to save” is a pellet grill/smoker we purchased a few months ago, although the savings was accidental. For the price of eating out at a sit-down restaurant once, I can smoke a brisket or something that’ll last my family quite a few meals–and since buying the smoker everyone has had less desire to eat out. This is not only cost savings but time as well.
Thanks for the comment, Ben.
I can appreciate how you sometimes stumble across things. The pandemic has had a very large impact on our desire to eat out in general. We find that we are still happy to pick up a pizza or similar, but it needs to be from a local place with decent prices and great service. We used to be happy to hit up restaurants for sit-down meals, but now find them to be severely overpriced for the quality of the experience (and the food we make at home is so much better most of the time). Our eating out is now reserved to places that offer dishes we can’t easily make at home and/or for when we want to make a special night of it.
Lots of what we cook now is thought about in terms of how many future meals we will get out of it and when we will eat them. We often plan to cook 2-3 meals in a couple of days and eat the leftovers for multiple meals in the 3-4 days that follow. Like you, we’re spending money to make the meal up front similar to one meal out, but we’re easily getting 2-3 full meals out of it and it’s made with ingredients that we know as opposed to being slathered with butter or similar.