Focus on the Big Stuff First!

Good morning! This excellent post at Faithful with a Few (one of my favorite Christian finance sites) points out that we should take care of the big and important things before we sweat the small stuff.  This is an important truth and so I will make the same point in a little different way.

I have taught a Biblical Household Finance class at my church for many years now.  Often in a class discussion, someone (usually a lady) will go into great detail about how they save a ton! of money couponing or grouponing.  One student communicated proudly that he was saving a boat load of money on gas because he bought himself a motorcycle.  On credit.  Except for his upside-down economics, I really like the way this guy thinks.  :) I been wanting a motorcycle for a long time myself, but mama is terrified of them so no go on da bike.

Let's take a friendly shot at the coupon lady first.  Not that I want to discourage or discount any efforts people make at saving some pocket money.  Everyone knows the old saying: "a penny saved is a penny earned".  That's very true.   However, its just a penny.  Couponing tends to affect the short term.  Maybe save you a few bucks that you can spend somewhere else.  Does it positively affect your long term?  Probably not.  Yes, I've seen the TV show about the whacked out lady who brings home two carloads of stuff for $6.72, but that's not most of us, OK?  Even if it was, I have my doubts about the real economic benefit that 1240 tubes of toothpaste brings to a household anyway.

Now lets poke a little at the motorcycle guy.  Let me get this straight:  you borrowed $12,000 (totally a guess) to save the difference between a 10 mpg truck and a 30 mpg motorcycle?  Are you serious?  Let's do a little math.  Gas is currently about $3.50 per gallon.  Assume you drive 20 miles daily round trip to work.  The 20 mpg improvement in gas mileage would save you a gallon of gas, or $3.50 per day.   That totals up to $17.50 in a 5-day work-week or $70 per month.  The payment on a $12,000 loan at 5% for 48 months is $276.  Interest alone on the borrowed money is $50 in the first month!  So I took on a four year $276 loan payment to save $20 a month in gas.  Not a good plan unless you really just wanted a motorcycle, in which case its brilliant!

Bottom line: To affect our long term net worth, we have to:

• Get and stay on a budget 
• Get out of debt
• After consumer debt is paid off, our budget should include long term investments.  It doesn't make sense to invest until the debt is paid off, though.  Debt is like negative investments.  The best place to invest until the debt is paid off is in debt repayment.  I'll follow up with a whole write-up on this soon to make this point in more detail.

To the extent that pinching pennies enables you to accomplish these goals, more power to you couponers and grouponers!  But if you're really just freeing up some pocket money to go to spend somewhere else, why bother really?  At the end of the day, all the money's gone.