We started this site as two brothers simply wanting to get out of debt, save some money, and work to invest in our financial futures. At the very beginning, we coined the phrase “two brothers pinching pennies”, and being a penny pincher is what this site is all about. You might be wondering what it means to be a penny pincher? For some, the expression might have the connotation of being very stingy or frugal. But for us, it is about much more than just “pinching your pennies”.
What is a Penny Pincher?
A penny pincher is someone who is smart with their money. They are motivated to both keep and make more of it through hard work and discipline. They also understand that money is not everything. It is only a tool, but one that can be used to not only support and provide for themselves and their family but also to give generously to those who need a helping hand.
A penny pincher also knows that money is only a means to an end, and if managed correctly, can be used to work for them instead of the other way around. They are not afraid of the big picture and the effort required to turn their financial dream into a reality. They are focused and work hard every day, but also look forward to the day when they will be financially free.
How to be a Champion Penny Pincher
So how do you go about starting your journey towards financial freedom and becoming a successful penny pincher? It’s really quite simple, but we are also finding more clever ways to save and manage our money every day! While we have both been on this road for awhile now, we are still on our quest for financial independence. We want to share a portion of our journey with you and some things we’ve learned along the way. If you’re lucky, maybe by the end of this you’ll be able to call yourself a champion penny pincher!
Keep More of Your Hard-Earned Cash
You should start by creating a plan to keep more of your money in your pockets in the first place. Don’t worry about your income or how much your friends or family might be making. Setting up a sound financial strategy and learning discipline can be done by anyone and at any income level. They are also skills that you will need to develop and practice if you are going to become the master of your money and call yourself a true penny pincher. Luckily, the first steps in this process are quite simple and there are a lot of tools already out there that can help you on your journey!
Get on a Budget
If you don’t already have a budget, you should definitely start here. Adding up all of your monthly expenses and putting them down on paper can have much more of an impact than you might think. Some financial gurus suggest creating a very detailed budget and giving a label to every dollar you earn. This can be a great strategy, and for some, it might even be necessary depending on how disciplined you are.
For me personally, the most important things to write down on paper, in the beginning, were my expenses. Both the required ones like rent, electricity and groceries as well as the convenience items like video games, eating out and going to the movies. When I started, my wife and I were still in debt and working on paying off my car and both of our student loans. We weren’t ready to save heavily or invest, we just really needed a plan and a place to start.
There are some great free tools out there that make creating a budget very simple. Mint is an online tool that I have used myself over the years to track my income and assets but also to set up a budget and track my spending. Dave Ramsey and his team also created Every Dollar specifically to help people easily plug in their expenses and get on a budget. If you aren’t into automation and just want to run some numbers, something as simple as Excel or even a pencil and paper can work. While I love online tools and they definitely save me some time, I still find myself keeping track of certain things in Excel and OneNote from time to time.
A budget may not be something you think you need, and maybe you already have a good deal of financial discipline. But if you are struggling with debt or simply wondering where your money went at the end of every month, writing things down and creating a quick budget can help get you on track. It’s also something that you can use as a benchmark as you start to build your financial discipline, save more of your money, and learn to become a better penny pincher.
Cut Frivolous Spending
When I first wrote down all of my expenses and did some quick math, I realized that there were some things we were paying for that we could definitely live without. This is one of the most powerful things about a budget, it forces you to look at how much you are spending every month and sometimes that can sting a bit. But nothing a penny pincher in training can’t handle!
Now it’s time to start cutting down on your unnecessary spending. Of course, this will be different for everyone, and I am not saying that you shouldn’t be able to have any fun at all either. But more often than not, there are a good number of things we could all give up from our current lifestyle and not lose too much sleep over them. And if you are having trouble sleeping, just try counting all that money your saving!
It’s time to get creative about cutting back and saving money where you can. But if you need some help, here is a list of ways to save to get you started, many of which we have both utilized.
- Switch to cheaper cell service provider like Project Fi, or join a group plan
- Give up cable TV and use a streaming service like Hulu or Netflix
- Eat out less
- Sell some of your old stuff you have sitting around
- Trade in that fancy, expensive car for a more cost-effective vehicle
- Practice waiting for sales on things you can’t live without
The concept of opportunity cost is something that has helped me immensely over the past few years. It’s one of the things that turned me into a penny pincher! Basically, opportunity cost refers to what you are giving up in order to have something else. When it comes to purchasing things and spending money, what is costing you? Well, it’s costing you money of course, but that’s not the only thing.
A powerful exercise that I learned awhile back was to first calculate my hourly wage and then, before making a purchase, figure out how many hours of work it would take me to save up that much money. I started to look at things that I wanted to buy in terms of hours worked in the future instead of how much money they would cost me now. Think about the opportunity cost every time you go to buy that fancy new pair of shoes or the hottest Xbox game that just came out. Is that item really worth the additional hours of your life you will have to work instead of saving that money to build your financial future? In some cases it is, but in many cases, it is not.
Should I Cut Up My Credit Cards?
Credit cards can be a frustrating topic. It’s really hard to recommend using them to anyone when so many people are in debt from not handling them effectively or responsibly. I went through Dave Ramsey’s course in high school and it was ingrained in my brain by the time I got to college that credit cards were something to stay away from as they would just get you into trouble.
My view on credit cards now is a bit different than what I was taught in school. My brother and I both use credit cards for the majority of our spending, but we wouldn’t even think about not paying them off every month. There are some pretty good cash and rewards offers available when you use a credit card for your spending. We are all about maximizing our money in every way possible and to get an extra 1.5% and sometimes even more back for putting things on a credit card is just one more way to keep more of your money.
However, I realize that not everyone has the same amount of discipline or is in the same financial situation. If you are comfortable using credit cards as a tool to earn some extra cash while you work to become a successful penny pincher, then go for it. But if you think there is even a small possibility that you might slip up, miss a payment, or spend more as a result of not “feeling it” immediately, then avoid them like the plague. After all, were getting ready to start getting out of debt, not get deeper into it.
Get Out of Debt
A pile of debt can be intimidating, whether it’s from being irresponsible with credit cards, getting a little bit too greedy on your car purchase, or simply just getting a loan to help pay for college. I’m hoping that you now have a good handle on how much money your spending and are able to flex your saving muscles a bit. You’re going to need them to start conquering your debt and maybe even start calling yourself a penny pincher.
My brother and I both started out with a good amount of debt, $135,000 combined to be exact. Most of that was due to borrowing money for college. Each of us also had a car loan. Back when I started paying more attention to my finances, I soon realized how much money I was losing every day due to interest accruing rapidly on all of my loans. From that point on, we pushed hard, saved fast, paid off loan after loan, and eventually were able to pay off all of our debt after two years.
Now everyone’s situation is going to be different and everyone will have varying amounts of debt and income levels, but all of the principles and ideas we talk about here and have used ourselves can be used by anyone. After all, anyone can become a penny pincher and ultimately achieve financial freedom with a lot of hard work.
The term debt snowball was made known to me by Dave Ramsey and it has been a useful strategy in my history of paying off debt. Essentially, you make a list of all your debts starting with the smallest amount and ending with the largest, not worrying about the interest rates. Once that’s done, start tackling the debts one at a time starting with the smallest one. Once that one is paid off, that monthly payment will be freed up to help pay off the next one, and the next one, and so on.
The debt snowball strategy can help you get some quicker wins and build motivation early on which can be very helpful, especially if you are still working on building financial discipline. However, maybe you have mastered the discipline part of things and are just wanting to maximize efficiency. If you’re at this point, it may be worth it to pay more attention to the interest rates of your different debts, as those with higher interest rates are going to cost you more money in the long run if not paid off.
Although, if you have a lot of different loans, starting with a larger one just because it has the highest interest rate might make you feel like your getting nowhere after awhile, and you will still have all of those monthly payments for much longer. My advice is to pay attention to both the loan amounts as well as the interest rates. Use the debt snowball to get motivated and knock some small debts off quick, but if you get to the point where your loan amounts are similar, always go for the higher interest rate first.
What About My Mortgage?
So what about those of you that have a mortgage? Is it important to keep pushing to pay it off early and be completely debt free before you focus on anything else? It really depends on your situation, how much you owe, what your interest rate is, and how much the peace of mind of being completely debt free is worth to you.
In my own experience, home loan interest rates are often much lower than the interest that can be gained on a good investment, so logically it would make sense to keep the mortgage and start investing instead of paying it off early. However, owning and paying extra on a home is something that is very tangible and pretty much guaranteed, whereas money earned through investments can fluctuate and is very long term.
My personal preference is to do a bit of both and get some of the peace of mind of paying off my mortgage faster but also work on growing my investments and savings. But either way, if you’re at the point where you’re trying to choose if your extra money should go on your mortgage or your investments, you’re already in a pretty good position. Work to pay off all of your other debts first, and then the choice is up to you on how to best handle your mortgage.
Don’t I Need an Emergency Fund?
Having an emergency fund is vital, especially if you are on a tighter income or in a situation where an unexpected expense could cause problems or even cause you to go into debt. But remember, we are still working on pushing hard to get out of debt, not save all of our money. You may have heard the 3-6 months of expenses amount floating around, but when you’re still working on getting out of debt, this may take awhile and slow things down.
Personally, I would try and keep a smaller emergency fund saved during this phase, maybe around one month of expenses, but feel free to adjust if you feel like you are in a riskier situation or a job loss is a possibility. But if you don’t have a ton of risk, there’s no point in letting a bunch of money just sit in a savings account while your debts are charging you interest every day.
Now It’s Time for that Rainy Day Fund
Can you say debt free? I hope so because, at this point, you probably should be. If you’ve finally managed to conquer that pile of debt, or maybe you were smart and didn’t have any in the first place, then you are ready to start saving!
To start, work on building up a fully funded emergency fund. For most people, this is somewhere between 3-6 months of expenses that could cover you in the case of a job loss or other disaster. I would recommend putting this somewhere that is easily accessible and low-risk like a savings account. If you are wanting to maximize your savings, you could use one of the many online savings accounts like Synchrony or Ally that can usually return up to around 1% in interest. It’s not much, but it’s much more than your brick and mortar bank is going to give you to park your money.
Now that you’re learning to be a penny pincher, I would also take some time if you haven’t already to re-evaluate your budget. Make sure everything is looking good there now that you’re debt free and probably have some more money freed up. Also, make sure you start learning to plan for upcoming non-monthly expenses. Maybe you’re taking a trip in a few months and are going to need some money for plane tickets and a hotel. Or maybe you’re just one of those people who forgets that Christmas happens every single year. Practice planning and saving ahead of time so that you’re prepared for those upcoming costs, and save your emergency fund for the actual emergencies.
Time to Put Your Money to Work
You’ve probably been pinching your pennies for awhile now, and now it’s time to figure out what to do with them! This is where some of the fun starts. It’s time to start making your money work for you so that eventually you can stop working for all that money.
Now you need to start figuring out a plan for your investing. This can encompass everything from a 401k to a taxable investment account on the side. I would start with the 401k. Check to see if your employer offers a match on your investment and if they do, take advantage of it! I would then look into setting up an IRA. Most people will recommend a Roth IRA due to it being able to grow tax-free, but there are reasons to go with a traditional IRA which is what I currently have. If you’ve funded your retirement accounts and are still looking for more then there is always the option of a taxable investment account as well.
If you’re wondering where to invest in all these funds, there are a lot of Robo-Advisors nowadays that make investing super simple and walk you through the basics of setting everything up. I personally use Betterment for the majority of my investments and have been very happy with their services and low fees.
Renting vs Owning
I’ve talked to a lot of people over the past few years about whether or not renting is a waste of money when compared to buying and owning a home. In my experience, most people assume that renting is a waste of money and look at purchasing a home and getting a mortgage as an “investment”. I very much disagree with them and don’t think that buying a home should be considered an investment in most cases. However, that doesn’t mean that either choice is right or wrong. It all comes down to your situation, the market that you live in, and your personal goals for what you want to achieve as well. Do your research and evaluate which situation is right for what you are wanting to accomplish.
Should I Pay Off My Mortgage?
I touched on this a little bit above in the section about paying off debt, but I will state my thoughts on this as it relates to investing and making your money work for you here.
Depending on the interest rate you have on your mortgage, there is a good possibility that you could get a much higher rate of return by investing your extra money elsewhere instead of using it to pay extra on your home. Of course, this depends on your home loan interest rate and also how confident you are in your other investments. In my experience, it is fun to do a bit of both. And while paying off a home early might not be the most efficient way to use your extra dollars, it feels great and it’s hard to call paying extra on your mortgage a bad idea.
Let’s Make Some Money
That’s it, you’re now a champion penny pincher! But there is always more to accomplish and other ways to get you to financial freedom even quicker.
I wanted to add this section as an inspiration for those who are looking for more. But also, I wanted to note that the primary way to get out debt, save money, build wealth, and ultimately achieve financial independence is to learn and practice discipline and become smart with your money, not boost your income. And funnily enough, many people who focus on raising their income without learning discipline and saving habits will find themselves no further towards financial freedom than when they began.
But for those who are already master penny pinchers, finding ways to earn more money will only help you achieve your goals faster. There are many ways to earn extra money or grow your income. Whether it’s working hard and asking for a raise, changing jobs to boost your income, or starting a side hustle to make some additional money. And remember, everyone’s path to financial independence will be different and not every suggestion or idea will be for everyone.
And if you’re really motivated, this part of the process can start all the way back at the beginning of your journey. And maybe that extra side hustle in the evenings will help you pay off some of that debt!
Some More Useful Penny Pinching Tips
If you made it this far, you’re probably already a successful penny pincher. But just in case you’re looking for some extra penny-pinching tips, feel free to continue.
Automation Can Help Break Bad Habits
Automating parts of your financial life can help a great deal. You can set up automatic bill pay to make sure you don’t forget and get stuck with a late fee. Robo-Advisors like Betterment will let you auto deposit into your investment accounts so you can stay on track. Some banks like Wells Fargo even have a feature that let you auto deposit a certain amount every time you spend. No matter which stage of your financial journey you are on, setting up some automation can help!
Buy Generic Brand Prescriptions
Brian had a lot of medical problems when he was first diagnosed with Ulcerative Colitis. Even after insurance his medicine was costing him hundreds of dollars a month. One way he saved thousands of dollars was by buying generic brand prescriptions. He used a free site, goodrx.com.
GoodRx collects prices & discounts from over 60,000 U.S. pharmacies. You can search for drugs and see prices locally and the different generic brands. They allow you to print coupons, and most of the time he was able to save up to 80%!
Utilize Free Tools to Help
There are so many free tools and services online that can help you manage your finances, whether you’re already a master penny pincher or just starting out. Here are some of the tools that we use to help manage ours.
- Mint: Awesome for a free online budgeting tool and to keep track of your finances.
- Personal Capital: Manage assets and investments, get objective advice and strategies.
- Credit Karma: Free credit card scores.
Hopefully these tips and strategies above can serve as a guide on your quest to become a champion penny pincher. Don’t think for a second that financial freedom isn’t within reach. All it takes is discipline, practice, and hard work. On our journey as fellow penny pinchers we’ve managed to pay off $135,000 of debt in 2 years, save some money along the way, and start investing in our financial future.
And you can achieve your financial goals too!