Thursday, 25 April 2013
Thrift Thursday: the penny jar and the fraction
This week I have been up to financial mischief. New ISA opened, new budget in progress, cashback signed up for - and the penny jar emptied and counted out. It feels good to be on top of things, especially looking back on where we were financially five years ago. Making the most of our money and managing our finances on a day to day basis requires us to find ways of thinking about it that make sense to us. This just happens to be one of mine - it might seem a little bizarre, but bear with me.
An experiment for you:
Take any of your financial goals - whether that be clearing your debts or saving for a rainy day. What fraction of your total goal does £1 represent?
Now take your original figure and multiply it by 100, to find the total in pennies. What fraction of your total does 1p represent? A ridiculously small fraction?
For all those long years of paying down the debts, I kept a piece of paper with those fractions on in my purse, so that I would see it every time I spent money. I seem to remember I actually had fractions written down for all coin denominations. I know that it sounds bonkers, but it brings intangible figures down to earth. A penny seems so small - hell, a pound seems inconsequential. Yet every extra pound we paid off each month wiped months off of our repayment plan and pounds off of the total interest paid. And now the debts are gone? Every £1 we spend or save represents 1/20,000th of our next financial goal. Every penny, 1/2,000000th.
Many potential impulse buys don't round up or down neatly to a pound, or even reach the pound mark. Many of the financial decisions you make may boil down to 'its only the difference of a few pence/pounds'. Everyone will do their own cost benefit analysis in the moment to decide whether it is worth them worrying about a 7 pence difference in flour prices, but The Demotivator at MSE is eye opening if you struggle to see how the pennies add up over a year. My personal weakness of buying chocolate at work as often as twice a week adds up to £70 a year, for example. Ouch. Buying the middle of the road tinned tomatoes over the premium saves around £20 a year - a few hours wages right there, saved from going into a bolognese that doesn't care for pretty labels much anyway.
The penny jar is an essential financial tool in our house. All of the loose change generated by our day to day transactions goes into the jar. It is mostly pennies, tuppences and five pence pieces, with a few larger denominations thrown in. When the jar reaches the half full mark, we empty it out, bag up as many full coin bags as possible; and take them to the bank. I also think that it is wise in this age of banking insecurity to have some hard currency to hand, however little. I counted out our coins once again this week. 2958 pence in total, or £29.58. Not that much? Actually, that's almost 1/676th of our goal, through passive loose change management.
Strong inflation and low interest rates over the last few years has hammered savers - but then it really depends what you are saving towards. A devalued penny in an emergency fund is better than no penny at all. If you are paying down debt, especially at record low interest rates, then every penny saved and put towards that counts for much more than if you put it in a savings account. Every penny and every pound extra you put towards your debts will reduce the final interest rate you pay and your final debt free date. Incidentally, if your debt interest is calculated daily, don't wait until your jar is half full - pay down small amounts as often as you can, even if that means taking £2 in loose change into the bank once or twice a week. It will save you money and it feels good. Every penny does count.
How do you manage your loose change?