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?

10 comments:

  1. Ours all goes into a large pink china pig, apart from the 5p's - those go into a small china sheep (well of course!) - on the 28th (or 29th) feb each year we count it all up, plus MrEH's "roadkill" which gets kept separate, and whatever we have goes towards our holiday spending money for that year. Last year we had nearly £200 - which translates as nearly 1/3rd of a holiday cottage!

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    1. I'd quite like a pig, very traditional! Ours is a large glass half demijohn. What is MrEH's roadkill? And enjoy your holiday cottage, when you get to it!

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  2. We have e coin jar for loose change and sometimes even small bills. We don't use cash much in general, so it doesn't fill up very quickly. Probably once I year I dump it, sort it, and eventually remember to exchange for larger bills at the bank. This extra money, plus anything I make from selling our old/unwanted items throughout the year, is my garage sale shopping fund for the upcoming summer months. It pays for most of the kids clothes and toys, plus various household items we might need to replace.

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    1. That is a good way of doing it - if you know that you are going to need the money at a specific time of year, then you can save up to that point. Any small windfalls we get go into our jar too, anything larger than £10 goes straight to the bank.

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  3. I have never thought to work out the fraction of things, but can see that it helps to put things into perspective. Sometimes it is good to think about how many minutes or hours work you need to do to cover the cost of something. I often do it with meals out and wonder if it was really worth it. I also agree that it is much harder to spend cash, it is far more real than paying with a card and nothing like just clicking pay with PayPal!!!

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    1. I was going to combine the time thing into this post, but couldn't get my brain to mash them suitably! Perhaps I will do another post about it, it is actually the primary way that I think about money. Only those that are passionate about their work and are rewarded handsomely for it can afford not to, I think!

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  4. Ah I always do the time thing, I 'may have' even recently worked out how many hours worked we spend on toilet roll a year in a half brave half nutty attempt to try to convince myself and family that reusable toilet cloths would be a good idea. I will do the fraction thing today though, I am a sucker for telling myself oh it's only £2 pounds or whatever, it will help me see it in perspective, thank-you.

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    1. :) Yep, I think humans find it hard to recognize cumulative effects. I have been doing the maths almost automatically since I wrote this post and the purchases that get through the filter are substantially reduced.

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  5. I keep my small change and just spend it, but I bank online with Lloyd's and have a 'save the change' thing which means every time I make a card transaction the difference is rounded up to the nearest pound and put into my savings account. If I spend £3.46 then 54p goes into my savings. It mounts up! I've been saving up to buy my son a new drumkit since Christmas and although I've put large chunks of money in at least £75 of it is from 'save the change'.

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    1. Wow, the bank thing sounds like an awesome idea! It really does add up! We now have a separate tin of twenty pence pieces for Christmas food and it is already over half full. It will pay for all of our festive food.

      I think you should put some aside for earplugs, too. Always be prepared :)

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