A Penny Saved Is 1.15 Pennies Earned

I got into what I consider an odd debate about saving money by making your own coffee at home vs buying coffee with TheShot concerning his/her blog post.

Based on their comments to me and others I don't expect to change their mind but I did want to share some of my thoughts regarding misconceptions people have concerning savings.  I've seen these issues come up in other places. Not just about saving money on coffee but saving money in general.

I'm not sure how the conversation took a turn but it's something that's always bugged me. We used to be a nation of people who valued saving money. Now we're a nation of spenders and borrowers. We can see how that's worked out.

So many people seem to be advocating continuing that trend and giving out what I consider to be misguided advice and just plain false information.

My goal isn't to try to get you to join the 83% of people who make their coffee at home, it's to make you think of some of your expenditures and think about making the more efficient use of your time and money in general.

The Labor Myth About Savings

One argument I see people make is that when you do things for yourself, you're not factoring the value of your own labor.

This is a valid argument in some contexts but it's not always the case. People like to say that when you factor in the cost of your time, even if you were charging yourself minimum wage, there is very little to no savings at all.

The argument TheShot makes is that it would take 15 minutes to make coffee at home and over the course of a year that's 40 hours. Even at minimum wage that's a couple hundred dollars a year that leaves you with less savings than you thought.

In this particular example, I find that logic to be just plain absurd for a number of reasons. I don't know anyone that takes 15 minutes out of their day to stare at a coffee maker working but even if we ignore that. How could you monetize those extra 15 minutes each day (ignoring the time it takes to go to a store and wait in line for coffee) that you now have free? I mean, time isn't like money, You can't save it all up in a bank and use it whenever you want.

Can you find a job that you can work just 15 minutes a day? Can you go to your boss and say I have an extra 15 minutes to spare each day I'd like some overtime? Even if you're self-employed how easily can you monetize that extra 15 minutes?

Let's say you're a dentist with your own practice that averages $100 an hour. You're considering doing something that would save you money. You do the math and realize doing it yourself will save you $10 but take an hour of your time once a week. You know your time is worth more than $10/hr. If you had an extra hour each week, would you be able to fill it with new patients to make your time more profitable? Even if you could, would you want to spend more time at the office instead of doing something at home with your family?

Saving Gives You a 15% Bonus!

In the coffee example, let's say you do manage to find a job that you can do in 15 minutes every day that doesn't have any commute time where you could earn more than what you save. How much do you really have to earn for it to be equivalent?

When you earn money, you don't keep all of it. A portion goes to taxes and social security. When you save money, you don't pay taxes on it.

In 2010 the average US household income was $49,445 a year. If you were married, filing jointly, your take home pay would be $43,030. You keep $1 for every $1.15 you make. When the average American saves $1, it's the equivalent of earning $1.15.

The federal minimum wage is currently $7.25. Finding ways to save, even if that only equates to a minimum wage job based on your time, you're actually saving at a rate of  $8.34/hr if you're an average American household.

How To Decide Between Make Or Buy?

If you want to be able to save more money take the time to think about goods and services you buy and figure out how much you could save if you made those items or performed those services yourself.

Then adjust for your effective take home pay (15% for the average American household). Divide the total savings by the number of minutes it takes to complete that task, then multiplying it by 60 to get the savings in terms of dollars per hour. Compare that to what else you could do during that time to earn money. If you can earn more in that time than you could save, you're better off working on something else instead of doing it yourself. Also factor in how happy/unhappy you'd be doing either.

Here's a simple example. I just made up the numbers. Let's say I save $5 making my own pizza at home versus buying from my local pizzeria and I have to spend 45 minutes away from things I otherwise could do to make it.

So $5/50 minutes * 60 =  $6.00 per hour. Factor in that I'm not paying taxes on savings by adding 15% which works out to $6.90 per hour. Could you find something else to do, after your normal work day for 45 minutes that would earn more than $6.90 per hour? Maybe if you're not salaried you can ask to put in some extra time? Maybe you could mow your neighbor's lawn for a lot more than that. Maybe you can spend 45 minutes sorting through your closet and selling things you don't want or need anymore on eBay and earn more than six bucks.

It's not just a simple math problem though. Which would you rather do? Spend some time making pizza with your family, which could be fun for some, or sorting through your junk or mowing your neighbor's lawn (which some people also find fun)?

You also have to consider if the end result is going to satisfy you. If you can make pizza that's as good or better than ordering and you can't find another way to make more than $6 in that time then the best financial decision is to make your own pizza.

The reality for most people though is they'll order a pizza and plop down to watch TV while they wait for the delivery person, thinking there's no point wasting their time doing something that amounts to a savings of less than minimum wage because they think they're time is worth more than that.

Saving Money Making Coffee At Home

This all started after making a comment regarding saving money-making your own coffee so let's look at that example.

I recently started looking for ways to make great coffee at home and not spend a lot of money.  I wound up spending $15 for a coffee maker and $35 for a coffee grinder and my results where much better than the automatic drip coffee maker I used to use. To be honest though, the automatic coffee maker did a decent job but now I like my home-brewed coffee more than I like store-bought coffee.

It doesn't take me anywhere near 15 minutes to make coffee in the morning. When I first get to my kitchen I start boiling some water and go about making my breakfast. Just for the heck of it, I compared how long I spend in the kitchen making breakfast both with and without making coffee.

Making coffee only added 6 minutes to my routine and that included the time drinking it! It also included the extra few seconds to clean up my coffee equipment. Actual time making coffee was around 3 minutes. That's not so bad considering the average person has to wait 3 minutes to get their coffee at a store.

Making my own coffee at home costs me 3 minutes and at most $0.95 cents to fill a 16 oz travel mug. That's when I use an expensive coffee that costs $13/lb. I'm quite happy with coffee that costs $8-10/lb but I like to experiment. I could easily be happy spending around $0.65 per travel mug.

Even with the more expensive beans, that's a savings of $1.15 per coffee compared to buying at my local Starbucks. I have coffee every morning. That's $420 saved (not including tips) minus the $50 in equipment which comes out to a net savings of $370 per year.

The 3 minutes it took me to make my coffee every morning comes out to 18.25 hours a year. That works out to about $20.27/hr in savings. If we want to compare that to finding a part-time job we could have otherwise spent that time it would need to pay $23.32/hr to be break even. (Over $33/hr if I use cheaper but still good coffee beans.)

Can you find a job that earns you $23.32/hr that you can do for 3 minutes a day while still in your jammies?

How Much Do I Save Making My Own Muffins?

I recently posted my recipe for White Whole Wheat Blueberry Muffins so while I'm on the subject I thought I'd have a look at how much I'm saving making them. Since this is more time-consuming I thought it might be interesting.

For the record though, making my own muffins was more about making a better muffin than it was about saving money. I found that store-bought muffins were too sweet and barely had any fruit at all. In addition, there are reports that some places don't even use real blueberries!

The only white whole wheat flour I could find locally at the time was King Arthur's Organic White Whole Wheat Flour which is very expensive. Even with that particular flour I was making muffins for less than $0.50 each.

Since then I've found a local source for the non-organic white whole wheat flour which is much cheaper. Combined with choosing whatever fruit happens to be on sale (blueberries, raspberries, strawberries, bananas, etc) I'm averaging $0.30 cents per muffin.

Store bought muffins are about twice the size as the muffins I make and I usually eat 1/2 a muffin when I buy from a bakery so I'll double the price of my muffins compared to store-bought. Cheap, non-whole wheat blueberry muffins are $1.25 each. Better whole wheat blueberry muffins from a local bakery cost $1.65 each.

I make muffins about once a week and it takes me 45 minutes total, including clean up. Comparing my first batch to supermarket muffins the time spent making muffins at home is the equivalent of working a 45 minute job once a week that paid $3.07/hr.

But I'm not making cakey, over sweetened, muffins with little fruit and I've managed to reduce my costs. Comparing my new cost to buying whole wheat muffins from a bakery I'd have to find a way to earn $12.88/hr for those 45 minutes I spend making muffins each week.

But we're not done yet. Although I need to stick around the kitchen for 45 minutes, a lot of that time the oven is doing all the work. My typical routine involves mixing up the batter, filling the tins and putting them in the oven. This takes around 15 minutes. After the muffins are in the oven. The first 5 minutes of baking are done at a higher temperature. During that time I manage to do all the dishes, clean and sanitize the counter tops and put away clutter. After I turn down the oven the muffins bake for another 20 minutes and I have enough time to clean the outside of the appliances, including inside of microwave and kitchen phone, sweep and mop the floor and other little things that need to be done.

Now, I don't think you can hire a maid just to clean your kitchen, but based on cleaning service quotes I received, and the percentage of time spent cleaning the kitchen, I figure it would cost $30 if it was possible to get it done. Throw that into the mix and I'd need to find a way to earn $58.88/hr during those 45 minutes on a weekend morning instead.

On top of the savings, I like my muffins better. I make them with less sugar and usually less fat and more fruit so I can fit them into my healthier eating plan. Those few calories burned standing, stirring and cleaning do make a difference too. To find out why read more about NEAT or Non-Exercise Activity Thermogenesis.

The economy hasn't been great for some time now. What are some way's you've found to save money?