In personal finance there is a constant list of things you hear in order to get started on the path to saving money and reducing your debt.

• Skip the Starbuck’s coffee

• Brown bag it during the week

• Clip coupons

• Just say no to big ticket items

• Cut back on your spending in small ways

And so on.

Somewhere along the way, some people decided that these penny pinching ways were draining and may make a small impact, but didn’t really take care of the larger problem. And so, another set of equally heard suggestions came into play.

• Downsize the house

• Sell the expensive car and get a cheaper one

• Live on the same income year after year, despite merit increases

And so on.

Proponents for penny pinching say that making the small changes and taking it slow will build lasting habits. In addition, this method eases people into a new, healthier fiscal lifestyle as opposed to the abrupt changes people face when they decide to downsize their lives in a major way. I liken this particular approach to those who inch themselves into the swimming pool when the water’s cold, or are slow to pull the band-aid off, preferring to pull one section at a time.

However, those in favor getting more bang for their frugal buck say that penny pinching is cut from the same cloth as fad diets and does not change the spender’s habits of living beyond their means, at least not long term. The theory here is that, eventually, the person will give up. If it’s not been a lifelong habit to save, trying to penny pinch after the fact isn’t going to help. So, the proponents for big ticket savings suggest downsizing the big ticket items like your home. They say it’s a better way to save, and it’s faster. In my analogy above, these would be the people that dive right into the pool and rip the band-aid off in one fell swoop. They just get it over with.

Personally, I feel like both approaches have merit; however, I feel the penny pinching approach is more universal in that it can by applied by everyone. The thing is, there are a lot of people in the world struggling with their bills that don’t have big ticket items they can downsize. I had a mother come visit with me recently who didn’t own a home or a car, but she was still struggling to make ends meet. What exactly was she supposed to downsize? My advice to her was to penny pinch. Her and her daughter were living beyond their means and after looking at her budget, we found a few key areas that she could cut back, not only bringing her below what she was earning, but also allowing her to save. It was a pivotal moment for her.

That all being said, I really don’t think either one is actually better or worse than the other. Like most everything else in personal finance, I believe it depends on the situation you’re currently in and what works best for you. But, I do think in many cases a combination of these two approaches is an effective way to really kick your savings into high gear. Especially now, with the economy still in turmoil and the unemployment rate still high, savings and being prepared are important.

So it comes to this. Which is better for your situation? Do you feel like penny pinching is the most effective method to save, or do you think the ‘latte factor’ is a waste of time and people should focus on the big stuff? Or, do you think a blended approach is the best way to go?

Photo by cobalt

Related posts:

1. The Difference Between Checking and Savings
2. Deposit Insurance: Recession-proof your savings
3. Justifying 3-6 Months of Expenses in Savings
4. The Debt Snowball Method: A Primer
5. Weekend Roundup!