26. Take care of the pounds, and the pennies will take care of themselves

An old English proverb says just the opposite: "Take care of the pennies, and the pounds will take care of themselves." In other words, a frugal life of saving a bit here and a bite there will lead you to financial freedom.

It's such a tempting thought! We'll buy the $3.99 a pound vine tomatoes instead of the $4.99 a pound fancy organic ones, or choose the $8 glass of wine over the pricy cocktail drink, or, as I did a few days ago, use the Amazon price-check app to find out that the $35 "How to cook everything" can be had for less than $20 at the Amazon bookstore. Hooray!

Funny how tempting it is to handle your finances in this way. After all, I've just saved 20-45% on the items mentioned above. Doesn't it add up at the end?

Well, yes and no. It does add up, but, perhaps, the time I'm going to spend on shopping online will be better spent on finding an index fund for my S&P 500 investments that has an annual fee of 0.07% instead of 0.08%. Sounds minuscule, but multiple it by the amount of savings and the number of investment years, and suddenly it's a little more important. But there are even bigger elephants out there in the room: what about your 401K investments? What about FSA (Flexible Spending Account for medical expenses)? If you have kids, have you looked into 529 plans? When was the last time you reviewed your student loan debts and checked if you can consolidate them with a lower rate? What about refinancing your mortgage?

Yup, it's not as much fun as bragging about saving 50% on those Nike you got online, but at the end of the day, we need to count dollars, not percentage points.

Like many other irrational behaviors, when it comes to money, our reptile brain leads us astray. We see the 80% discount we could save by driving to the outlet mall, and forget about the 2 hours it will take us to get there. If you were to buy a house today, would you drive two hours to save 0.02% off the price? But yet, a $100 saved on a shirt is as green as a $100 saved on a house. We think in portions and percentages, but, as far as your bank account is concerned, it's all the same.

Putting it another way, buying a $500,000 house is 5,000 times more important than buying a $100 shirt. If you plan to spend an hour shopping online for the best deal for the shirt, compare it to spending 5000 hours (or, 1.5 hours every day for 10 years) on shopping for a new house.

In reality, we all spend a little too much time on the "shirts", and too little time on the "houses". A better balance will save us all precious time and will also give us peace of mind. If you know that it doesn't really matter if that shirt cost was $50 or $150, since you more than made up for it when you bought that new car (or new house), you'll do you bank account a favor while freeing up your mind for more fun things.

So, take care of the pounds -- or the dollars -- and let those pesky pennies fend for themselves. They'll manage just fine.