Should a Millionaire Be a Coupon Clipper?
My own view differs from the conventional view presented above, since I organize my thinking around control and predictability of outcome rather than ranking the importance of decisions by their dollar amounts. I illustrate by selecting examples from different areas of personal financial management:
A. Expense: Applying for a credit card offering a 1% to 2% cash rebate on all purchases. Potential gain: $300 per year. Certainty: 100%. Expected gain: $300;
B. Income: Cancelling vacation plans at boss's request because an important project has come up at work. Potential gain: $3,000 increased bonus. Certainty: 50%. Expected gain: $1,500;
C. Investment: Shifting funds into a more risky investment with a higher expected return. Potential gain: $30,000 in one year. Certainty: 10%. Expected gain: $3,000.
Applying conventional logic to these three examples, one ought to be inclined to pursue B and C above more diligently than A, since their expected payoffs are higher, i.e., their outcomes involve larger amounts of money.
I arrive at the opposite conclusion, however, by engaging a "control factor" in my decision-making process. In line with the old proverb about how "a bird in the hand is better than two in the bush," I focus on what I can control (the bird in my hand) rather than devote time to endeavors beyond my control (the two birds in the bush). This control factor is what makes applying for the rebate credit card (in example A) a "no brainer" decision for me (I know that I will get a $300 rebate), while making the investment decision (in example C) a less obvious one (I dislike the potential downside that is beyond my control). Outcomes that I can control with very little effort are the "low hanging fruit" of personal financial management that I believe it makes sense to harvest, before venturing off into areas with less controllable outcomes.
Based on this "control factor" rationale, I find myself clipping milk coupons. I know with very high certainty that I can save a dollar by taking a minute to grab the coupon before heading out the door to the store. Regardless of how high one's net worth is, I contend that there will typically be seemingly "petty" decisions involving only very small amounts of money that clearly make sense to pursue. Could this be why Benjamin Graham's advice was to pick stocks the way you shop for groceries, or why Warren Buffett is known for picking up pennies he finds on the floor of the elevator?