Small Savings, Big Impact
We hear sayings all the time. For instance, an apple a day keeps the doctor away. Which implies if you eat healthy, you will keep yourself and body healthy. That is solid childhood advice. However, we can use that same lesson in our finances. So I propose a new saying, “A dollar a day helps our investments pay.” Let me explain.
How many times a day or week do you stop and buy small items? You stop and get some gas and pick up a $1 candy bar. On your way to work and pick up a $5 cup of coffee. Or going out to eat with our coworkers every day for lunch for the 5 day work week. For the below example we will exclude weekends from our lunch column. Now, there is nothing wrong with this. I do think it’s important to treat yourself from time to time. We all have our things we love buying every day, myself included. But what do these purchases mean for our finance? How does this factor in, and why am I even discussing it in the first place?
If you follow the DGI community, you understand the potential for time value of money and investment growth. Let’s break down these numbers by simply what you would spend in these scenarios:
Yes I realize the numbers don’t all evenly line up and are a little fuzzy. That isn’t the point. We are more so just looking at the numbers and what they do.
Wow, even small amounts like this can add up to big amounts over time with the proper discipline. That is cash money in your pocket. Now on paper, this looks great in theory. But you might say in the grand scheme of things this really isn’t that much money at all especially since it took so long to build up. I agree, but as I mentioned, this is idle cash saved. We have done nothing with it at all. So let’s see what the numbers would look like if we invested all of this cash. If we plug in the numbers into my Future Portfolio Potential tracker, we can see find the results. For this example, we will use a small 3% yield per year (basically just collecting dividends) that will suffice, and this does not factor in market conditions, stock price changes, or volatility.
Can you believe that? We have easily doubled our money in all scenarios. Using the rule of 72 as stated by Investopedia: “The ‘Rule of 72’ is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to duplicate itself.” For our example it will take us about 24 years to double our money. It’s hard to see exactly because we are also adding more capital over time into our investments. But you can clearly see the growth potential which works better in the long run than just holding onto and saving the money under your mattress for retirement.
Speaking of sayings, here are a few more. We have all heard “Cash is king.” I can think of so many things I would do if I had this kind of cash and makes me think twice when I get my cravings for caffeine. Another great quote from a friend of mine which also applies here is “work smarter, not harder.” While it applies in life, it also applies to your finances. You put your money to work for you and it will pay off in Dividends later. See what I did there DGI community? Small savings now can add up and make a big impact later. So as a parting phrase, “A dollar a day helps our investments pay.”