Does Pinching Pennies Really Add Up?
Many people are looking for more and more ways to pinch their pennies and stretch their dollars, but do all of these little ideas really help? What if you can use the current state of the economy to your advantage? That’s right, you can start to pinch pennies and stretch your dollars and form new habits that will last a lifetime, but is it worth it? Let’s take a look.
Here are a few things that many Americans do on a daily basis: buy a latte, go out to eat for lunch at work each day, drive to lunch each day, smoke a pack of cigarettes, have a drink at the bar after work, and maybe buy a soft drink. I am sure there are many others to look into but these will do for our example.
Your Daily Coffee = $520 a year
First let’s look at what a Starbuck’s Latte costs each day. For the sake of argument let’s only buy one coffee 5 days a week and on weekends we’ll make our own. Each regular coffee costs around $2 so we are saving $10 per week and drinking the coffee that the office has for free or making it at home. On an annual basis you save about $520 a year. It doesn’t sound like much but let’s move on.
Out to Lunch = $2,080 a year
Every day at work you go out and grab a bite to eat. Let’s say you are trying to be frugal and go to fast food every day. Maybe you opt for a “healthier” option like Subway or some salad place. Either way you are looking at 8 dollars minimum if you are buying some sort of combo meal that comes with fries or chips and a drink. If you are doing this every day that is about $40 in a week that you are spending on lunch. You may argue that you have to eat anyway, but for the sake of argument let’s just go through the example, so at $40 a week you are racking up a total of $2,080.
The Drive to Lunch = $156 a year
Don’t forget that because you drove to lunch you are using extra gas. You might only make a round trip of about 5 miles but that is 25 miles a week and will roughly cost you an additional $3 a week to drive. It doesn’t sound like much but there goes another $156 per year, not to mention you drove an additional 1300 miles and the wear it has on your car and the cost of maintenance.
The Smoker or Vaper – $1,820 a year
What about the smoker. Say you only smoke a pack a day. A pack of cigarettes could cost you about $5 per pack on the low side. I’m not a smoker nor do I vape, but I can’t help see them behind the counter each time I go to the convenience store. I know that $5 per pack is pretty low and the vape juice isn’t cheap either. Many of them hit $7 or $8 a pack now, but again, let’s keep it simple. After all, if you’ve read this far you must be at least somewhat budget conscious and you are probably smoking or vaping the budget brands. I don’t know, maybe that is one of the things that you can’t get cheap on. Anyway back to the example. That’s $35 a week because you probably don’t take the weekends off. During a year you could spend as much as $1,820, not to mention the higher rate you will pay for health insurance, life insurance, and other related health problems. Wait, there is a bright side, you may die at a younger age so you won’t need to save as much.
Other Miscellaneous Stuff (I know really official) $1,560 a year
You could go on and on with a number of things you spend a few dollars on. For example, that drink with your buddy after work might cost you $10 a few times a week, totaling $30 a week or $1560 per year. Or something as simple as buying a soda at the local convenience store for $1 every afternoon 5 days a week 52 weeks a year another $260. You get the idea, but does it really make that big of a deal? There are a lot of ways to cut spending and Trent Hamm wrote a post over on The Simple Dollar that gives a big list. You can check it out here.
Run the Numbers for a Total of $6,136 per year
Let’s look at the numbers. Each of those little habits that you may think you need really start to add up. Doing most of those things sounds pretty reasonable for some people, right? Well, if you add it up, latte $520 a year, lunch $2,080 a year, driving to lunch $156 a year, smoking or vaping $1,820 a year and a few drinks or other miscellaneous stuff $1,560 a year, it totals $6,136 per year. Over a ten year period that would be $61,360. If you take into account that most people start working in their twenties and work for about 40 years into their sixties it adds up even more. That’s almost a quarter of a million dollars, totaling $245,440!
What if you invested those savings each year?
What if you invested the $6,136 per year earning a rate of 9% over that 10 year period, what would you have? Starting with $0.00 each month you put about $511 into your investments. In ten years those monthly contributions would really start to add up. Over that time you would have saved $61,320, but with the compounding investments, the total would be up to $98,885. Not bad! If you were 30 years old and were going to retire at 60 you could save for 30 years you would have saved and invested a total of $183,960 and with the compounding rate of 9%, your total would already be $935,5095. What if you are 20 and could do this for 40 years, you could save a total of $245,280 and when you compound that over the 40 years it works out to a grand total of $2,392,154! In my book that would really help out with my retirement. Pretty cool right?
Here’s a calculator to help you see how much money you could be socking away. All you have to do is figure out how much you could put away on a monthly basis and add the numbers to the calculator. Maybe you already have some funds invested you could start with and then see how much difference it would make to add a little extra each month. Try it out.
So is Penny Pinching a $1,000,000 decision?
Well, the short answer like almost all financial decisions is, it depends. One thing is for sure though, if you take a bunch of penny-pinching decisions and add them all up over time, it can definitely result in being a million-dollar decision. The key to the whole thing is determining whether or not you are willing to make the changes and often sacrifices that are required to do it. Pinching your pennies and making small changes could result in big changes down the road. Why not start today and build for your future?
What’s are the alternatives?
There is another way to look at this too. Over the years I’ve come across a number of different ideas on how to save money for the future. Some of these ideas have a lot more effect than penny-pinching your way to a million bucks. Is there another way? Of course, there is. In fact, there are many ways to come up with a little extra each month.
Refinance your home
Refinancing a home is one that a lot of people consider, but don’t always use it to their advantage. What I am referring to here is that when most people look to refinance their home they are only looking at one thing, lowering that monthly payment. Often times they are caught up in the everyday stress of their personal finance and that relief of paying a little less each month sounds great. What you might consider though, especially if you are already able to keep up with the payments, is to reinvest the savings. You may find that by refinancing you could come up with the entire amount and you don’t have to give up all of the other things on the list. For most people refinancing won’t save you $500 a month, but it could make it so you just cut down on a few of those other things.
Get a Raise
You wish it were that easy right? I know I do. The fact is though that many people are leaving money on the table when it comes to their earnings. If you are a valuable asset to your company a small raise of just $1 per hour could get you around $160 extra a month (40 hours a week times 4 weeks times $1 = $160). Imagine what a couple of dollars could do. If that doesn’t seem reasonable maybe there is another position open that has a higher pay rate that would accomplish the same thing.
Start a Side Hustle
This sounds like getting another part-time job, which could be the answer, but what I’m referring to here is more on the lines of starting your own small business. There are so many things you can do in your spare time that doesn’t involve punching the clock. Here are a few that come to mind to help you get your juices flowing.
- Sell stuff online. You could start an Ebay, Etsy, or Amazon business. You could even open your own eccomerce store with shopify.
- Drive – you probably have a car right? Your car is a valuable asset when its put to use. Why not sign up with Lyft or Uber and start making money during your free time like nights or weekends.
- Start a blog – this may take a little longer to start earning but can work really well. Just do a search for blogging online income reports and you’ll see a bunch of people who are having all sorts of varying levels of success.
Nick Loper from Side Hustle Nation also put together a really big list of 99 business ideas you can start today if you need some ideas to get started. The main thing is that you start to do something and build yourself an income stream that will help you reach financial independence.
