Little Savings Matter

Ok to be fair I understand why people don’t do things to save a few dollars a month.  In some cases you don’t think it’s worth your effort, while in others it has more to do with being lazy.  I know that saving $5 here and perhaps $20 there doesn’t seem like a lot of money, but in fact it is.

You see savings is literally a two edge sword to hack your way to a early retirement regardless of the fact if the markets aren’t doing so good.  Why?  Because if you permanently reduce your spending on something you save twice.  Once is the obvious savings of you have more money to save a month and the other is the fact with a lowing spending lifestyle your retirement target just got smaller as well.

To demonstrate this concept I’ll provide an example.  Let’s say you made the following minor changes to your lifestyle:

  • Skip paying for movie rentals and use the library and get them for free. $20/month
  • Take a lunch to work instead of buying one extra day a week.  Save $40/month
  • Find a free chequing account and stop paying those fees.  Save $5/month
  • Go meatless on at least one meal a week.  Save $20/month
  • Skip eating fast food once a month. Save $15/month

Grand total $100/month.  Hardly earth shaking kind of money.  After all you are only saving an extra $1200 a year.

Yet that amount does matter.  You see first off if you start saving that amount at even 5% rate of return in 15 years you will have about $26,700.  Then add the fact if you make those savings permanent you no longer need that amount of capital to spin off that income.  So if you use the 4% safe withdrawal rule that $1200 a year is actually worth $30,000 less in retirement savings that you no longer need.

Add it up and that’s $56,700 of savings total.  Not to bad for a bunch of minor changes to your lifestyle.  So the next time you can save $5 without reducing your happiness I highly suggest you do it.  The change by itself won’t be much, but if you keep at it there is no reason why you can’t reduce your retirement target by a year or two.

9 thoughts on “Little Savings Matter”

  1. Good post, makes sense.

    I always have taken issue with the argument for making lunches at home as opposed to eating lunch out during the work week. I have done the calculations, at least on my diet, and found that purchasing the groceries to make a comparable lunch (couple deli meat sandwiches with cheese and some granola bars) is pretty darn close to just walking up the street to the cafe and having it there. People need to eat, the only true way to save money on lunch is to not eat lunch and hope you don’t consume more for dinner to make up for the missed meal.

    A side benefit of going up the street, is I get a walk outside, away from the office and I am able to do some social networking at the local cafe – which may in fact lead to a way to increase my income 😉

  2. The money I saved over many years by taking a thermos to work for tea/coffee and taking my own lunch easily paid for the sailboat I now enjoy in retirement.

    Its not that I never went out for lunch or bought fresh coffee. The additional savings plus the interest on those savings really add up. The TFS Accounts make it even a better deal today.

  3. I just don’t agree with the lunch argument…

    Lunch at the Cafe – $6.50
    Home Made lunch – $5.50

    Net savings – $1.00

    Not $10.00 a day as per your calculations. It’s a bit of a red herring. Your line item for lunch savings should really read – skip lunch once a week : 40.00 a month

  4. Adam,

    It depends what you eat for lunch. Mine are usually leftovers that I wouldn’t normally get around to eating during the week. So in reality I’m reducing my waste food and it’s not costing me much more than a few items I pick up from the bulk bin to snack on. I don’t take drinking boxes after I realized I can take juice in a reusable container and save the recycle fees. Total cost = $5/month.

    Also your lunch sounds pricey because it is. Prefab granola bars and sandwich meat are expensive items to eat for a lunch. Most single serve snack food is pricey. For $5 I can make enough food to feed my entire family lunch (two adults and two kids).

    Not to be nit picky or anything. 😉


    More examples of what? Little things, I assume. Well here you go:

    -switch to CFL lights and turn them off when you leave the room
    -use power bars to completely shut down your TV and computer each night
    -unplug any charger than isn’t actually charging something
    -use less shampoo and toothpaste you will be surprised how little you need to do the job
    -don’t run the water to brush your teeth
    -get a programmable thermostat and use it
    -eat your leftovers and don’t throw out food, if you can’t eat them all freeze some
    -reduce your fees on your investments, even 0.25% matters over the decades
    -try camping for your next vacation (borrow the equipment if you don’t own any)

    In a nut shell stop wasting things!


  5. Great post people tend to forget the power of compound and how early savings with smaller amount can be much more effective than larger savings later on.
    I posted on power of compound a little while ago with a spreadsheet looks at this issue.

  6. It is so true that little changes make a big difference!

    I am retired and finally (sons out of school and on their own) able to put aside some money. 15% of my take home pension, automatically, and then I guard vigilantly during the month because everything left over goes into savings. That ranges from a couple of hundred to as little as fifty dollars, but what a rush to transfer that money!

    I’ve cut my electricity, water, phone a great deal by employing many of the suggestions you made in this post. A little fresh ingredients make for great dinners and leftovers for lunch or another dinner. I also cook in batches to save time and electricity. What I won’t eat in a day or two goes into individual portions in the freezer. I also did away with cable TV over a year ago and don’t miss it a bit! Plus other than my computer, fridge, and stove, EVERYTHING is unplugged till I need it.

    It takes a bit of time to see results, but it really adds up.

    I didn’t add anything to your ideas but I wanted to testify that it just takes little steps. I might add, it gets contagious!

    Enjoy your site and insight 🙂

  7. PS…The peace of mind I have knowing that I have money in the bank, just in case, is priceless. That is a whole lot of stress I dumped. Believe me, knowing I can handle most non-catastrophic emergencies has greatly improved the quality of my life! Adding to that fund monthly is the best.

    After raising two sons, mostly on my own, and after many paycheck to paycheck years, it is truly a blessing and a relief. So, even if it is just 10 dollars a month, do save it for yourself!

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