Saving a Little Saves a Latte: Supercharge Your Savings A Few Dollars At A Time

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For many of us, the word “millionaire” conjures up visions of rich moguls throwing dollars around on Wall Street — just like in the movies. These popular images make us think that being a millionaire must involve investing tens of thousands of dollars all at once in the stock market, and that just isn't possible for most of us.

But here's the trick — becoming a millionaire isn't out of reach, if we are willing to take on the small, everyday action of regular saving.

Saving Small Can Snowball

Small savings matter. The truth is that investing steadily for our retirement pays huge dividends in the future, even if the amount with which we begin is not huge. Small savings begin to accumulate, or “snowball,” over years and years of investing. As an article on SureDividend explains,

“Imagine your investment account as a small snowball at the top of a hill. You give the snowball a little push (add money to your investment account). As the snowball rolls downhill, it grows larger and larger, packing on ever more snow.”

Because of the “snowball effect” that savings and investments can have, it's not about racing to become a millionaire by playing stocks to make millions. The old adage — slow and steady wins the race — applies here. Small, calculated investments now can pile up, or compound, and pay millions (literally) in the future.

Are you still feeling doubtful? According to this calculator, investing $600 on a monthly basis could yield a balance of $1,001,711.47 at the end of 35 years, assuming a 7-percent annual rate of return. In other words, finding a way to save $600 each month and putting that money into an account that sees average (but not guaranteed!) returns could potentially mean a million dollars in our retirement savings after 35 years.

Let’s examine a few places where we can save and reach that $600-monthly benchmark a few extra dollars at a time.

The Latte Habit

We all have our vices. A daily cup of coffee or a pastry each morning might only cost us a few dollars, but we usually don't stop to think about the effect that can have on our savings. To quote one of the cool videos on our blog,

“Say we drive to work every day and stop to grab a latte. We pay the barista $3.50. Then, after a large lunch and an afternoon meeting, we begin to feel those three-o’clock blues, so we run out and grab another. We do this every day we are at work for a month. On an average month, we spend $152 on coffee.”

To the untrained eye, our latte habit costs us $152 per month. However, if we were to eliminate the daily lattes and invest the resulting savings, following our hypothetical experiment we would have gained over $250,000 at the end of a 35-year period.

Amount saved so far: $152 per month

Invested with 7-percent annual return after 35 years: $253,766.91

Nixing Nights Out

We all can use a good happy hour after work or a night on the town with our significant other, and there is certainly nothing wrong with treating our families and ourselves to a night out on occasion. Nevertheless, when it becomes a habit, we cost ourselves more than we think in the long run.

If we eat out once a week (assuming an average family of four), we are likely to spend at least $80 per meal. With one extra night out (or pizza dinner ordered in) each month, we are at five restaurant meals each month. Add that cost up, and we would spend around $400 per month just on these dinners. However, if we contribute that money to our hypothetical account on top of the $152 we've already saved on our daily lattes, then we're getting even closer to that seven-digit benchmark!

Amount saved so far: $552 per month

Invested with 7-percent annual return after 35 years: $921,574.56

Cancel That Cable

This step might be difficult for most of us, but when we see the impact of the results, it might just become a bit easier. One MarketWatch personal finance post explains,

“Cable bills have more than doubled over the last decade and the national average bill — currently hovering at $90 a month — will reach $200 in 2020, estimates market researcher The NPD Group.”

If we were to cut the cord on our cable and opt for an Internet plan and Netflix subscription ($8.99 per month), we could easily save ourselves the remaining $48 per month and hit that $600-per-month investing benchmark.

Amount saved so far: $600 per month

Invested with 7-percent annual return after 35 years: $1,001,711.47

Now, this is not to suggest that investing $600 each month will guarantee us a seven-digit status after 35 years, nor is it to suggest that we need to forego all our nights out with family to have a happy and comfortable retirement. Instead, I think it's a great lesson on the power of finding small ways to save, which can add up big time in the long run. If you can't give up coffee or cable, consider other discretionary spending that might make more sense for you to save. 

As the old adage says,

“The best time to plant a tree was ten years ago. The second best time is today.”

Happy saving!

Have your own tips for investing and saving for retirement? Great! Tweet them to us @Lindsey2Wealth!