CPA Gone Mad Issue 12: February 20, 2017
Planning Your Day Can Help You Save Money
Last week, I shared an article from Craig Ballantyne about planning your day. I hope you had an open mind when reading that article and thought about it in terms of savings. If you plan out your day, not only can you get more accomplished, but you also can save money.
This week, I want to build on that and begin showing you how small changes can compound to greatly increase your wealth. This may sound simple and not worth the effort, but remember, compounding matters.
But it takes time. Putting away a little today can make a huge impact in 30 years. And for many of you who have great salaries, it can seem “beneath you” to make such little efforts today. But today impacts tomorrow. If you want a quality retirement and secure financial future for your family, making these little efforts today matters.
I once read that to become wealthy, you need to save 50% of your gross income. When I was living above my means and in debt, that sounded impossible. Then, by slowly implementing some of these little efforts, I realized how wasteful I was with money. And today I can honestly say that I am saving 50% of my gross income. It doesn’t feel like sacrifice or missing out on anything. It feels liberating.
If you are already a disciplined saver, don’t have debt, and have developed a substantial savings outside your retirement account, you can ignore this week’s newsletter. But based on most of the feedback I’ve received, the majority of you do not fall into this category.
Little Things Today Can Make Meaningful Impacts on Your Future
I rarely buy coffee from Starbucks or Dunkin’ Donuts anymore. Yes, there are exceptions, but for a period of time, I was stopping at Starbucks every day. I love dark roast, strong-tasting coffee. And I used to say that since I’m not buying a latte or some other concocted drink, it’s not that expensive. About $2 a day.
That’s about $500 a year. If you get a concocted drink, it might be at least twice that, $1,000 a year. Now that I plan my day, I get more done in less time, so I consistently get seven to eight hours of sleep every night. And I get up at the same time every day. This makes me less tired, so I don’t need caffeine anymore. I quit drinking caffeinated coffee several months ago.
But I LOVE the taste of coffee. Occasionally I still make some decaf espresso at home or grab a decaf coffee at work, or from time to time on the weekends grab a decaf Americano from Starbucks.
Once I quit caffeine, this desire for coffee was not an everyday need. And although I like strong, dark coffee, having it once or twice a week is sufficient. Just making a cup of weak-tasting office decaf and taking in the aroma with a few sips is all I need.
Just by planning, I’ve kicked a caffeine addiction and saved $500 a year. If you drink coffee with cream and sugar or a concocted drink, you could also improve your diet by eliminating all the sugar and calories. And you could be saving over $1,000 a year by implementing the same method.
Now, before you dismiss that $500 a year as not substantial enough to make a difference in your retirement or savings, stay with me a little longer.
What if you did this with 12 different things? That would be $500 a month you could save, leading to $6,000 a year. That’s meaningful. I’ll show you in a moment how meaningful, but first, another example.
Planning out your grocery list so that you buy only the essentials you need can help save you money, and even create a side benefit of eating healthier. For me, it actually started with wanting to eat healthier, and then I realized the side benefit of saving money. But you can look at it either way.
Saturday mornings, before most of the world is awake (since I get up at the same time every day), I have time to scratch out a plan for my meals for the upcoming week and make a shopping list. It takes only about 30 minutes. When I go to the grocery store, my full focus is on getting just these items.
I get out of the store quicker because I no longer browse up and down the aisles, picking up unnecessary items that are unhealthy and cost me money.
I’ve never tracked exactly how much money this saves me, but I guarantee it’s at least $10 a week, which is another $500 a year. And I’m single. If you’re married and/or have kids, I bet the amount could be much larger.
One more. How about the gym? Most gym memberships cost at least $40 a month. Some may cost even more. It’s not uncommon to spend $500 a year on a gym membership for just one person. And the workout may be costing you unnecessary time and not getting you the benefits you need.
I used to go to LA Fitness. Half the people I saw in the gym were there for a social outing, not to actually get an efficient and effective workout. I need only a 30-minute workout three to four times per week to stay in shape. And I don’t need complex machines to do so.
You may not have a gym in your apartment building like I do, but for many years, I didn’t either. There are numerous effective at-home workouts you can do with simple dumbbells or resistance bands in 30 minutes. Not only do you save time (no getting to and from the gym, no waiting for machines or showers, no unnecessary chatting), but you also save money.
Men’s Health has a great at-home workout in The Abs Diet book that propelled me toward losing more than 80 pounds back in 2008. Beachbody has more intense programs that helped me shed fat toward the end of losing the 80 pounds. Craig Ballantyne, who wrote the Perfect Day Formula, has a program called Turbulence Training that I’m currently following to maintain where I am and to prep me for going through intense Beachbody programs again. I’m sure you can find countless others.
Those are three simple examples. You may think it’s difficult to identify nine more ways to save $500. But I bet if you start planning your days, it will bring attention to where you’re spending money. And you’ll begin identifying more ways to save $500 a year, building to reach that $6,000-a-year total.
Some may still ask, “What difference is a measly $6,000 a year going to make? If I do this every year, it’s $180,000 30 years from now, when I retire. So I’ll start doing this later; waiting a few years won’t make any major difference.”
That’s where they’d be wrong. Let me show you why starting now is so important.
If you take $6,000 today and buy a stock or fund that pays 4% dividends every year, in 30 years it will compound to $18,000. But if you wait 10 years to start, that $6,000 in 20 years when you retire will be worth only $12,500. If you start today, the extra 10 years of compounding essentially will create an additional year’s worth of savings on its own.
Now let’s expand. What if you save this $6,000 every year for 30 years, compounding it with a 4% dividend? In 30 years, that $180,000 you invested will be worth $336,000! But if you wait 10 years to start, the $120,000 you invest will be worth only $178,000.
By starting today and investing an additional $60,000, you actually will have $158,000 more when you retire. Now that’s a material difference.
I recommend you find ways to save this money outside your 401(k), starting today. And next week, I’ll continue with why your 401(k) was not meant to be your only means of building retirement savings.
To your health, wealth, and personal freedom.
Chad A. Walker, CPA, MBA