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Is your lunch costing you $1 million? Dividend Investor's Detox Jan 19
January 11, 2019
Time for a New Year's savings plan?
or: "What is the true cost of your daily latte & chicken BLT?"
The beginning of the new year is the perfect time to reconsider your spending and saving habits, and look ahead at where those habits will lead.
But just how much is a New Year's savings plan setting aside an extra few dollars a week going to make you?
About 10 years ago at an Anthony Robbins Wealth Mastery course, I saw a presentation showing how a city worker had paid off her entire debt consisting of credit cards, consumer loans on household items, car finance loan and mortgage just by choosing to take her own coffee and sandwich to work instead of paying $10 a day at Starbucks. [I've recreated this demonstration here...]
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Ever since then, I've thought about spending in a different way. If saving $10 and rolling up minimum payments pays off $220,000 of debt in 13 years, how far can each dollar go if it is invested until retirement?
Let's take a look...
Comparison 1: Taking lunch & coffee into work vs. going to Starbucks:If you normally buy one sandwich and one Latte Grande 5 days a week for 48 weeks of the year... that comes to a total of $9.60 x 5 x 48 = $2,304. Assuming you can make your sandwich and a Nespresso at home (good coffee is something nobody should have to compromise on!) for $1.50 per day, you can save yourself $8.10 per day, $162 per month or $1,944 per year.
If you were to invest that consistently over the years in a Vanguard tracker fund, such as their S&P 500 ETF with which you might expect to match the historic S&P 500 total return of 9.69% minus a measly 0.05% cost (this fund is actually up way more than 9.69% in recent years, but let's keep it realistic), your savings will be worth the following amounts depending on how long you keep the cash invested - likely to be the amount of time until your planned retirement:
So, the insane truth is that a New Year's savings plan could have an enormous effect on your personal wealth. If not buying a coffee and a sandwich each day can make you very nearly $1 million over your working career, what if you could find a way to save $20 per day?
If at New Year you ever needed motivation to save money and invest it in the markets, here's another figure to push you into action:
Comparison 2: Owning a brand new car vs. a used carThe best-selling car in the US in 2018 was the Ford F150 pickup, so there are plenty of them available both new and used, which makes a comparison easy.
Let's say you compare the cost of repayments on a car loan on the top vehicle, a 2-year-old F150 with the repayments on the vehicle underneath, a brand new one.
To most people the two vehicles look pretty similar. If you keep them clean, they'll look the same in 6 months and the only difference may be some technical extras which weren't quite developed 2 years ago.
So, could you handle driving around in a car that's 2 years older than the brand new one you might otherwise buy? Of course you could!
... And you'd save $359 per month in finance repayments, which equates to the following sums if invested consistently in the markets at average levels of return:
So, the benefits are clear - every dollar / pound / euro or yen counts.
Beyond that, every month you can save and invest is also vitally important, because the sooner you start this perfect dollar-cost-averaging style of investing, the sooner the large sums will accrue.
Here's one final table to reflect on. How much do you think $10 per week saved would generate for you if consistently invested?
This table will give you a multiple you can hold in your head to think about every time as you craft your budget for the new year:
So it's worth having a think - how could you save $10 per week without any real loss in lifestyle? Here are 5 ideas that came immediately to my mind:
1. Renegotiate your energy supply deals. 2. Call up your cell phone supplier and demand a lower tariff. 3. Make sure your savings are in a high-interest account, rather than your checking account. 4. Drive a little slower to save on fuel. 5. Shift any credit card debt to a 0% deal.
Doing all 5 probably would net you around $10 per week in saving and it doesn't sound like too much hassle does it? I'm aiming to retire in 15 years, so those 5 strategies alone could mean an extra $19,510 when I retire.
I'm off to call my energy suppliers and cell phone company right now...
Keep saving and investing!
William JohnP.S. Would you like a question answered in our next newsletter? If so, email it through to Mike at firstname.lastname@example.org
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