All Expenses Add up Quickly
If you have read my post on financial freedom, you may recognize the value in saving large amounts of money. If you can get your savings rate above 50%, you could retire several decades early! While it's fun to think about having enough money to take charge of your life, getting there can be much more challenging. You might look at your monthly budget -if you've made one- and think that you are doing your best. In reality, you could be saving much more. In this post I'll take you through some of my own ideas for how to save most effectively.
1. Kick the Coffee
Out of all categories of expenses, the smallest ones can sometimes have the strongest effects. For example, you may think that it's okay to spend $2 per day on a simple cup of coffee. You're wrong. $2 every day for a coffee would equate to about $60 per month, $730 per year and $7,300 over ten years. Even though that coffee barely registers a blip in your daily budget, if it becomes a habit, it becomes expensive. If you switched from purchasing a coffee to making your own at home, you could reasonably save $50 every month. This might not sound like a lot, but as you can see, it really adds up over time.
2. You Don't Need that Shirt
"J. Crew was having a great sale and I got 4 shirts for $50." If you are like the vast majority of people, you have not recently lost your entire wardrobe to some sort of natural disaster. You likely also have not gained or lost so much weight that your clothes no longer fit. Unless you fit into one of these two categories, it extremely likely that you do not need new clothes. There are limits to how many items of clothing you can even wear in a period of time, so there is really no use in adding to your already large enough collection.
It's pretty easy to accidentally slip into spending $100 per month on new clothes, usually justified by being tricked into thinking that you got a good deal because there was a huge sale. Until a couple of months ago, I thought this was reasonable too. I would routinely buy new outfits to congratulate myself on existing. But this $100 per month can become $1,200 a year and $12,000 every ten years if left unchecked. The average person can probably maintain an adequate wardrobe for $300 per year, a savings of $75 per month.
3. Reduce Restaurant Visits
Be honest with yourself. How often do you buy a meal out? Until recently I probably bought fast food or ate at a restaurant five times per week. This is totally unnecessary. By and large, eating out means paying someone a high cost to serve you unhealthy food that fights against your health goals. It's very easy to spend $50 per week buying burritos at Chipotle or sandwiches from Panera, but it's also a huge waste of money. The average person can probably feed themselves for $250 per month on wholesome and healthy groceries without ever needing to buy fast food.
I'm not trying to say that eating out is never a good idea, I just think it's more special when reserved for special occasions. It's probably reasonable to plan one nice dinner out per month and budget $50 per month. This one nice meal per month as opposed to several sporadic fast food visits could save you somewhere around $150 per month! That's a savings of $1,800 every year!
4. BMW? Try a Honda
One of the most obvious yet also most ingrained ways that we waste money is on expensive cars. We have been foolishly programmed to believe that it is okay to spend somewhere around $300 per month on a car payment. Most of us take out high interest loans just to purchase shiny vehicles that we can't afford. The $25,000 that we might spend on a new car might become closer to $35,000 over a period of a few years. Our need for transportation can be met with a used car.
There is no logical reason that a car needs to be shiny, new or have 4-wheel drive to get us from where we are to where we need to be. If you can find the cash, it makes much more sense to spend $5,000 or so to buy an old used car and then keep it for as long as you can. You can probably get a car to last you for 10 years, but most of us get sick of our cars in three or four years and trade in for a newer model. This colossal waste of money ends up costing us at least $3,500 per year, or better yet $35,000 over 10 years! And this is if we buy cheap cars with low interest!
Savings Add Up
If you were to immediately adopt my four suggestions, you would suddenly have an extra $575 per month. I bet you didn't think that you could cut that much from your budget! And these are only very quick and simple cost-saving measures. But this $575 per month could save you $6,900 per year! If you were to invest that money every month and earn a 5% return on it, you would have $89,291 in 10 years! So don't forget how much money your latte really could be costing you.