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Many people will tell you that little things don't matter. "Focus on the big things and the rest will ta ke care of itself." That logic is partly true, but we have more control over the little things than whether we get a 10% annual raise for the next two decades or whether our house values triple in the next 25 years. The little things do add up and you might be surprised by how much. Giving up these 5 things might be easy or really tough; but if you're spending money on them or an equivalent substitute, a successful effort to give them up might add a cool million to your brokerage account in about 25 years.
The Starbucks Coffee:
If you have a daily taste for a $3.50 Starbucks blended drink, you might be surprised to know that if instead, you invested that near $25 a week into your brokerage account and earned an 8 percent return, you'd have a whopping $97,000 in 25 years. If you manage to convince your spouse to give up his daily Latte fix, your looking at near $200,000. Adjust the numbers accordingly if you can't step out of Starbucks without spending $10.
Brown Bagging Lunch:
Going out to lunch every day can also work out to some serious change. Maybe you spend a mere $6 a day and then splurge a little on Friday with one of those $15 lunches. Early in my career, I had an office mate making $30,000 a year that ran a weekly lunch tab of close to $100.
So if you're wondering why some of your co-workers show up with that brown bag with the sandwich, apple, and can of soda; it probably has nothing to do with hard times. It could just be that they've figured out in 25 years their frugality is going to net them $138,000 apiece. These days, $276,000 can buy you an ocean front condo and a repossessed yacht that you can Christen "The Brown Bag Queen of the Sea."
Cutting 1 Dinner Out a Week:
The average American family eats out about three times per week with dual income families eating out even more. If you skip just one of those meals, you should save about $50 a week. Not only will it do wonders for your waistline, but it would net you about $178,000 after 25 years. That kind of money can cover an Ivy League education for your little darlings.
Smoking or Alcohol:
If you are a two pack a day smoker or you like to buy rounds on Friday at the local tavern, a bonanza awaits you if you can kick the habit. You might lose a few popularity contests when you stop buying drinks but you'll get over it when you get your account statment. Smoking alone can cost you $75 a week and smoking with your wife can double that amount. If both of you can kick the habit and sock the money away, in 25 years you'd have $600,000. If you can give up drinking while you're at it, you'll have in excess of a cool million. And that's not including the health benefits which will add to tens of thousands in additional savings.
Even if you're not a heavy smoker or drinker, it can still add up. About 21% of Americans smoke and about 64% drink. The normal consumption is about 5 drinks per week. So on average, a couple is going to save a lot less than a million but it'll still add up to a healthy chunk of change and it's good for your health. By going cold turkey, light smokers and social drinkers can still manage to put away $100,000 to $200,000. If they calculate what they spend on lotteries, Vegas and the horse track, it might pile up to a small fortune. A hundred here and a hundred there and soon you're talking a million dollars.
Now there are a whole host of other small things that you could give up or simply do without. Nail salons, expensive haircuts, going to the movies, valet parking, house keeping, car washes, etc. Nobody is suggesting you live like a saint, but you should be able to give up a few of the items listed above or maybe consider doing something radical like getting by with one car instead of two.
One Car
The average American family has 1.9 cars and spends about $9,000 a year on transportation. In England, the average family owns 1.08 cars and 27% of families don't even have a car. If you could cut down to one car or figure out a way to cut your transportation costs by driving less, holding cars longer, and driving more fuel efficient cars, you would save about $4,000 a year and have another $305,000 in 25 years.
Did we get to a Million Yet?
The thing to remember is that dollar you get in the habit of saving each week adds up to $52 a year. Over twenty five years, it adds up to $1,300 dollars. So even, if you put it under the mattress, it really does add up to a lump under your pillow - pun intended. Add in the magic of compounding and it works out to a $4,000 bulge in your brokerage account. The math is simple - to get to the magic million, you need to save $250 a week for 25 years and earn about 8% a year - which is what you'd expect on an index fund. We like to call it the $250/25 year rule. So before you order your next latte, get out your calculator and run the numbers. If it's costing you $25 a week, that's 10% of a million dollars!
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