Make small sums work for you

Make small sums work for youSaving money comes from two components, incomes, and expenses. Like my dad use to say: “It’s not about what you earn, it’s about what you spend“. Every day and every month there are small fees that accumulate over longer time. It’s important to know your money usage and make adjustments to your daily habits.

Example

Every weekday I like to start my day by drinking coffee, at my favorite coffee shop on my way to work. At work, I like to eat lunch at the same restaurant every day. Twice a week I go to the grocery, on my way to home. At evenings I like to watch Netflix.

From this example, you can calculate that if coffee makes $2 per day, coffee cost per year is around $460. Workday lunch is $8 per day, making $1840 per year. If you go to grocery twice a week and spend $80 once, it makes $8320 a year. The Netflix makes 10$ per month and $120 per year. All expenses combined the sum is $10740.

If you start drinking coffee at home before leaving to work, you save money. If one coffee cup would cost $0.2, about $46 per year. The saving from coffee would be $414 per year. If you skip the lunch and take packed lunch with you to work, say $4 per day you save $920 per year. At the grocery, you can save $5 every time by skipping the candies and soda. From grocery, you save $520 per year. Instead of watching Netflix, you can go to the library and read 5 books per year, you save $120. Now if you sum it up, total saving per year is $1974.

If you would invest the money instead spending it, with an interest rate of 10%. After one year, you have $2171.

This is how you can make small streams of savings to a larger sum of money. By changing your habits and daily usage of money. One time, expensive purchases seem small, compared to the savings made by cutting smaller regularly occurring expenses.

Accumulating cost effect is best known by financial author David Bach, who’s phrase Latte Factor® is registered trademark. You can calculate your savings by using David Bach’s calculator on his site http://www.finishrich.com/lattefactor/.

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