Turning Pennies Into Dollars
Posted on November 8, 2007 in the Money category
.One of the hardest things to do at times is to save money.We all know we should, but at the end of the month their always seems to be something else that we need that is more important than our savings. The savings plan outlines below is a way for you take advantage of two keys to successful investing, regularity and longevity, by turning your pennies into dollars without radically changing your lifestyle.
The idea is of this plan is twofold. One is to look at ways you can reduce your expenses, thus freeing up some cash without radically changing your lifestyle. That way you will be more inclined to stick with the plan. Secondly, it is to show how you do not have to save a large amount of money to end up with a lot. Investing a small amount on a regular basis for a long period of time can produce quite dramatic results.
Identifying Places to Save Money
So how can you save some pennies? Well lets look at how most people spend money during the week.
Work
Breakfast: If you grab a coffee and bagel/donut on your way to work or at work each day, you probably spend about $2 a day or $40 per month. So if you got up 15 minutes earlier and ate breakfast at home you would be able to save almost $500 per year.
Lunch: A sandwich downtown or in the cafeteria probably costs about $5 a day once you get a drink. By taking lunch and eating it in the cafeteria you will save $100 per month or $1200 per year.
Snack: A lot of people get that mid-afternoon hunger attack that results in a run back to the cafeteria or to the nearest candy machine. With a soda, most people will spend about $1 per day. If you include an afternoon snack along with your lunch you save the $5 per week or $240 per year.
Home
Pizza: Many familles eat out (or order in) a couple of times a week, especially on a Friday or Saturday night. If you could cut out one pizza delivery per month you could save another $12 per month or $144 per year.
Dinner Out: We all like to go to a nice restaurant and eat out and I am not advocating that you never go out for a nice meal. However with the price of a decent meal for two around $50 here, cooking at home just once per month instead of eating out would result in savings of $50 per month or $600 per year.
Movie: Movies are getting more and more expensive these days. For two people it is easily $20 with popcorn and drinks. For a family of four the cost is probably in the $30’s. If once per month you rented a video for $3 instead of going to the movies you would save $17 per month or $200 per year.
The Payoff
So now we have identified ways you can save $240 per month with no drastic change to your lifestyle. But I can hear you say its only $249 per month. I need to be able to save some REAL money. Think back to the tortoise example in the philosophy section. What you are trying to do is establish a regular monthly savings plan. It isn’t pretty or exciting. It just works.
The table below shows the effects of investing a little bit each month for a long period of time. If you found another $10 per month to save, and invested that $250 every month in stocks you would have saved over $54,000 in 10 years and more than a quarter of a million dollars in twenty years.
| 10 Years | 20 Years | 30 Years | |
| $100/mo | $21,700 | 86,500 | 280,451 |
| $150/mo | $32,549 | 129,845 | 420,677 |
| $200/mo | $43,399 | 173,127 | 560,903 |
| $250/mo | $54,249 | 216,409 | 701,129 |
| $300/mo | $60,099 | 259,691 | 841,355 |
The examples above are based on a monthly investment into stocks, assuming an 11% annual rate of return compounded monthly. It does not take into consideration taxes due.
How Can I Invest the Money?
I find that the easiest way for me to invest in a regular basis is to set-up an automatic sweep every month. An automatic sweep is when your investment company automatically takes the $250 from your checking account and transfers it into your investment account. That way you do not have to write them a check every month. You don’t even notice that the money is gone.
So are you going to turn those pennies into dollars?
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