Turning Small Savings into Thousands

October 2018

This isn’t an article for people making $150,000/year and casually going about their lives with an inexplicable six-figure income—it’s for the people who will get there one day, but hope to make better decisions now so their savings in 10 or 15 years look more like that of someone bringing home $150,000 now.

Ever since I went to the Money Diaries book tour, I've become even more obsessed with saving, investing, and general money shrewdness—catch me on my lunch break chatting online with my phone company asking for discounts. Pick up a copy of the book here.

There are two major changes I’ve made recently that have made a pretty minor impact on my daily life and enjoyment but (I anticipate) will majorly affect my long-term wealth.

This is what I call the Sweet Spot for Savvy Savers (SSSS—had to throw in that extra S to avoid any callbacks to Nazi-era Germany): that intersection where a seemingly small change actually has a huge financial impact.

We’re going to talk about two types of money drains—frequent, tiny purchases, and infrequent, larger purchases.

I honestly hate the “stop buying lattes” approach to fiscal responsibility because I’ve been #ThatBitch in the drive-through line at Starbucks every day for two years. I understand wanting nice coffee that makes you feel warm, fuzzy & motivated in the mornings.

In fact, I always justified my daily purchase by saying, “The productivity and ideas this coffee enables within my job is an investment.” Drug addiction, anyone? Anyone?

Here’s the thing: you don’t have to suck all the joy and splurging and fun out of your life to make better financial decisions.

I’m an advocate of merely understanding how much those decisions actually cost you, and weighing if that reality is worth the cost to you.

In some instances, the convenience or pleasure a purchase may grant you IS worth the money, especially if you can afford it with ease. Paying for convenience is a very real thing and if something will make your day substantially easier or more enjoyable, it may be worth it. 

Other times, the payoff may not be that significant. 

The main message I want to get across in this post is that little things add up, and that’s both good and bad. 

I’ll use an anecdotal example that’s TOTALLY not reflective of my actual habits: spending $2.44/day on Starbucks at least 5 days a week. 

Every swipe of the credit card became so habitual that I almost didn’t even notice or care anymore. It’s only, like, 2 bucks, right? Who cares? 

That’s $634.40 per year, not including fancy weekend coffees. 

But you know how bad it was? Even that number didn’t really dissuade me from my habit. To be frank, I didn’t really care about how much it cost, because it felt like a non-negotiable expense—like productivity rent. 

But while little purchases can add up, so can little savings. Although a small daily purchase may feel like pocket change that won’t make a difference whether you save it or spend it, let me introduce you to my little friend compound interest. 

This is a very cliché and predictable exercise for a post about saving, but it’s become so commonplace because it’s powerful and real.

Let’s revisit that $634.40 figure, which is, candidly, conservative for my coffee costs considering I usually buy it 7x/week (not 5) and sometimes spend up to $3.70 at specialty shops—but we’ll keep the figure, because let’s say we’re allowing some splurge coffee purchases on the weekends. 

Now let’s say I invest that $634.40 (stick with me) into an index fund that averages an 8% annual return, and I invest that same amount every year. By the time I’m 30, that’ll be $7,200.73. 

By simply not buying a $2.44 coffee every day and drinking the free coffee in my apartment lobby or at work instead (a relatively small tweak) I’ll be $7,200 richer in 7 years!

See? Little things add up. 

When I think about my daily coffee in that way, I think I’d much rather have 7 G than wait in a line at Starbucks. 

Ok, and just for shits, let’s do this same exercise for 40-year-old Katie (ugh, middle age *compulsively reaches for SPF 50*). 

Same thing—8% annual return index fund, $634 of saved coffee money annually, and ultimately a $2.44 foregone daily weekday purchase. 

Ok, you ready?

By the time I’m 40, that’s $25,471.33.

That’s a down payment on a damn house!!!!

I’m not saying never buy coffee, this is merely an example that (I hope) illustrates how even a little purchase you make frequently affects your long-term wealth. 

For the record, that’s only $12 per week. So maybe my Starbucks crack addict example doesn’t resonate with you, but you easily spend $12 per week on an extra lunch or dinner out when you could eat at home. Maybe you don’t even really find joy or LIKE that meal you’re eating out, but who cares? It’s $12.

I hope we’ve learned by now how much little things matter. 

Your $12 sandwich and Coke that you eat while absentmindedly scrolling through your phone, or that fancy martini you drink with a friend you don’t even like that much but feel obligated to say ‘yes’ to drinks with (when annualized) could be $25,000 when you’re 40 if these are habits you engage in weekly.

To be abundantly, excessively, annoyingly clear, I’M NOT TELLING YOU TO SUCK ALL THE FUN OUT OF YOUR LIFE! Just be aware of the sneaky money drains in your daily spending and try to re-prioritize.

Rather than always agreeing to go out for a drink, hopefully you’re close enough with your close friends to suggest buying & splitting a bottle of wine and hanging out at one of your places instead.

(I’m not telling you to never go out for drinks, but maybe that shouldn’t be the default—again, this is for people with normal young adult salaries trying to boost savings, not people who are pushing $200k already. Y’all can do whatever the hell you want.)

So aside from the obvious like daily coffees, there’s one other area of my life that I used to spend a pretty substantial amount of money (when annualized), but infrequently—so it didn’t feel too egregious.

Ladies, you know where I’m headed with this: manicures and pedicures. I’d average one of each per month, which, after tip, was typically around $80.

$80 per month x 12 months per year = $960. Yikes.

At the risk of sounding like a pleb, I’ve started doing my own nails. It’s kinda janky at first and it may look like an elementary-aged boy took a paintbrush to your feet, but I was pleasantly surprised at how long my toenail polish lasted before it started chipping.

There’s a weird side-effect of getting your nails done regularly—once they start to grow out, it almost becomes a source of stress until you can get them redone (especially with dip or gel) because they start to look really grown out and unsightly.

You may not even really care to get them redone (or want to pay for it), but you can’t remove gel or dip powder yourself (without destroying your nails) so it’s tempting to pay a professional to keep them up.

In short, it’s a trap!

I’ve just been doing plain fingernails (trimmed but unpainted) and painting my own toenails every couple weeks. It only takes about 7-8 minutes of sitting on your bathroom floor like a broke bitch and crouching over your toes to get the job done.

To reiterate, I’m not saying never get your nails done. If you’ve got a big event coming up (assuming you don’t have events monthly) or you’re stressed and you think paying a stranger to rub your feet would help, just do it. I’m not saying don’t spend money on things that make you happy, I’m merely emphasizing avoiding habitually expensive practices that you engage in mindlessly without realizing how much it’s actually costing you.

Now that I’ve been foregoing the nail salon for a few months, I realize I prefer just painting my own toes in the comfort of my own apartment and leaving my fingernails blank. It sounds lazy, but it’s honestly easier than driving there, finding parking, waiting for someone to become available, figuring out how much to tip, and waddling out in the flimsy flops trying not to stub your toe on your brake.

Not to mention the amount of time, money, and annoyance it’s saved me to not be a slave to the fickle timing of my gel manicure and bare nail beds.

(I hope by now you’re beginning to identify areas in your own life where you could explore cheaper or free alternatives.)

To drive the point home, let’s do the same exercise above with the nails. Averaging $80 per month on one pedicure and one manicure (double if you go biweekly) is $960 (or $1,920) annually.

If you’re 23 like me and invest that same money in the same 8% index fund each year instead, by the time you’re 30, you’ll have $10,896.43.

Let’s do 40 now, for fun:

$38,544.25. Shit.

And let’s say you’re going for that double monthly mani/pedi, or every two weeks.

That same money in our index fund when you’re 30 would be… (drumroll please.)

$21,792.87.

Any of you ladies hope to get married when you’re 30? Do you think $21,792 could be helpful at the time? What about those of you who want to buy a home when you turn 30? Start doing your own nails (that’s ONE change) and there’s your down payment at 30.

Ok, and for the scariest figure of all: you “double monthly mani/pedi” peeps at 40 years old (if you drop the habit now) could have:

$77,088.50.

GUYS!

I didn’t pull these numbers out of my booty. If you want to mess around with your own calculations and spending, you can find the compound interest calculator here.

Little things add up. Say it with me!

The key is finding things you can do yourself. As expensive as my hair is every three months, I simply can't highlight and cut it myself. Being blonde is intrinsic to my personality now (sad but true) so it's an expense I've weighed carefully and accepted. Pedicures? Not so much. 

Order a copy of the book and play with the interest calculator and find some ways you can stack that paper, too! (That was lame, I'm sorry.)