When we hear sales promotions that say that it will cost us pennies per day, or for just $1.00 a day we can have this or that, the idea is to keep us thinking in small numbers. But those small numbers add up and become big numbers over time. Well, it works the same way with savings.
We don’t often consider the growth of saving a small amount, just like we don’t consider the cost over time of a small expense. Saving pennies or a few dollars each day can actually accumulate into a large amount of money. I’ve calculated a few scenarios in the table below to consider, assuming a regular bank savings account earning 0.5% interest. Notice that the last row in the table uses $3.50 as a daily savings amount. This is the cost of the average cable television bill in America.
Daily Savings Accumulated Amounts
Amount 1 Year 5 Years 10 Years 20 Years
$0.50 $182.94 $923.91 $1,871.20 $3,838.31
$1.00 $365.88 $1,847.82 $3,742.20 $7,676.62
$2.00 $731.64 $3,695.03 $7,483.58 $15,350.76
$3.50 $1,280.45 $6,466.75 $13,097.17 $26,865.78
The total amounts may not seem very large, but if we’re currently not saving at all, these amounts could make a difference in our financial health. Since most savings is done weekly or monthly, let’s consider some reasonable monthly savings amounts and look at the accumulated balances. Again, the accounts are earning 0.5% interest.
Monthly Savings Accumulated Amounts
Amount 1 Year 5 Years 10 Years 20 Years
$25.00 $300.69 $1,518.59 $3,075.61 $6,308.87
$50.00 $601.38 $3,037.17 $6,151.22 $12,617.75
$100.00 $1,202.75 $6,074.35 $12,302.44 $25,235.50
Most of us can set aside one dollar a day without any trouble, and yet many people don’t save on a regular basis. Here are a few reasons that I hear for not saving.
I try to save, but I forget or it’s inconvenient to make deposits.
To eliminate this situation, we can set up an automatic transfer from our checking account or split the direct deposit from our employer so that a portion goes directly to savings. By making saving automatic we eliminate the need for us to remember deposits, and we can determine how long it will take to reach our savings goal.
At 0.5% interest, it’s really not worth it.
If we save nothing, then we don’t have a safety net of cash available when an unexpected expense comes along. Without some amount of savings, a loan or credit card could be the only option when the car needs a major repair or the refrigerator breaks. This works directly against our goal to eliminate debt.
Whenever I accumulate some savings, something comes up and I have to make a withdrawal.
This is start-and-stop saving, and there’s only one solution. Our savings needs to be the last resort when we need cash. Maybe we can put off a purchase or make what we have last a bit longer, but we’ll never accumulate savings if we allow ourselves to withdraw unless it is absolutely necessary. In my book “Personal Finance Simply Understood”, I explain a 3 tiered savings plan that protects our savings in the short and long term.
Ten years to save $3,742.20, but I need to save much more!
It’s true that $3,700 really doesn’t go far these days when we consider our monthly bills, so let’s consider some larger goals and the monthly and daily savings required to reach them in 5 years.
5 Year Deposit Required
Savings Goal Monthly Daily
$5,000.00 $82.32 $2.71
$7,500.00 $123.47 $4.06
$10,000.00 $164.63 $5.41
$15,000.00 $246.94 $8.12
Setting a savings goal is a great idea, and forming a plan to reach the goal sets the stage for success. Using the table above, you know that you can set a goal to save $5,000 in 5 years, and achieve the goal by saving $82.32 each month (just $2.71 per day). In round numbers, if we can save $100 each month, we will reach a $5,000 goal in just over 4 years. Getting started is the hardest step.
Thanks for reading!