Ben Franklin is quoted as saying that a penny saved is a penny earned, but he actually said that “A penny saved is two pence dear”, meaning a penny saved is two pennies earned. Apparently in Mr. Franklin’s day, pennies received a lot more attention than they do today. We tend to leave pennies behind in that little tray near the cashier when we shop, and they’re one Congressional decision away from extinction (Canada has already retired the penny).
We treat the dollar today the way the penny was treated in Ben’s time, so we might change his quote to “A dollar saved is two dollars earned”. Yet at current interest rates (0.4%), it would take about 174 years for a dollar to become two dollars in our savings account. If instead, we deposit one dollar each day into our savings, we’d be surprised at how quickly it will grow. In one year we would accumulate $366.71 and in ten years $3,724.80. Most of us can set aside one dollar each day without any trouble, and yet many people don’t save on a regular basis. Here are a few reasons.
I try to save, but I forget (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 save a certain amount.
At 0.4% 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.
Ten years to save $3,724.80! 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 look at some other possibilities. Can we save $2.00 each day?
Daily Savings Rate 1 Year 5 Years 10 Years 20 Years
$2.00 $733.31 $3,687.96 $7,448.38 $15,198.60
The average cable television bill is about $3.50 per day, so how about $3.57 each day which is about $25.00 weekly?
Weekly Savings Rate 1 Year 5 Years 10 Years 20 Years
$25.00 $1,302.35 $6,564.13 $13,260.85 $27,062.79
Or $50.00 each week which is about $7.14 each day?
Weekly Savings Rate 1 Year 5 Years 10 Years 20 Years
$50.00 $2,604.81 $13,128.86 $26,522.91 $54,128.24
I could go on, but you get the idea. Saving a little can turn into a lot.
When we hear sales promotions that say it will cost us pennies per day, or for $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. It’s the same with our 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. In the calculations above, I assumed a regular bank account earning 0.4% interest. As our savings account grows, we would move at least a portion to accounts or investments that provide greater returns.
The chart below shows the growth of various weekly savings amounts over time earning a 7% return on investment. The lines are curved upward as a result of compound interest working in our favor.
Growth of weekly savings at 7% over 35 years
Weekly Savings Rate 35 Year Accumulation
$25.00 $179,707.94
$50.00 $359,415.88
$100.00 $718,831.77
$150.00 $1,078,247.65
So is a dollar saved a dollar earned? If I save nothing, then I’ll have nothing saved. But if I save something on a regular basis and leave it alone, in time it could grow to a very large amount.
Thanks for reading!
* The daily savings calculations use 31.44 days per month for compounding purposes.