Here’s a question for you: can saving $5.00 a day turn into a half-million dollars? The short answer is: YES! Here’s another question for you: could you save $5.00 a day? Again, the short answer, the knee-jerk reaction, is YES! But then you stop and look like a deer caught in the headlights. What just happened? You did some math, didn’t you?
Yup, you took $5.00 a day and multiplied it by 30, right? And why did you do that? Because you stopped looking at it as a daily amount and began to look at it as a monthly amount. All of the sudden, $5.00 a day becomes $150 a month! And that’s a lot! That’s a power or heat bill, a car insurance payment or just over half your cell phone bill (if you’re lucky)! So what changed between the excitement of $5.00 a day to the horror of $150 a month?
Emotion vs Logic
Emotion got in the way. It was an emotional reaction. And as Warren Buffett says, “If you cannot control your emotions, you cannot control your money.” He’s not saying that you shouldn’t be in charge of your finances. He’s just stating that emotional reactions become expensive now and for our future. Emotional decisions will eventually lead to a lack of money. And no money equals no control of where it is or what it’s doing for you.
Logically, if you really could save $5.00 per day, you’d automatically have $150 a month. But instead of looking at the small bite you had to take today, you looked at the whole elephant and decided there was no way you could eat it all. Logic would put you in a good spot, emotion would hold you down. So let’s just assume that you went about this logically. You disciplined yourself to drink one less cup of coffee and you saved $5.00 a day. What would happen?
Watch What Happens!
Instead of just telling you what happens, let me show you through a story. I mentioned coffee above because of a story about this client. He lives in California, is in his early 20’s, and works at a tech firm. We’ll call him John.
One day, John got invited to attend one of our free online Financial Self-Reliance Workshops. He loved what he heard and began to work with us. As we taught him about how money works and how it affects his life, he began to view the world differently. He went from looking at money
Then it hits John! He’s standing in line at his favorite coffee house, waiting to place his order, before heading in to work. As he’s looking over the menu he sees that a large cup of plain coffee is only $.87. That’s right! Less than a buck for a large cup of plain coffee. John said, “That’s when I asked myself why I’m here in the first place?” The answer: to get his morning wake up jolt! He wanted the buzz of the caffeine!
That Sweet Lightbulb Moment
But, he hated the taste of black coffee. That’s why he always paid the $8.00 for the sweetened, flavored coffee that he got every day. So what to do? Well, John looks around again and notices a little prep station that had free creamer and free sugar packets. Then the lightbulb really went off! He could save about $7.00 a day just by buying the large plain coffee and then loading it up with the free creamer and sugar until it tasted good to him!
As soon as he could, John calls up and announces very proudly that he’s not only found his $5.00 per day, but he’s found two extra dollars! John is eager to invest his newfound fortune of $7.00 a day, so we went to
A Numbers Game
If John takes just $5.00 of those $7.00 per day, or $150 a month, and puts them into an Indexed Account that averages about 8% compound interest per year, He will have just over a half-million dollars at retirement. If he finds another $5.00 per day (making $10.00 a day in total), John will have just over $1,000,000.00 at retirement! John gets so excited that he’s ready to put the whole $7.00 a day in there and I have to slow him up! Why? Well, because my job is to make sure that he’s not only financially living well in the future, but he’s enjoying life now. And it usually takes money to enjoy life.
I show John that the extra $2.00 per day comes to $60 a month. That’s an extra $720 a year. He could use that as a little play money, or date money, or even just one extra video game a month! I tell him that these indexed accounts are flexible. That way as his views on his daily spending habits change, so can the monthly contributions. It’s no good to starve himself now just to feast later, let’s put a little perspective and balance into our efforts. By doing so, John can financially live his whole life and not just at one end or the other.
What Can You Do?
There’s an old Chinese proverb that says: “The best time to plant a tree was 20 years ago. The second best time is now.” In John’s case, he is in his early 20’s and has plenty of time to prepare. Some of you reading this today may not be so young and spry. But is it too late? No! There is always time to do something to help your situation out! I work everyday with people of all ages and we are always able to find something that can help them live better now and prepare them for the future.
However, if you want to change something in your life, then you need to change something in your life! The fact that you’re reading this blog post shows that you are ready for that change. Be logical about how you view money, be proactive about your spending habits, and learn what you can when you can. A great to place to start is our free online Financial Self-Reliance
Please feel free to contact me if you have any questions about financial self-reliance, Indexed Accounts, savings plans, retirement or our FREE Financial Self-Reliance Workshop. I am also available for speaking engagements to teach your organization about all the principles we’ve been covering in this blog or present a live Financial Self-Reliance Worksho.