As investors, and as other like-minded individuals, we find it is not so much how much you make, but how much that you can save, that will further assist in your investing and financial freedom goals. Today we share 7 of our favorite ways to save, to which we will break each one down, how much you can save on a monthly/annual basis, as well as how much those extra funds can be worth further down the road. Life is great when you can dissect your expenditures and figure out new ways to save and open up more cash to invest!
1.) Grocery Store – Discount Grocer vs The BIG Box Grocer:
Lanny: We all love to eat nice food, and try new things. However, for the most part, I try to eat relatively consistent when I am home and not traveling all over the place for work. I also try to eat extremely healthy and keep that lifestyle in tact, as I know how much better you feel when you are eating much cleaner/leaner and the energy it gives you. What’s funny is that people think that you need to shop at the big known name grocery store in order to think about eating healthy – that’s not the case here! I have a local discount grocery store nearby that is far cheaper than the big box, yet I am still eating just as healthy as I would shopping there. The way this grocery store keeps their costs down is by: Less advertising, less employees, no credit cards and less overhead. They pass these savings on to the consumer! Here is the breakdown of the cost battle between the discount grocery store vs. the big box, see the long term savings of $39,436 if you take the amount you save and invest on a monthly basis for 35 years at a 6% rate of return without any dividend increases:
2.) Buying a Conservative car vs. a Premium/Suped-Up model
Bert: Every person can relate to this savings tip. As our cars get older, rack up more miles, start to break-down, we are faced with the inevitable event of having to buy a new car. Both of us had to go through this as we purchased cars last year (Bert purchased a new 2013 Toyota Camry and Lanny purchased a used 2010 Honda Accord). The first thing you see when you walk into a dealership are the brand new models with all the bells and whistles. You test drive one of the nicest models and you suddenly can’t live without these features. We are saying to FIGHT THAT URGE and purchase a more conservative car. For example, with my income level, I could easily have purchase a Camry with leather seats, GPS, etc. or a stripped down-Audi. Instead, I opted for the more affordable Camry SE with a purchase price of $22,000 (I now pay $365/month) that had cloth seats, no sun-roof, and no navigation (How on earth am I going to survive?). The decked out Camry or the stripped down Audi could have run me anywhere between $25,000 – $30,000 and would have resulted in a much higher monthly payment. By saving on my monthly car payment, I am freeing up dollars to invest in my portfolio and generate additional passive income. Here is the breakdown of the lifetime savings resulting from purchasing conservative cars instead of premium models (also, see Lanny’s purchase which resulted in a $284/monthly payment):
Note: We projected the savings over the 35 years because we will continue the practice of purchasing conservative cars the rest of our lives! The lifetime return from a $25K car for Bert = $39,648 and $147,963 for Lanny, amazing!
3.) Your own Hair Cut!
Lanny: We are frugal. The average male will more than likely pay $20 a month for a haircut or $240/year. I (Lanny) cut my own hair every month and save the $20/month. Investing this $20/month every month for 35 years at a 6% conservative return rate = $28,494 the value blossoms out to be. Invested at a 3.5% dividend rate provides a $997 annual dividend income stream! Reach for those clippers.
4.) Brew your own coffee
Lanny: Working in the business world – there are quite a few co-workers who go for their typical big chain Starbucks Coffee.. every morning. Not just a traditional “black coffee” but typically is a latte and a grande at that. The price of a grande, I assume, is essentially $4.00 every morning. These co-workers are spending $20/week on coffee, $20 for a satisfaction that may last one hour per day. I don’t mind the occasional Local coffee shop latte or special blend that day, but to me – it’s more of a treat. Too much of a good thing can “cloud” what a good thing tastes/feels like. Additionally, the local coffee shops are cheaper than the SBUX coffee they are getting as well. However, I have been making my own coffee at home for some time now. If you are still in a bind for time – I use the Keurig machine at home and use these very satisfying, tasteful, smooth K Cups found on Amazon called the Barrie House blend. I have been purchasing 48 cups for $17-$18, depending on which flavor. This computes out to $0.355 per cup of coffee at $17.00 per box- which is far cheaper than buying them anywhere at a store that I’ve seen and gives you more than enough value for what you’re buying. I highly recommend this. If you drank one of these per day instead of grabbing the “white and green $4.00 cup”, you will only spend $1.78 during the week! That is a savings of $18.22 per week, $78.95 per month or $947.44 per year. If you invest this on a monthly basis at a very conservative 6% rate of return WITHOUT reinvestment for 35 years = $112,480! And if that provides a 3.5% dividend yield, this provides you $3,937 in dividend income annually. I’ll skip the overpriced latte and reach for the cup. Oh and this Sumatra Fair Trade Certified Kona is my favorite roast.
Editor’s Note form Bert: I am a bit more of a coffee snub than Lanny. Instead of purchasing K-Cups, I buy whole bean coffee from a local coffee shop or grocery store and grind my own coffee. When I run out of coffee, I usually make a trip to Whole Foods and buy a pound of their freshly roasted coffee. Instead of paying $10.99 per pound, I buy the variety that is on sale for $8.99/lb that week. Each bag of coffee will produce between 45-50 cups of coffee, so my average cost per cup is only $.199/cup or $.179, respectively (All depending how much coffee I can squeeze out of a bag). Take that Lanny!
5.) Bonfire vs. Bar Night
Lanny: The last two weekends – a great group of friends (including Bert), have had bonfires instead of going out to the over-priced “scene”. If you are out and about, with the average price of a drink on the weekends at (to be conservative) $4.50 – 4 drinks out add up to roughly $18 before throwing in a tip, so lets round to $20. That’s if you are solo with no “rounds” being ordered, which happens usually once. If you are with a girlfriend/significant other – lets double that if you happen to always treat, boom $40 now the night has tallied, in drinks alone. Sure, those nights are awesome, and fun – you get to try new places, see faces, meet new people – but doing that 1-2 nights per week adds up. Toss in a conservative $10 plate for 2 plus tip = $25, total for the night = $50.00 Alternative: Last night’s bonfire – I had two bottles of previously purchased wine (sunk cost) that I’ve been wanting to drink ($0), plus picked up firewood ($5) – for a total of really $5.00 being spent that day. If you want to INCLUDE the the two bottles – We can say it was a $25/night. But those two bottles of wine contained 5 drinks per bottle, so 10 drinks for the evening (when a glass of wine at a wine-bar/restaurant can usually go on a conservative range from $6-$10/glass). By doing this activity – we saved roughly $25, but we also ate at the bonfire as that is what someone else contributed to the night! So we ate, drank and hung out for 5 hours without paying a valet or parking fee for $25. If you ate, had 10 drinks and paid for parking = that is EASILY a $100+/night at a restaurant. We had a view of lake erie, bonfire going, music and about 10 people total including us. Say you do a similar activity once a week to save $25 X 52 weeks = $1,300 in savings for a year. If you invest this every month for 35 years at a 6% return with no re-investment = $154,338 in value, at a 3.5% rate provides $5,400 roughly in dividend income. Opt for the moment with friends instead of the “fad”.
6.) Cut the Cord!
Lanny: This was described in my earlier post. In summary, you could save $50/month (pretty low approach as I know it’s typically higher) and save $600/year but not having cable or cutting your cable bill. If you invest $50/month, every month for 35 years at a 6% rate of return, the value = $71,235 and at a rate of 3.5% = $2,493 in annual dividend income. Heck, take that money and invest into a telecommunications/cable provider in AT&T like we do!
7.) Packing a Lunch Vs. Buying
Bert: How many people have co-workers that buy their lunch everyday? I can think of at least 10 at my workplace that leave our office everyday to buy their lunch from a local restaurant. I am all for supporting local businesses and I try to purchase goods from them every chance I get. However, racking up $8 lunch after $8 lunch can make a serious dent in your wallet and savings account. Instead of buying your lunch everyday, pack your lunch! While your grocery bill may seem large, when you divy up slices of bread for a sandwich, a small bag of chips, fruit/vegetables, and a snack your cost per meal is much cheaper than the $8 meal from a restaurant (And it most likely a healthier options s well!). Based on your individual shopping habits, I put together an analysis showing the potential savings you can earn if you were to choose to pack you lunch. It is time to bust out the Brown Bag!
Editor’s Note from Lanny: Bert, you spend at least $4.00 a day when you pack your lunch? What the heck are you packing yourself? All jokes aside, as you can see with my grocery list in bullet point number 1, I am a very frugal grocery shopper and I tend to pack relatively inexpensive lunches. I am a pretty consistent packer, so a typical lunch for me is as follows (Including the cost per item). Peanut-butter Sandwich: $0.20 for Bread + $0.11 for peanut-butter + $0.60 for 1 serving of Greek Yogurt + $0.39 for a 1lb banana + $0.20 for 1 serving of carrots. Total = $1.50 per day, savings of $6.50 per day, $32.50 per week, $140.83 per month or $1,690 per year! Using our current parameters of 35 years, investing every month at a conservative 6% rate without dividend reinvestment = $240,642 in value within that time frame! Further, at 3.5% yield, that provides $8,422 in dividend income. I’ll reach for the jar of Jiff before I reach into my pocket for plastic, especially since most meals you make at home are healthier than going out to eat.
These are just seven ways that the two Diplomats have been able to increase their savings and allocate more funds to income producing assets. If a person were to apply the most frugal option in each of our seven savings tips, that person would have generated $773,469 assuming an annual rate of return of 6% for 35 years. This definitely would assist in your investing goals, and would increase your annual dividend income from your portfolio, as it does ours. Even if some of these are not practical for you, push yourself to find new ways to save. As we discovered, even saving $1 per day for 20 days a month can turn into $28,500. Remember that as you walk to the vending machine each day to purchase your soft drink. Instead fold up that dollar and grab a cup of water!