We haven’t talked money lately so it’s time for a little math to show you how you can become debt-free with 5 dollars a day.
I love to ask people: “Would you say you spend at least a 1,000 dollars a year on things like grabbing a sandwich, cup of coffee, a snack etc?” Often the answer is: “No Way!”
Later in the conversation I ask: “Would you say you spend about 5 dollars a day to grab a coffee, lunch out, snacks etc?” The answer is usually: “Oh, yeah, easily!”
Let’s do a little math:
5 dollars/day x 7 = 35 dollars a week.
5 dollars x 365 days = 1,825 dollars. Wow!
That 5 dollars a day becomes a whopping 1,825 dollars! But it’s only 5 dollars, right? Most people never convert daily output into yearly output so they simply have no idea they are spending that kind of money.
Keeping track of where every single dollar goes makes for an eye opening experiment. It’s that bag of chips, soda, ice cream, latte, movie and so on that ends up being a lot of money. We often look at it as insignificant because the dollar amount is so small.
However, when we learn what those insignificant amounts can end up becoming we start realizing what impact those amounts can have over time. And if you’re in debt that money alone could go a long way in getting you out of debt faster.
When I started tracking money I was shocked at how much I spent at the grocery store.
Once I started tracking each receipt and tried to stay within a set budget I had to choose wisely (which often meant healthier). Vegetables or ice cream?
We need to have some fun and enjoy life too but when you are accountable to a budget you quickly become aware of the needs vs. the wants. When you know what that 5 dollars can do over time it motivates you to stick to your budget and not overspend.
Just to show a point let’s see what 5 dollars a day can do over time:
In 5 years = 9,125 dollars! Not including interest earnings.
In 10 years = 18,250 dollars. I think you are starting to see the picture.
Now, let’s see what would happen if you applied your “chips and soda” money to a 200,000 dollar 30 year mortgage at 4%?
If you applied $152.08/mo extra a month (5 dollars a day) that would save you $37,058 in interest. But wait, you would also pay off your loan 6 years and 10 months early. That’s almost 7 years of not paying a mortgage in addition to the interest you save. Total savings: 115,353 dollars!
What would happen if you applied 10 dollars extra a day, in other words 304.16/mo? You would save $58,476 in interest and pay off your loan 11 years and 1 month early! How would it feel not to have a mortgage for 11 years because you didn’t waste 10 dollars a day on ‘chips and soda’? Total savings: 185,399 dollars!
There are so many great things you can do once you become aware of where your dollar bills are going. You can pay off a car loan, a credit card bill, student loan, save up for a vacation or pay off your mortgage early. Remember, the power of small streams when brought together becomes a raging river. Enjoy building your raging river!
If you need a balanced, fun yet impactful way of getting out of debt (or boost your savings) take my Financial Freedom course. It’s short, gets to the point, and you get my Amazon bestseller book How To Get Out of Debt Living Paycheck to Paycheck too!
What could you do if you applied your “chips & soda” money to something better? Share in the comments below.
*This is an updated version of an earlier post from Dec 2012.
AWESOME! AWESOME post!! My wife and I are working on getting debt free right now and this is a great kick to keep us going!
Thanks for your work!!
Steve recently posted…I’ve stepped off of the boat!!!
Thank you! Love that you are working on getting debt-free! Keep up the work and don’t hesitate to reach out if you need help and support along the way.
I realized this recently when I decided to break down what I could afford each payday, for the next 5 years to help save a bit for when my oldest will need help to buy a car. If I can save $20 a month, it will make a huge difference… then in two years, I’ll need to start doing the same for my daughter… and 2 years after that for my youngest son. In the long run it will be a big help, right now its nothing big 🙂
That’s awesome! It’s the power of saving every month that adds up to a large sum. Love that you took the time to find an amount per paycheck that works for you. Keep it up. It’s fun to see that amount grow each month.
I so badly need to work on this with money AND food consumption. Usually they go together for me.
Rick Theule recently posted…I Am Second
They usually do. The amount that we spend on food is staggering. A great way to save is to only eat what is at home for a week or two. Clean out the freezer, the cupboards, the fridge. Small steps lead to big changes.
Camilla,
The power of small focused steps over time is really amazingly powerful. It’s also great to find big wins but baby steps will get you there if you can just identify the behavior and sustain it over time.
Thanks for the great post.
Scott
Thanks! That’s why automatic saving is so powerful. It’s one less behavior to change (go to bank, transfer money to savings) or struggle with. It’s done, out of the way.
Great post! It’s amazing how those little purchases can add up to big dollars each month. Tracking purchases is one of the first things I ask new clients to do when we start working on debt reduction or retirement savings.
Thanks! It is amazing how a few dollars here and there truly can make a huge difference. Tracking where my money goes changed my life.
WOW!!! What an awesome saving tip. It’s so true, we don’t realize how much we spend on unnecessary things (Starbucks) on a daily basis. Time to start prioritizing and start saving! GRACIAS
Awesome! Glad it inspired you to start prioritizing and start saving! We all need a Starbucks here and there, just not every day 🙂 Have fun saving money…
Just last Thursday at work I lent someone $5, a rarity for me to have cash in hand. I sometimes like having $5-$10 in blow money in my pocket because it makes me feel like a big spender 🙂
I later realized that they used it to get 2 mountain dews and a bag of chips, and then quickly realized that not everyone values $5.
Thank you for reminding us all that little things add up to big money!
Ethan recently posted…Half Marathon Training Week 2 – If I collapse, will the dogs come get me?
These are exactly the kind of reminders I need on a regular basis. After living paycheck to paycheck for so long, we don’t “waste” money willingly – i.e., feel like we are very frugal. But goodness, you’re right – if you don’t account for every dollar, they like to slip away! Thank you for the motivation!
Jennifer Kaufman recently posted…We have a “normal” life, but my kids are in therapy.