Let’s say your annual savings goal is $6,000 (not coincidentally the IRA contribution limit for 2020 and 2021). Imagining where you will find an extra $6k, though, might seem a little daunting. So might the monthly contribution rate of $500 – I don’t carry around an extra $500 in my wallet each month, so where does that money come from?
One of the best mental tricks for getting better at saving is to reduce the total goal amount into smaller and smaller chunks. It helps contextualize what the amount means on a weekly or daily level to give a frame of reference.
If we view $6,000 saved annually as a daily amount, we arrive at $16.44 per day. That does not seem as hard to manage as an extra $500 per month, yet it is the same rate of saving! The smaller number makes the discipline seem more manageable.
When we think of diligently saving, it often brings up images of penny-pinching and sacrifice. In contrast, buying a decent bottle of wine or having a pizza delivered seems like a manageable – and even reasonable – indulgence. However, for about the same price one can easily save a meaningful amount of money each year without a noticeable change in day to day life.
If you are like me, there are things you do not "need" that you buy without ever worrying about it. Last month I ordered some weird electrolyte powder packets because the description seemed interesting. I certainly didn’t need the electrolyte packets in any real sense and could have just gone for old fashioned water, but I spent the extra money to satisfy my curiosity (and don’t regret it).
Could you afford to save $16.44 per day? Framed another way – would you spend $17 each day on something with no lasting tangible value without thinking too much about it? If so – you could probably "spend" $17 each day on a better future and not really notice the sacrifice. You should start to see how a manageable amount of daily saving can help you reach your goals without even noticing a change in quality of life.
If $17 per day is too much for you, no sweat! Try the same exercise with a lower daily number. How about $12 per day? Or $7 per day? Would that rate impact your day to day happiness?
Here are some examples of what a $7, $12, and $17 daily savings rate looks like over years and decades.
$7 per day $12 per day $17 per day
1 year: $2,555 1 year: $4,380 1 year: $6,205
5 years: $12,775 5 years: $21,900 5 years: $31,025
10 years: $25,550 10 years: $43,800 10 years: $62,050
30 years: $76,650 30 years: $131,400 30 years: $186,150
Spend a little time examining what the impact on your life would be to set aside each of the amounts listed above each day. Could you manage $17 a day without much change in quality of life? How about $20 a day? The trick is to find a rate that will amount to a meaningful amount over time but will not impact your short term quality of life.
Once you come up with a number that you know will not disrupt your current quality of life, start regularly and deliberately setting aside that money for the purpose of long-term savings.
Timothy Iseler, CFP®
Founder & Lead Advisor
Iseler Financial, LLC | Durham NC | (919) 666-7604
Iseler Financial helps creative professionals remove stress while taking control of their financial futures. As both advisor and accountability partner, we help identify current strengths and weaknesses, clarify and refine your long-term goals, and prioritize understandable, manageable, and repeatable actions to bring long-term financial well-being. Reach out today to take the first step.