Do the small expenses matter?

budget, cut expenses, early retirement, expenses, FIRE, income, investing, personal finance, retirement, savings

You drink your latte’s, you watch your cable. Soak in a little bit of shopping after work. Why not, if feels great, it’s fun, and best yet, it only costs you $5 here, perhaps $15 there.

You’re saving 10% of your income and you know one day in that distant future you’ll be able to retire. One day your debt will be gone. But now, you’re off to the gym. You need to burn off some calories, before heading out for drinks later. Perhaps the $8 drinks are a little over-priced, but that’s the hot-spot where your friends will be gathering. So be it, you’re young, full of life, and not completely broke!

Enjoy, ABSOLUTELY! We only have one-life to live on this beautiful Earth and it should not be spent as a hermit, barricaded in your 250 sq. foot apartment eating ramen noodles. However, with the average US consumer burdened with debt a balance needs to be struck. The average U.S. household owes $7,115. Excluding households that do not carry debt (Winning Williams style), the average American credit card debt balance increases to $15,252.

I’ve included a sample list below of “small” expenses that we have addressed to save money. This list is by no means all-encompassing and will be different for everyone. Do small expenses make a difference? By reducing or eliminating these expenses, you will have reduced the amount you need saved for retirement by $308,047. How much do you have saved for retirement now? Think about how long it will take you to amass $300K+. How many years are you going to have to work to support these DISCRETIONARY habits? Working on reducing these expenses not only makes your retirement goal that much more attainable at an earlier date, it provides investable dollars that will facilitate you reaching this goal! That solves the question of do the small expenses matter and why you should focus on them. Again, below are just a sample of ideas and represent an approximate amount of savings.

Small Expenses Add Up

Small expenses now can add up over time and keep you from investing that money for retirement.

  • Netflix – How to get rid of Netflix and eliminate this cost in its entirety
  • Latte – Instead of drinking Starbucks, can you home brew? Is it worth it to work nearly 3.5 years just to support your coffee habit (see final paragraph how this was calculated)?
  • Work Lunches – Brown bag it instead of going out to eat. The chart above assumes you eliminate 3 weekly lunches out at a cost of $10 per lunch. Practice eating healthy as well.
  • Cable – Network channels are free, utilize Hulu, YouTube, the library, etc. Better yet, get outside, learn a new skill, volunteer. Call and drop cable TODAY.
  • Cell-Phone – Renegotiate with your carrier, utilize a low cost carrier such as Republic Wireless or Cricket. Only get a plan that you truly need. This could easily save $35/month.
  • Restaurant Dining – Going out can be a nice experience. However, you are paying significant up charge: estimated at 300% for food and alcohol estimated at 400%+. That’s enormous! In addition to the food, you are paying to basically rent a space, the atmosphere and décor of the establishment, and an arsenal of individuals from the cooks, servers, to managers, etc. You can make the same foods at home for a fraction of the cost and with much healthier ingredients! We like to reserve going out to eat for special occasions. We also utilize Groupon, restaurant.com, and gift cards as they are provided to us for such occasions. If you reduce your restaurant spend by $200 per month, this results in $60,000 of lower retirement savings need! Also, the wealthy are eating out less, perhaps that is saying something from those that can afford it the most!
  • Utilities – We want to live in perfect harmony and comfort. But by changing your thermostat, even by just 1 degree, you can save 2% on your energy bill. Start by increasing the “cooled” temperature by 1 degree in the summer, let your body adjust naturally over several days, then take it up another degree and keep going. Do the opposite in the winter. Your body will adjust and you will not feel a difference. This will help save a drastic amount of energy costs and is better for the environment. Install a programmable thermostat. Of course utilization of fans and appropriate clothing are simple solutions. Don’t forget to use energy efficient light bulbs, which use less energy and produce less heat.
  • Gifts – Get creative and personal. We’ve made homemade candies for presents and try to give gifts with more meaning. It doesn’t help anyone to fill up closets with undesired items that use up space! We all know that experiences, not stuff, is a key driver of happiness.
  • Bar/Alcohol – No explanation needed. Think of all the associated fees: cover charge, additional food, taxi (or potentially a DUI)
  • Pets – This one is tough! Costs can vary drastically and pets can bring such joy! The cost in the chart above was estimated as the annual care costs for one mid-size dog, excluding purchase price and unknown vet visits. You can go the website for other animals and dog sizes expected costs.
  • Haircuts – Get rid of the expensive salon. Perhaps, cut your own hair! MrWe started doing this and it has been great. With a single purchase of hair trimmers from Amazon, we started with Mr. Winning Williams! Then once we built some confidence we started to do Mrs. Winning Williams hair as well! (more on this later)
  • Shopping – How the hell many clothes do you need?! Our oversized closets are overflowing, stop! These purchases do not do anything for our long-term happiness. If anything else, they cause clutter, stress, and debt! According to the Bureau of Labor Statistics, the average apparel and related consumption totaled $1,604 in 2013. The chart above assumes you cut that in half. You should reduce it further. Utilize high-end consignment shops, etc. for quality clothing at steep discounts (and sometimes brand new merchandise).
  • Gym – Why you don’t need to pay for the gym.

Yes, spending on the “small things” does matter. It’s important to look at the long-term perspective of what you are spending. Figure out the annual/yearly cost and divide that by .04.(There are multiple sources for using .04 or the “4% Rule”- see a few here and here and here) For instance, if you are spending $120 month a Starbucks, that results in $36K needed for retirement to support these purchases ($120 month x 12 months / .04).  How long will it take you to save that $36K for retirement? If you make $52,250 per year and save 20% ($10,450), your daily Starbucks coffee expenditures will result in nearly 3.5 years of additional work (or ~924 working days!). Added benefit: all of this money saved on “small expenses” can now be out working and making more money for you, instead of working against you.

5 thoughts on “Do the small expenses matter?

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