Ramit over at I Will Teach You to be Rich loves to talk about big wins. It is far easier to get motivated to save 1000 dollars in one shot than it is to save 1000 over a full year. But honestly, I prefer the small habit changes. I think that by changing your habits, you naturally change your behavior, which leads to changes that you didn’t anticipate. Changing small, somewhat wasteful money habits will change how you handle money in your other small money habits. A small win cascades into several more small wins.
So since this is a first post, here’s an example. I like numbers, so I’ll put up a few so that example has some traction.
I *LOVE* coffee. I cannot start my day without it. I’m sure that’s not unusual. There are two options:
1) Buy coffee from Starbucks
2) Brew it myself
Let’s just assume that I’m not buying the 5 buck latte from Starbucks but the 2 buck drip. (2.50 for the Grande size) Since I work approximately 250 days a year, this comes out to 500 bucks a year spent on Starbucks drip coffee.
Rather, I brew it at work. One Costco Bag of Coffee lasts a month (at least) and costs 10 bucks. Add in creamer (about 5), and my net coffee expense per month is about 15 bucks. Over 12 months, that’s 180 bucks.
But since by brewing it myself I consume a Grande Size, I’m really saving 625 – 180 or 445 bucks a year. That’s after tax dollars! I can save even more by taking this savings and turn it into pre-tax savings by upping my pre-tax savings plans. If I do it right, 445 bucks at my average tax rate (about 22% federal) becomes 543 bucks.
Over 500 bucks saved, for my future (and thusly retiring earlier and / or richer) for the simple change of brewing my own coffee. There’s not even a time loss since I’d have to walk to Starbucks and back to get it!
Simple and small changes to your habits, whether its in fiscal or physical health, lead to great changes. I’ll explore more about how small wins add up to be greater than big wins in future posts.