What can you buy with $25?
Off the top of my head, a daily Venti Starbucks Latte on the way to work, or a $5 footlong from Subway every day for lunch, a new shirt, 2 movie tickets, a 30 pack of cheap beer, 8 or 9 gallons of gas…or a dollar a year for the rest of your life.
It’s pretty easy to spend $25. It’s also incredibly easy to save it (or spend it on treating yo future self!). Think about how much pain you would feel if you had to make a transfer of $25 right now to your savings.
Most of you probably wouldn’t feel anything. There’s plenty of apps out there that sneak that much into your savings without you noticing over a couple weeks!
Now, one $25 transfer isn’t going to make you set for life. But several thousand will.
For instance, I usually spend my morning commute playing with numbers in my head and the other day thought about how, based on a 4% Rule of Thumb, you need 25 times your annual spending to be financially independent. Thus, $25 invested will give you a dollar a year in passive income – a dollar a year you don’t have to work for.
If you spend $40,000 a year, you need to make 40,000 $25 transfers to savings to never have to work again. Considering the average human might live for 30,000 days, we’re a bit short. Subtract out childhood and post-retirement and we’re looking at maybe 2-3 of these transactions a day, every day, for years. Try to retire in your 30’s and you might be in trouble.
But wait! Consider the biggest expenses in your life – likely housing, transportation, and food. What can you do to subtract $25 from each category? How many $25 chunks can you take out?
After the big stuff is taken care of, then consider those daily or weekly transactions. What do you spend $25 on a day or a week that you don’t even remember?
These transactions are starting to seem more manageable. Now comes the fun part. For every $25 you cut from your budget, not only did you give yourself a dollar a year for life, you doubled up on your reduction.
You saved enough to cover the cost, but eliminated the cost altogether. The effect is the same as saving $50, with the effort of saving $25.
There’s more! Investing that money will earn you compound interest, dividends, maybe even tax reductions. What does your company’s 401k plan match? Probably at least a few $25’s.
You can find $25 in tons of places.
And one final number:
$500 saved gives you $25 a year for life. One less transfer you have to make 😉
Readers: How many $25s have you cut in your spending, or added to savings? Did you just go transfer $25 to your savings account!?