Can You Spare a Dollar?

Saving for retirement is a challenge for many people. Whether you're struggling to get by or perhaps just had to get that $2,000 full-body snake tattoo, you put off retirement savings. But here's the problem - if you can't afford it today, when will you be able to save? Some nations have robust pension-like plans that may cover living expenses when you retire. In the U.S., social security operates on payroll taxes, but is dangerously underfunded in outlying years due to a decade of running the red. I hope to retire in the next 15-20 years, and honestly, any social security payment will be icing on the cake. If you're counting solely on social security, and can't retire anytime soon, you should take a similar approach. If you haven't started saving for retirement, this can be a big concern. So how can it be addressed? I have a theory - what if you set aside $1 each day and put it towards retirement? A buck a day to keep retirement fears at bay! It's a catchy slogan, but could it actually work?

That's a spare opportunity. The image was labeled "strike", but I don't think there's enough pin action.

Robbing The Future You!

Let’s start with the best question ever: why? You may be thinking that setting aside money now, when you need it today, seems senseless. Tomorrow isn’t guaranteed. You know you can put a dollar to good use today, and can’t worry about the future if you don’t take care of the here and now. Fair enough. It’s difficult for some to “deprive” themselves in the moment for the sake of future gains. But think of it this way: you’re really just stealing from yourself! Money saved when you’re younger – and properly invested – will double, triple, or quadruple by the time you retire. If you have the patience and discipline to stash even a small amount of money early in life, you will be thanking yourself later. The key is finding a way to shake some money out of tight budget.

How Much A Dollar Cost?

Besides being a great Kendrick Lamar song, it’s a valid question when it comes to saving money. Most of us think we’re frugal with our spending. We don’t have the fanciest house, car, or clothes. We shop in bulk, don’t take extravagant trips, and overall watch our expenses closely. But I challenge you, my fine Dough-Nutters, to take a closer look. Could you reduce your spending by a dollar each day? If you’re able to build up a healthy retirement savings already, this may not be a concern to you. But if you are not, and can’t find a way to do so, please entertain these ideas below.

As I ranted about in the Starbucks mentality blog, you could save a significant amount of money by just making coffee at home vs. paying a barista $4 per pour. That’s just one example – what about driving? People tend to not associate driving with cost for errands, work, kids, etc. However, those costs add up big time! With the price of gas creeping back up (around $3.00/gallon in most of the U.S.), and a generous fuel economy (30 miles/gallon), you’re spending ten cents a mile in gas costs alone! Not to mention ongoing maintenance, insurance, and depreciation of your vehicle. Could you cut a couple of miles of trips out of your routine? What about shopping – do you have little splurges that you consider as “essential”? Perhaps there are less-costly alternatives available, or maybe simply reducing your purchase frequency of the higher-end goods could get you there. Can we have a hand for the home haircut? If the pandemic taught us anything, it’s a basic haircut can be achieved at home. My wife cut my hair, and I cut my kid’s. My wife would not let me (or my kids) anywhere near her hair and just waited it out. I typically get my haircut at a barber shop that runs about $35/cut including tip. If you got your hair cut once a month, and opted for the home cut, you’ve already reached $1/day! You may have even more examples of ways to reduce cost in your life.

The Payoff

So let’s say you are able to find that dollar of savings each day and can invest it. I ran some numbers to give us an idea of the impact of time value of money. Just setting aside that money, without interest, would generate $365 in a year (you splurge every February 29th for our purpose). Simple math would tell you if you did this for 50 years, you’d save $18,250. Not exactly life-changing money, but hang with me. Pretend you’re 20, will need to work until 70, but can pull off the dollar-per-day savings plan. This time, let’s play out the investment using the time value of money. For simplicity sake, I will assume the $1 is added at the end of each year, and only the money in that year accrues interest. For example, in Year 1, you add $365 to a low-cost ETF earning a net 7% annually - earning the interest the next year. By the time you’re 70, you would have… $148,383.06 saved for retirement! This is the power of the time value of money and why I dedicated an entire blog to this subject alone.

Think about the impact of your savings. You could buy a decent home outright in parts of the world with that type of money. You could cover major medical expenses, invest in your grandchildren’s education, and have some comfort after years of hard work. Ask yourself this question – are you willing to invest in your future stability, or do you have to live in “the now”? The difference may change your life.