Little Things Add Up
This post is the first in a mini-series covering 5 Green Geek Principles. These principles are at the foundation of successful and simple wealth building and planet friendly living.
Read about Principle #1 – Little Things Add Up below, along with the following posts on the remaining principles:
#2 – Understand the potential of each dollar
#3 – Get motivated to save
#4 – Just get started
#5 – What gets measured gets managed
As you know by now, one of the two key focuses of this blog is simple wealth building. It is not about elaborate schemes to generate cash or hitting a financial home run overnight. It is not about complex analysis to pick the next biggest stocks and strike it big.
The success of building wealth with the principles shared here is not restricted to a select few that are in certain circumstances. I believe this simple wealth building is accessible to anyone and everyone. It does not require an unusually high level of intelligence, any particular level of education, or an existing stockpile of cash in your bank account to invest.
It is wealth building that is straightforward, intuitive, and yes, simply takes a bit of time.
Foundational to this straightforward wealth building is the key tenant that little actions add up.
It may not be sexy, but it is simple math and has been proven effective time and time again. I’m a firm believer that the little actions add up, and that along with solid habits or automated processes, these things have a major impact over time.
What exactly am I talking about?
I’m talking about things like saving $5 in recurring expenses here and there, automatically contributing $10 or $15 on a monthly or weekly basis to an investment account, getting a minimum of 2% cash back on all purchases you make, and eliminating any banking fees you pay quickly adds up to hundreds of dollars and in short order, compounds to tens of thousands of dollars.
Let’s look at one example: Cash back credit cards
Cash back credit cards are a wonderful opportunity to maximize simple wealth building. This is one of my favorite examples because it requires almost no change in behavior, takes almost no effort, and yet adds up to significant and meaningful financial benefit. There are many credit card options out there, but I would argue that you should be able to get a minimum of 2% cash back on most credit card transactions. These days, aside from housing and taxes, you are able to put the vast majority of your expenses on a credit card. So let’s crunch some numbers to see how getting 2% back quickly adds up:
- According to the Bureau of Labor Statistics 2016 Consumer Expenditure Survey, the average household spent $67,801 annually. Taking out housing, cash contributions, social security and taxes leaves $29,514 in annual spending.
- Let’s be conservative and say that of this $29,514, 75% of these purchases could be made using a credit card. 75% = $22,135 in potential credit card purchases each year.
- 2% of this $22,135 is $443 annually.
- $443 is not too bad, but also not too exciting. However, making the use of your cash back card(s) like this a habit, and investing this savings at an annualized after-inflation return of 7% (the historical average of the stock market)*, and this simple activity grows to $2,643 in 5 years and $6,390 in 10 years**.
- Or, let’s go one step further and consider you had this healthy money habit in place over an entire traditional working career of 30 years, it would net you $45,037 in cash back. Not bad!
Here’s a link to a handy Green Geek spreadsheet tool where you can calculate those numbers yourself and play around to adjust with your own assumptions and see how much you think you can save over time.
Adding up a few actions
Now $6,390 alone clearly won’t make you rich, however, it’s also nothing to scoff at either. For instance, consider how this cash back savings alone is higher than the median US savings account balance (which was $4,830 in 2018). Or that 40% of US adults claim they don’t have enough savings to cover a $400 unexpected expense – yikes.
This action alone can help you avoid being on the bad side of those two statistics, and this is just a single example – there are dozens more actions like this out there. Pair this financial decision with other simple actions (which are shared throughout this blog), and you’re on track to solid wealth accumulation in the decades to come. A total of 10 similar actions like this one, compounded over a 30 year working career would net you over $400,000! (That’s already 2.3 times the median retirement savings Americans have in their 60’s.)
From my own life
For instance, I already considered myself pretty cost conscious and have been maximizing a bunch of these little opportunities for well over a decade. However, when my wife and I finally decided to get really serious about paying off her student loans, it took less than a month for us to identify dozens of little actions that ended up shaving off an extra $1,200 from our monthly expenses. That’s over $205,000 in 10 years (more about that in a future blog post).
And we could have gone further yet if we wanted to – I still think we live very comfortably – really a life of excess with ridiculous luxuries – but we’re not that extreme. So I honestly believe there are opportunities for almost everyone – it just takes a bit of re-evaluation.
Where do I start?
Personally, I think it’s mostly just a change in mindset to get you going. Soon new opportunities to save a little bit here and there will start to come to your attention on a regular basis. I believe most of us are naturally inclined to trivialize small savings saying to ourselves (as all marketers would like us to think), “That’s only $4 more a month, no big deal!” or, “To get the larger size is only an extra $1.49. That’s nothing!”.
However, hopefully in seeing some of the math above you can start to build a strong appreciation for how these little actions add up. Simply being mindful of opportunities for little savings will get you going of building wealth and is a cornerstone of the healthy money habits the Green Geek is all about.
That being said, here are some areas where little actions can really add up:
- Getting more from the money you already spend and save – these are the easiest as there is very little change in behavior
- Cash back credit cards
- High interest earning bank accounts
- Low fee investing
- Lower cost cellphone plans
- Reducing expenses – take a moment to reassess your needs and values
- Be mindful of frequency and costs of eating out
- Watch recurring fees in particular
- All subscriptions, cable/Netflix, gym memberships, insurance, etc.
- Track costs of grocery shopping
- Doing things yourself (DIY) vs. paying others
- Eliminating waste
- Improve your energy efficiency
- Monitor your spending on non-essentials
- Reduce your food waste (meal planning is a big help!)
- Opt for a more fuel efficient vehicle
- Drive less
1. Little wins feel great!
I find these little wins are also great for a personal sense of accomplishment and confidence. It’s a great feeling knowing that you have further optimized something, many of which provide continuous payback. It’s encouraging that each little action you take adds to your financial stability and independence. I find it gives a feeling of further control. Even though some of these savings seem small, each little quarter, dollar, of 10 bucks can be deployed in investments that can effortlessly generate cash for you for the rest of your life! Who can complain about that?
2. All things in moderation
Take this as far as you want. Yes, some people look at me a little funny when I use a credit card for a $0.89 transaction, but I’m a geek and I don’t mind. I still keep a smile on my face knowing the impact of the small savings (as well as keeping annoying coins from filling up my pocket – can’t we move to a cashless economy yet?). At the same time, I drive my car a whole bunch of places I should be walking or biking – so there is big room for improvement in my own life. Many of you are probably way better than me at maximizing small actions across your whole life. That being said, you’re not going to be able to win them all and you’ll be disappointed when a saving opportunity doesn’t pan out as planned. Don’t sweat it – and remember, it’s a good thing that the small things have your attention – that’s what will make all the difference in the long run!
3. Applicability beyond money
Lastly, the notion of little actions adding up is true for so many things beyond money! I have predominantly used money examples above because it is quantitative and easy to illustrate. The same notion is particularly true for energy efficiency improvements around your house (which is in turn adds to your financial wellbeing) as well as other actions that contribute to a more sustainable lifestyle. Recycling, composting, turning off lights, setting back thermostats, using automated timers, and moving yourself around instead of driving, are all small actions that have big impacts when repeated over time. And beyond environmental, the small actions in relationships really add up too – especially those with your significant other. Years of negativity versus positivity, helpfulness, and forgiveness will probably have a greater impact on your overall well being than anything you do financially 😉