Understand the Potential of Each Dollar

This is the second article in a mini-series on 5 Green Geek Principles. With Green Geek Principle #1, we reviewed examples of where even the smallest little things, while seemingly insignificant at the time, when repeated, can significantly add up.

Principle #2 is about appreciating the goal of letting those cents and dollars add up. It’s about better informing the decisions of what to do with each $100 dollars saved from the various actions outlined throughout this site.

Understand the potential of each dollar - basics to simple wealth building.

Choosing to save can really add up! It’s easier to do so when you understand the true potential of each dollar!

In economics, this decision of what do with your money is called “opportunity cost“. Basically, its the benefits you potentially miss out on when choosing one alternative over another.

So let’s start with a realistic example.

What To Do With $100?

So you’ve saved up $100 dollars. Whether from money left over from your pay check after covering your current expenses, or from taking action to reduce those regular expenses. Either way it’s $100 that you are free to do whatever you want with.

Fundamentally, you have two options:

  1. you can SPEND it, or
  2. you can SAVE it.


By default, we are trained in this North American society to typically go with option number 1. And honestly, we can’t be blamed. As of 2019, companies in the US spend about $200 billion annually on advertising. Marketing has become incredibly sophisticated – playing on our emotions, primal instincts, and subconscious fears – and it is absolutely effective.

We are encouraged to be consumerism machines, always going after the next cool/upgraded/life changing thing. We are led to believe this thing will make us happier and look better in front of our peers. So you spend that $100 on upgrading to the latest smartphone, installing a custom tail light kit on your car, or a robot vacuum cleaner that will make your life so much better.

Most benefits are short lived

Here’s the problem. Hedonistic adaptation is a bitch. Basically, hedonistic adaptation refers to the fact that humans very quickly adapt to their new life situation and return to their normal level of happiness prior to the change in their circumstances. So that new $100 robot vacuum you bought was really cool and actually increased your happiness for a few weeks, until it rather quickly just became “normal” and you reverted to the same level of happiness you had prior to purchasing it.

Hedonistic adaptation is actually a really incredible adapting mechanism because it works the other way too. It allows us to easily bounce back from hardships and new, seemingly more difficult circumstances in our life. It’s one of the things that makes us so resilient.

Unfortunately, we don’t seem to fully appreciate the reality of how quickly we adapt and we all to readily are led to “the grass is greener on the other side” sort thinking. ‘If I just had “thing X” I would be happier.’ ‘If I move to place Y, life would be great.’ ‘Life would be so much simpler if I just had Z service’. Nope, nope, and probably nope.

Yes, we need a certain amount of money to buy the necessities of life. Otherwise, we have a serious hit to our happiness with the constant stress of simply trying to make ends meet and surviving. But once those basics are met (and this blog tries to share many ways to drive down the cost of those basic expenses) there is relatively very little lasting happiness from more stuff.

In fact, our happiness can also decrease when we have too much stuff that is cluttering up our spaces and lives and require time to maintain, clean, or otherwise tend to. Don’t believe me? Just watch some of the Marie Kondo shows on Netflix or YouTube and try it out yourself.

Now we need to make more money

So, let’s take stock of where we’re at: Extra cash now in hand = $0. New gizmo in life = 1.

To get another $100, you will have to work more to earn $130 in income. “Wait, $130?” some might say, “all we need is $100”. Right, but as the average federal + state tax rate is a little over 23%, that 23% of $130 = $29.90, leaving us $100.10 after tax.

No problem you say. You love your job, you want to work there endlessly and that gizmo you want to buy just seems so cool. Great, I love my job too and also appreciate buying neat things (and especially life optimizing or cool experience things).

Just for arguments sake though, let’s look at what happens if we save the $100.


Boring. I know. But stay with me for just a few moments. Saving money was boring for me too until I realized the potential it had.

I personally find saving a lot more exciting when:
1) you look at the numbers and realize how much your money can grow with almost no effort by you,
2) you have a nearer future plan for your wealth beside just saving for retirement, and
3) when you consider some of the other life benefits yours savings can provide.

Making Your Money Work For You

When you choose not to spend money but rather save it, you can put that money to work to make more money for you. When we talk about saving, I’m not talking about just putting cash into your savings account of your local Wells Fargo or hiding it under your mattress (which is about the equivalent). I’m talking about growing that money. Deploying those funds in a way that will make you a decent return.

There are many options for a “decent” return on the money you save, but the benchmark I use for comparison is throwing that money into the stock market (in a diversified low-cost index fund). Doing this should have an expected inflation adjusted return of 7% each year (which is what the stock market has delivered on average from 1950 to 2009).

When you put your money to work for you like this, these dollars will work tirelessly like little minions. Day and night, day-in an day-out, without rest, without additional motivation, without needing a vacation. These dollars put to work will continuously generate more interest and more profit for you. While you are at work, your money is also working. While you are playing with your kids at the park, it’s still working. When you’re sipping a piña colada by the ocean – guess what? – your dollars are cranking away working to make little offspring cents which will develop into fully-fledged dollars in the not too distant future and then will make little cents of their own. All while you have to do practically nothing! That’s the beauty of earning compounding interest.

Spend vs. Save

So the choice is, you can work to make your money, or you can put your money to work to make more money for you.

When you spend that money instead of save it, it’s infinite working potential for you immediately evaporates.

You have to put in the extra time and effort to make some more money to replace it.

Thus, when you’re confronted with the decision to buy something new, make sure it’s worth taking that money out of it’s lifelong indebted service to you. Ensure the benefit you’ll be getting from that money beats that money’s future earning potential for the rest of your life!

When you save and invest the $100, you don’t have to earn another $130 to buy the next gizmo.  You simply sit back and wait and do nothing. This is part of the simplicity of simple wealth building. Left to grow on its own the $100 will grow to $107 in one year, $114.50 the next, $122.50 the year after, until it will have doubled to $200 in 10 years.

Now I’ll be the first to admit, 10 years seems like a long time to wait for an extra $100, especially when there are so many competing opportunities for that money now. But let’s look at another example.

Habit of Recurring Investment

Say it was another $100 you had on a monthly basis that you were able to save. If you get into the disciplined habit of investing it each month, in that same 10 years, you will have contributed a total of $12,000. However, your money will have grown to a total of $17,308 at that 7% inflation adjusted rate.

Cool, an extra $5,143 in earnings you had to do absolutely nothing for. (And notice how that’s almost half the amount of the hard earned dollars you contributed.) Now, the great part is seeing what this $17,308 can do on its own, when left alone.

At the 7% annual expected return, your $17,308 will likely product just over $1,200. OR $100 every month of the year. Essentially, by having saved the $100 each month for 10 years, your money is now generating an extra $100 on its own without you doing anything, every single month for the rest of your life! It almost seems like defying laws of reality, but it’s not, it’s just straight math. I call this the “10-Year Rule”.

The 10-Year Rule:

The concept works like this: At an estimated 7% annual return, a steady amount that you are able to save on a monthly basis will have grown large enough to automatically generate that much money for you on its own, every single month, in 10 years’ time.

You could think of this like generations in a family tree. When you save a sum of money on a monthly basis for 10 years, think of this as you raising children. Now in this case, at the age of 10, your children are fully grown and will start raising kids of their own. That is, the sum you have built up will now be mature enough to produce the same amount on a monthly basis that you were saving for 10 years. Their work replaces the work you were doing – but you only had to work for 10 years and your family money tree will now just grow and grow on its own.

10-Year Rule At Work

If you had started saving that monthly $100 when you were 25. You would have sacrificed the monthly benefit of that $100 for 10 years from the age of 25-35. However, once you hit 35, you would have an extra $100 a month (to spend or save) for the rest of your life. Assuming you live until 80, this would benefit you for an extra 45 years.  So, you are being disciplined for 10 years and giving up $12,000 in spending now to have the benefit for 45+ years and an extra $54,000 over that time (and that’s without any of that $54k being invested).

Plus, at the end of it all, you will still have the inflation adjusted equivalent of your original $17,308 in your account. You could pass that onto your heirs, or donate it to a cause close to your heart, or use it to setup a recurring $1,200 annual scholarship in your name for ever more. Pretty cool, right?

The Power of Reinvesting

Now what happens if in 10 years instead of spending those automatically produced returns you continue to reinvest them instead? Well, we know that $100 monthly was worth $17,308 in 10 years. Continue that trend for just another 10 years and the amount you have now triples, growing by about $35k to about $52,000. 10 more years and it grows now by 70k to about $122,000.

  • 10 years | added $17,308 | total $17,308
  • 20 years | added $34,785 | total $52,093
  • 30 years | added $69,904 | $121,997

Now start to think of the potential when instead of $100 monthly you can get that up to $500, $1,000, or $5,000 monthly!?

Don’t think there’s any extra cash around? Challenge that notion and reassess some of the things you spend money on and consider whether it’s really a need or if it’s a non-essential. I was amazed when we I did this in my own life. I thought my wife and I were already quite money conscious but when we decided to get serious on paying off her student loans, we were able to find ways to save another $1,600 monthly (I was personally shocked).

Another Advantage of Saving = Saving the Environment

The U.S. with only 4 percent of the world’s population is responsible for a staggering 30% of the world’s waste. American individuals throw out about 7 lbs of waste per person every, single, day. That’s well over a ton annually, or over 14 times our own weight in garbage each year!

A whopping 30% of that waste is just from packaging alone, which has no real value to the consumer. Another 20% of our waste is from non-durable goods (general, non-appliance products).

By being more discerning about our purchases, we not only make our lives richer, but we have the opportunity to significantly reduce our individual waste and the environmental footprint as a result of the packaging, the transportation of, and eventually the discarding of not so necessary products. So, we’re all doing the earth a solid one when we ratchet back the crazy consumerism in our culture.

So, we’ve covered off a lot of the numbers to understand how money can grow for us. However, to fully appreciated the potential of each dollar, there are still additional non-monetary benefits to consider, plus, to be successful, it’s essential to stay motivated.

I mentioned earlier how I personally got more excited to save when
1) taking a dive into the savings numbers [check, we just did that], but also
2) having a nearer future savings plan, and
3) considering other life benefits saving provides.

We’ll look at the last two elements in the next Green Geek Principles article: #3 – Get Motivated To Save


Read the other posts in this mini-series:

#1 – Little things add up
#2 – Understand the potential of each dollar
#4 – Get motivated to save (importance of near-term goals)
#3 – Just get started
#4 – What gets measured gets managed