Death by a thousand cuts!!

Sounds painful, right? You bet it is (not that I know from personal experience, but hey, I've had my share of paper cuts, and just one of those hurts...imagine a thousand!). This was a method of execution in China for hundreds of years. The condemned would be subject to multiple small cuts, none of which by themselves would be fatal, but the combined effect would be lethal. But what in the world does this have to do with saving money, you ask? Good question. And I have an answer for you (whether it's a good answer, is up to you).



My belief is that many people kill themselves financially, by "cutting" themselves in very small, seemingly insignificant ways, that actually add together to finally kill you. Okay, actually your budget, but work with me here.

All these little cuts, are the little splurges we treat ourselves to. A soda here, a coffee there, dinner out here, a new cd or mp3 download, a new pair of shoes, a quick snack on the run, a pack of cigarettes, lottery tickets, and on and on. These little purchases don't seem like much, and normally would not be enough to hurt you financially, by themselves. However, the power of those purchases compounded, will bring your financial heart to a flatline.

Some quick examples, to show you how much they add up to at face value over a year, but also in lost earnings if you had invested that money (figured from a 25 year old retiring at 65, with only investing the first year savings...no further contributions for the remaining 39 years) :

• Starbucks coffee, with say an average of $3 a cup, 5 times a week for 52 weeks equals $780. If you put that into a Roth IRA and earn an average of 9%, that $780 would turn into $24,499. That one years worth of Starbucks actually cost you $23,719 in lost earnings. Starbucks is good, but it's not THAT good.
• The average meal out in the US costs $32, and figure on dining out an average of two times a month. That's $768, which if invested would be about $24,122, or $23,354 in lost earnings.
• The average American spends $177 a year on lottery tickets, which if invested would give a return of $5,559.
• Smoking a pack of cigarettes a day, at an average cost of $4.49, with taxes, would be $31.43 a week, or $1,635 a year. That would give a return of $51,354
• A bottle of water at $1.20, adds up to $8.40 a week, or $437 a year, which would give you a return of $13,726.

Just using these averages, by cutting out these small purchases, and investing them in a Roth IRA, you would have turned $3,797 into roughly $120,000!! And that is if you only saved that first year's savings, and never added any further contributions until you retired. If you added the same amount to the IRA every year, you would have approximately $1.5 MILLION saved in your retirement account. See how SAVING MONEY is MAKING MONEY?!?!

Does it make sense now? Is the picture coming into focus? These small, daily purchases, that we don't need, but that we want, are bleeding us dry financially. A couple dollars here, and a couple dollars there, add up quickly...have them add up the right way for you...in your asset column, not your expense column!

Roth IRA calculations based on a calculator at DinkyTown , with dollar amount added for first year contribution and zero annual contributions thereafter, at a rate of 9%, from age 25 to 65.