Chapter #3 The Importance of Saving Often

In the previous chapter we talked about the importance of starting to save early and the effect of a single purchase on accumulated wealth and income at retirement. In this chapter we will be looking at the effect of frequent saving over time. Many of our spending decisions commit us to recurring expenditures.

If our 18 year old friend, Bill, from the previous chapter decides that he will get up five minutes earlier every day and make himself a cup of coffee at home rather than buying a cup on his way to work, he will be able to save $1/day, 250 times per year. At 8.4% for 50 years at an inflation rate of 3% he would end up with $269,000.

Every time you consciously, or unconsciously, establish a habit or make a decision to incur a daily, weekly, or monthly cost you are deciding to reduce your accumulated wealth at retirement and your retirement income. Just how much it will be affected is a factor of the annual cost, the number of years until you retire, the rate-of-return, and the inflation rate. By using the Calculator Repetitive Future Wealth and Income you can determine the impact of any recurring expenditures.