How Cutting $5 a Day Transformed my Financial Freedom Journey

If I told you that cutting your expenses by $5 per day and investing it over 10 years would get you $70,000 closer to your retirement goal, would you believe me? Let me show you how this works!

Understanding the Basics of Retirement

The simplest basis of retirement is that you need 25x your expenses saved to retire. This means that if you spend $10,000 per year, you only need $250,000 to retire. In reality, this number varies quite a bit for people, but I’m personally aiming for $1,000,000 (my expenses are actually less than $40k right now).

When you think about the two levers you can pull to achieve financial independence faster, you think of income and expenses. We all understand the power of increasing our income to help us reach financial independence faster. If I make more, I can invest more, and thus reach my nest egg goal faster. But often, people don’t understand the crazy effects of decreasing your expenses long term.

How Cutting $5 a Day Adds Up

Let’s say my retirement goal is $1M. Based on the 4% rule, my expenses should be $40k per year. Now if I cut my expenses by $5 per day, that drops my yearly expenses by $1825. This gives me a new yearly expense of $38,165. Multiply that by 25, and you get your new retirement goal of $955k. Bam! $45k closer to retirement. Now if you also invested those $5 per day, after 10 years with 6% annual returns, you would have an extra $25k. Put those together and that’s how you get $70k closer to your retirement with one small change.

For $10 saved per day over 10 years, you get $140,000 closer to retirement. For $15 saved per day, you get $210,000 closer to retirement.

So you can clearly see that cutting expenses can have a HUGE impact on when you will be able to reach retirement. How long specifically depends on how much you are able to save, and your retirement goal, but the magnitude of time you save is in years!!

Practical Tips to Save $5 or More a Day

1. Skip buying coffee or tea from Starbucks and make it at home.
2. Cook your own meals at home and bring them to school/work.
3. Reduce snacking (which will help your wallet and your health!).
4. If you drink, try to reduce your drinking (again your wallet and health will thank you!).
5. If you can, walk/bike, or take public transit to school/work.
6. Resist the urge to buy that random thing you will use for a week from Amazon.
7. Try to reduce consumerism, an example would be mending your clothes when they start wearing down instead of buying new ones.

The easiest ones here are most likely making your own meals and coffee because they are the most ingrained with our daily habits.

Embracing a Frugal Mindset

For me, thinking about cutting expenses as $5, $10, or $15 per day makes it so much easier to actually analyze HOW I will achieve this. On the flip side, thinking about cutting the yearly equivalent of $2,000, $4,000, or $6,000 is far too broad and makes it difficult to think about the small actions which will have a large impact. For me, I easily get caught up in the big things like cutting housing and car expenses (which are still valid), but are far more difficult to achieve than to simply make your own meals/coffee every day.

Another benefit of having a frugal mindset is that it helps you combat lifestyle creep. Sometimes lifestyle creep is inevitable, but a lot of times it’s not. When you realize how much longer it will take you to reach retirement if you buy a second car, you probably won’t buy the car if you don’t need it.

Take Action: Start Tracking Your Expenses

If you want to get started with reducing your expenses, you need to understand where your money is going, so my suggestion is to take action and start tracking your expenses on a budget. This will help you understand what you’re not really getting value from and cut it out. You can download my free budget template here to get started!

My philosophy is to find areas in my life that I can find savings without depriving my quality of life. At the end of the day, if cutting something out isn’t sustainable for the rest of your life, then it isn’t worth it!

For me, the biggest daily savings I find are from cooking 99% of our meals at home. This saves me and my partner upwards of $20-40 per day! And to be honest, I prefer it this way because my diet is much healthier because we can control what goes into our meals.

Conclusion

And that, my friends, is the power of frugality. Thank you so much for reading! I hope that you found some value from this blog post and that it helps you achieve your financial goals faster.