What if that penny saved could end up being much more over time? Turns out, living frugally can save you way more than you might think.
Frugality is typically thought of in straightforward, or linear, terms— x plus y equals z. If you skip a daily $5 takeout coffee, you’ll save $35 a week, $150 a month or $1,800 a year.
Using that same thought process, if you cut your monthly spending in half, your income will last twice as long. Makes sense, right?
Well, yes and no. This assessment isn’t wrong, but it’s incomplete. Pinching pennies does add up in the short-term, but the long-term payoff is likely bigger than you think. This is because of the time value of money, aka interest. When you invest the money you save, you’re stretching that dollar into something greater as it accumulates interest over time.
For instance, instead of simply saving $1,800 a year making coffee at home, you’re really saving $1,800 a year plus any interest you’d earn in investing those dollars in a money market or retirement account. That $5 cup of coffee could eventually be worth an untold amount—would you give it up for $10, $20, or $50 in the future?