The Power of Small Numbers

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People often say that a cup of coffee costs only £3 and that’s nothing. Well, it’s rather incorrect. £0 is nothing, so let’s assume that £3 is not a massive amount of money. However, if you buy one cup of coffee every day (including the weekends), you will end up spending £21 a week, which equals to £1,095 a year, and that’s just for coffee.

If you skip that coffee only every other day and keep investing what you saved, so £548 every year for ten years in, say, Index Funds with a moderate 6% return you will end up with £8,204

If you take that £548 and keep investing in the same Index Funds for 40 years (once again average return of 6%) you will end up with £90,446 (of which only £22,500 are your contributions, the rest is what your money earns (!!!)).

It doesn’t look like nothing now, does it? And this is just from skipping a take-away coffee every other day.

Similarly, if you are a frequent buyer of lunch deals, which vary from £3 to £4, you might end up spending £540 a year on those deals alone (say 45 weeks x £12 a week, if you only buy your lunch three times a week) or £900, if you buy your lunch daily for £4 a day.

Photo by Thom Milkovic on Unsplash

Even if you decide not to invest that money, only keep it in your savings account (meagre 1% return) after ten years, you will have £6,246, and after 40 years you will have £27,202, which you can put towards your mortgage or towards your retirement investments and savings (alternative £10,410 and £45,337).  

Currently, the British state pension is £175,20 a week. So, if you had £24,960 put aside for your retirement that money would last you for 142,5 weeks, almost 3 years’ worth, according to the British government.

I know I do not include inflation in this calculation, which indeed will eat up some of your earnings. Still, I just want to show you how small numbers, small, insignificant spending can make a significant difference on the road to financial independence.

Look from another perspective. Take someone, who earns £10,75 an hour (London Minimum Wage) and getting to and from work costs them £9 a day, plus they spend £6 a day on lunch and take away coffee.

Let’s assume they’re being paid for the full 8 hours, not 7 (some companies don’t pay for the lunch break) for £10.75 an hour, so they make £86 a day, and £430 a week. If they spend £15 a day on travel and food at work that leaves them with £71 earnings a day. That’s before taxes and National Insurance is even deducted.

Each week £75 would be spent on travel and lunch. In this scenario, the weekly earnings are cut down to £355 before all the deductions. That person will have to work one day a week just to cover daily travel and lunch expenses. 

If that person took lunch to work and cycled to work or found work that didn’t require commuting far from where they live, they would end up saving £3,375 on travelling and lunch and coffee alone (again, let’s count 45 weeks in, the rest would be annual leave, holidays and such).

What I’m trying to say is that you should never think about those small sums as ONLY a pound or ONLY five pounds. Those small sums can be your ticket to financial independence or financial stability. At the end of the year, all those “small change” add up. 

Try to experiment and take your lunch to work for a month or walk or cycle to work if you can. Once you see your stash, made out of small numbers, growing, you will never look at “small” prices the same way.

Having savings, and so-called ‘f… you’ money gives you the freedom to walk away from a job you don’t like, change career, or simply take a break and enjoy life. If you spend all the money you earn, if anything changes in your life such as: losing your job or getting sick, your entire life collapses. Looking for a job when you are desperate is mega difficult and prone people into making unfavourable decisions.

Hardworking people can become wealthy not because they were given colossal inheritance but because they knew how to safely and productively get their money working for them. The correlation between your ability to save and financial independence is staggering.

If you don’t track your spending, you may never be able to save much. Your life will be lived in the shadow of fear over losing your carefully constructed lifestyle that doesn’t allow real freedom of choice.

Covid-19 has unveiled how little we need to survive and what is essential for most of us. It also unveiled how many people live financially insecure lives that can crumble in a month (Those stories are heart-breaking and life-changing).

Just imagine being able to enjoy all that is essential, things that are important for you with a little stash you managed to save up by not spending money on daily coffee or lunch. Then no pandemic or financial crash can break your financial security and independence.

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