How less than 20 hours a Year can Net you a $900,000 a Retirement Nest egg

Basic frugal living can save a substantial amount of money in the long run. I do a lot of pretty simple frugal things in my life that add up to make a sizable financial impact.

Below I give some examples of how savings from basic frugal living can add up for you.

Here are 4 basic things I do in my daily life to live frugally:

Bagging my lunch :
I bag my lunch 4 days a week. It costs roughly $2.50 to make a lunch compared to about $6 to eat out. I could have a cheaper bagged lunch but I like higher quality lunch.
Time : 5 min x 50 weeks = 250 min = 4.17 hrs
Savings: $3.5 / day x 230 workdays = $805 / year
$ / hr = $193

Mowing my own lawn :
I actually enjoy mowing my own lawn. Its good exercise and a good excuse to do something useful outside.
Time : 20 min x 20 weeks = 400 min = 6.67 hr
Savings : $25 x 20 weeks = $500 / year
$ / hr = $74.9

Washing my car:
I almost always wash my own car. I don't wash it very frequently to be honest and I'm just ballparking a rough guess on how often I do it.
Time : 30 min x 6 times = 180 min = 3 hr
Savings : $5 x 6 = $30 / year
$/ hr = $10

Shopping thrift stores for clothing:
I might spend a half hour hunting through the racks and end up with 1 maybe 2 good items. Lets say I average 30 minutes per item and I pick up 8 items a year. I spend about $5 per item and would probably spend $20-30 for them new so figure a $20 average savings.
Time : 30 min x 10 times = 300 min = 5hr
Savings : $20 x 10 = $200 / year
$/hr = $40

Combined impact

Altogether I spend 18.84 hours doing these tasks. Thats not much time really. On average its less than 30 minutes a week. In total I save $1,535 per year. That works out to $81/hr savings in after tax dollars. Thats a pretty good use of time don't you think??

Now what is the impact of this over the long run? If I started this at age 24 and I do theses things for 40 years and invest all that money and get 10% annual returns, if inflation is about 3% annually then at the end I'll have just under $900,000 after 40 years! Of course I'd have to adjust that for inflation as well so it would be equivalent to about $280,000 in todays dollars.

Some notes: The math here is meant to be realistic and drawn from my own life, but these are 'off the top of my head' numbers meant for example sake. I don't know if its really realistic to assume 10% growth on the investments and 3% inflation rates, but I had to pick numbers. For reference, if you assume 8% growth then you'd end up with over $550,000. I haven't considered the tax implications of your investments so you can assume the money is taxable.

Best of blog posts for week of December 4th

Bad Money Advice discusses the supposed high rate of bankruptcy rates among lottery winners with : Why Lotteries are Bad – The Third Reason They have the same doubts that I've had about how common bankruptcy really is among winners.

Generation X Finance also points out some bad money advice with Robert Kiyosaki is Off his Rocker (Again) – Is The 401(k) Really the Biggest Scam Ever?

Darwin's Finance talks about a little known government home loan program : USDA Home Loan Program – The 0% Down Bonanza You’ve Never Heard About

Free Money Finance has One Example of Living Paycheck-to-Paycheck which I think is a very good tale of how bad relationships and choosing the wrong mate can really ruin your finances.

Bargaineering talks about Charge Cards: The Forgotten Option Since I use an Amex credit card and pay it off monthly switching to a charge card wouldn't be much difference for me personally except unfortunately the charge cards have fairly steep fees.

An Example of How Overdraft Fees Can Pile Up

On an episode of the Suze Orman show the other day they had a guest on the show with some financial problems. The woman and her husband were struggling financially due to over spending and the husband only working part time. They made almost $100,000 between them but only had $300 in the bank. One detail stood out for me was the amount they had paid in bank overdraft fees. So far this year in 2009 they had already paid over $4,600 in bank overdraft fees. Yikes!

I've seen stories of how banks made over $36 billion in overdraft fees last year. That is in the ballpark of $300 per household. The vast majority of the overdraft fees are paid by a minority of account holders. In 2007 the American Banking Association survey found that 80% of consumers did not pay any fees. That is a whole lot of fees paid by a whole lot of people.

If you are having problems with overdraft fees then paying for your day to day expenses with cash would be one strategy. That way if you put $20 of gas in your car you won't risk running over your balance on your account and hitting an overdraft fee. Theres no overdraft fees with cash.

House passes Estate Tax Changes

The House voted to extend the estate tax on wealthy households. The changes passed by the House would make the $3.5M exemption permanent. If the law isn't modified then the estate tax would be repealed for 2010 and then drop back to the old $1M exemption after that.

But its not law yet. It will also have to pass the Senate and get signed by the president before it is law but this is one step. It might take a while for the Senate to get around to debating the issue since they're busy with health care reform and its possible the Senate won't go for the House's version and it could get modified or die altogether.

This shouldn't impact the vast majority of us. Most of us won't die with millions in the bank in any case.