I’ve written several posts on, how we saved money. Saving is good; saving can help you in a better financial future. Even better, saving can make you money! Lots of it!! below I’ll explain how I made 20K buying a Prius.
Besides all the benefits, saving often tends to make you give up something. “Yes, we saved buying a Prius but it’s not as comfortable as that BMW next door”. We saved handsomely by cutting the cable but, I no longer have Syfy. “We saved X on Y but….”
It’s true, some savings come without negative side effects but most of them tend to have a “but…” associated to them. So, since Personal Finance is 90% psychology and the human psychology tends to chase rewards, I thought I’d look at it from a different angle. Instead of looking at the actual amount we saved, I’m going to show you how much those savings made.
That’s right, savings can (and should) make you money. Saving for the sake of saving is pointless unless you do something useful with what you saved. The true power of savings is determined by what you do with it.
In this post being the first in the series of “I Made X by saving Y” I’ll revisit our savings, buying a Prius.
How much did you save again with the Prius?
You can read the entire post in Should I still buy a Hybrid but in short: We bought our first Prius in 2007 when we switched from a Camry. In the post I compare a Prius against several different types of cars but for the sake of this post we’ll stick to the Prius vs. Camry.
Over the duration of 7 years we saved $7,603.45 by driving a Prius vs the Camry. Yes gas prices aren’t today what they were back then but savings still do apply.
What happened with the savings?
Back to “Saving for the sake of savings is pointless” we used the savings to accelerate our path to FIRE (Financial Freedom, Retire Early). Each penny of our savings was invested. What did we invest in? Being a fan of keeping it simple (read all about it in KISS applied to my investments), it was invested monthly into SPY. You may determine other money generating vehicles are better suited for your saving and all the power to you Most of those vehicles will beat putting it under the mattress or buying that pair of gorgeous Jimmy Choo boots.
For us buying shares of SPY it was and it remained in SPY until the day I retired back in 2014. As a matter of fact, the shares bought with those saving are still there. I am after all, first selling the shares I bought back in 2002.
So instead of focusing on how much we saved that year on the Prius or how much you saved last year on skipping the Starbucks’ Lathes (yes, cliché but so true), lets focus on how much we made with those saving and how much you might make on those skipped Lathes.
Your Lathe savings from last year will make you money. How much will require some assumption about future return on investment. Our Prius savings are far in the past and thus allow me to exactly calculate how much we made based on historic numbers. Based on historic quotes for SPY, reinvestment of dividends and based on the dates I invested (close approximation) I would have invested monthly:
The monthly investment, including the reinvested dividends would have bought me 87 shares of SPY which at the end of 2013 were worth $15,996.69. The savings of $7,603.45 over 7 years in fact resulted in a total sum of $15,996.69 which is an additional $8,393.24 (notice how the returns are higher than the initial savings).
Some more fun numbers, perhaps? The savings didn’t end at 2013, gas prices have been fluctuating near the break-even point but are still yielding some savings.
Best of all: those 87 shares today (based on historic prices and assumed dividend reinvestment) were worth $19,708.11 as of close-of-market last Friday.
This is how I made 20K buying a hybrid car. Don’t look at your savings as a victory today, instead focus on what they make tomorrow. Savings by themselves mean nothing. The real meaning comes from when you put your savings to good use.
When we bought the Prius in 2007 (and another in 2010) I knew we’d be saving money. We used those savings towards our goal of financial independence. How much did we save? End of 2013 we saved $7,603.45!!! How much did we make buying a Prius? A tidy additional amount of $8,393.24 after 7 years and and much more today.
A total of $19,708.11 more today than, had we bought a Camry. Best news, the saving are STILL MAKING US MONEY.
Yes, there is gratification in saving money. That gratification pales in comparison to the gratification that comes from the money made from those savings.
Good luck reaching your financial goals.