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.
How much
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:
2007: $137/month
2008: $160/month
2009: $116/month
2010: $136/month
2011: $172/month
2012: $178/month
2013: $173/month
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.
Conclusion
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.
Maarten, I see the cost savings vs. gasoline, but I didn’t see the energy (electricity) costs that off-set the gas savings… what does it cost to charge? How similar or different is something like a Tesla?
Hey Mark, Hybrids aren’t charged like the Tesla or other EVs (Electric Vehicles). One could definitely debate where electricity for the Tesla comes from. One centralized well managed coal burning plant is probably still better than one million gas emitting vehicles.
All Hybrids do, is use excess energy (from breaking/going downhill) and put that in the battery. The electric motor “just” assists where it is most efficient. So the only energy source going into the car is gas, it just uses it way more efficient (our 10 year old Prius still gets 44 mpg). the money saved on gas is one thing though. It is what you do with the savings (or what we did) that makes the bigger impact. The returns on those saving have actually exceeded the savings themselves.
A great point, Maarten. Every saving opportunity can be a larger victory if you put your money to work for you. If you just use it to spend on something else, though, you’ve lost all that opportunity to leverage it into more. Sometimes that can be worth it, say you turn it into a bucket list item like a great vacation. But most of us probably don’t want to leverage our savings into fleeting things like more meals out or more clothes.
Thank you, yes savings don’t necessarily have to go into investments. Enriching your life with with great experiences, like a vacation, are perfectly good goals to save up for. Investing for the sake of getting rich cannot be the goal in itself. If you have time however to fulfill your goal, “parking” those savings in an investment can go a long way.
It dawned on me that the savings and returns on our Prius will actually pay for the next Prius (when the time comes to say goodbye to the old one).
This is a great way of looking at your savings Maarten. Take all those “little soldiers” (as Mr. Wonderful aka Kevin O’Leary calls them) you saved and put them to work for you. And it’s even more awesome when those little soldiers will pay for your next Prius. Great job!
Thx. Saving by itself can be somewhat boring but if you handle it well it can certainly pay off. I hope the new Prius is further down the road though. Ours only has 160k miles. I’m told the battery should last for at least 200k miles. Maybe a new “used” battery may add even more.
I love it, Maarten. Great analysis. And great example of purposeful saving. I got to admit when I was younger I equated saving with deprivation. But as I aged, I learned that the two were hardly mutually exclusive. And your Prius vs. the Camry “test” is a perfect example of this. Did your quality of life suffer at all by choosing the less expensive car? I can’t imagine that it did. Hail saving! Hail boring investments! Hail living richly!
Thank you. I’m far from being a minimalist but today I see saving as little victories. It means I did away with something I didn’t need to begin with. Quality of life didn’t suffer. Long road trips were a bit more comfy in a Camry (I say after our road trip to Washington DC this year). Not worth the extra money though.
We bought a Prius 1.5 years ago, a first generation, for $1500. It is a dream!! I’m sold 🙂
Sound like a deal. How many miles? Is it still on its original battery? When we first bought ours the stories were you had to buy a new battery every 5 years. Now we know better. Our first is approaching 180k and still does 45mpg.