Budgeting makes me sick. I remember from college, grad school and even my first few years of practice how I would keep track of every single expense, enter it in Quicken every Sunday night, and remember the cost of almost everything. Ten years and three kids later, we have so many bills, so many things on auto-pay, and so many expenditures that I do not keep track of everything. So when I update our budget every three months or so, I see the spending creep and it makes me angry. Although I freak out on the inside, I usually do not do anything about it, whereas Christy almost always responds to my angst with her list of 3-5 monthly expenses that she wants us to cut (of course most are my expenses). This article is therefore a thought experiment on just how much the savings adds up from cutting different levels of expenses.

To keep the math simple, I am going to assume that we are dealing with a 40 year old who will earn a 7% rate of return on the saved money for the next 20 years before retiring, so we will look at the amount saved at the end of the 20 years.

I will start with Christy’s favorite, cutting cable for a savings of $50 a month. This could also be cutting two or three $15 a month expenses, or just going out to eat a little less each month. Saving $50 a month for 20 years is $12,000 saved, but when you factor compound interest at 7% a year, it ends up being about $26,200 of additional wealth.

While that looks good, let’s bump it up to saving $200 extra a month by cutting an unused gym membership, going out to eat 3-4 fewer times a month, selling a motorcycle or boat that is not used to pay off its debt, or some combination of things. Saving $200 a month over 20 years is $48,000 saved, which is great, but when you factor compound interest over 20 years, you end up with closer to $105,000.

Finally, lets look at the hardest thing to do, which is to buy much less house than you can afford. Buying a $400,000 house instead of a $600,000 will save about $1,000 per month on the mortgage (more when you factor taxes and insurance). Over 20 years, that $1,000 a month saved and invested will be about $524,000!

This little thought experiment has motivated me to try to find expenses, both small and large, that we can get rid of, as even the little things can really add up over time if you will actually invest the savings as opposed to spending it somewhere else.