How to Find the Best Opportunities To Enhance Your Savings Rate

When I’m about to make a small purchase, I often remember a phrase Ben Franklin wrote, “Small leaks will sink a great ship.” I pause a moment and ask myself if the purchase I’m considering will truly add value to my life.

When we justify our expenses, I’d encourage you to take the following two steps we take when determining if those purchases were worth it.

Step One: If we’re not maxing out your pre-tax retirement accounts, then we consider all our current expenses as pre-tax.

This means if we pay $90 a month for a premium cable package, then that expense is actually $120 (with our 25% tax bracket). If you live in a state that taxes your income, then you would need to factor in the state income tax rate. In my home state of Illinois, this means $90 spent is income earned of at least $126.

Another way to visualize this is to imagine we are about to receive a paycheck with an extra $126. We can either elect to: a). place that money directly into our pre-tax retirement account or, b). receive $126 in income. If we go with option “a”, we’ll see our account go up by $126. If we go with option “b”, our employer will withhold the taxes owed on the additional income and we will receive $90.

Step Two: We add up the total monthly cost of an expense and then view that expense as an annual expense.

Using the same cable package example, if our cable bill is ‘only’ $90 a month, then we view that as an annual expense of $1,080.

Paying $90 a month for cable translates to an annual expense of $1,512.

By combining these two approaches we gain a better understanding of our cash flows and we are able to make an informed decisions. The decision to cut the cord is now easier to make when we see the full impact this way. 

While cable is the specific example here, what types of purchases are you making that may be long overdue for an overhaul? What types of purchases might you reconsider if you apply this double layered approach to identifying the true costs involved?

I decided to start 2016 by developing a new habit that will help me save me an additional 1%.

Ironing my own work clothes
I realized late last year how much money I was spending on dry cleaning. With at least a few weeks worth of dirty work clothes, I typically opted for a cab ride as I dropped off and picked up my clothes.

In 2015, I went to the cleaners a total of 16 times for an average cost of $60 per trip. Using the two step approach identified above, the true cost of having someone clean my clothes for me added up to $1,347 in one year.

After seeing this expense staring me in the face, I recognized a savings opportunity.

Time is Money
The biggest argument I had against ironing my own clothes was that the process took too long. Paying for dry cleaning made sense because I was able to spend an extra hour or two working on a project. As a “Big Four” Public Accountant, I was used to putting in hours on the weekend, so this made the most sense to me.

The foundation of this argument was simple – as professionals move up in a career, they look for ways to exchange money for more time. By freeing up more time, they now are able to work more hours and increase their overall income. This is what economists refer to when discussing “opportunity cost”.

Sadly, my Saturdays and Sundays post Big Four have typically been spent watching television or wasting my time on the internet. I wasn’t doing anything productive unless you count “Lazing on a Sunday Afternoon” as productive. In other words, my opportunity cost was nothing — I was doing jack shit.

I’m a believer in that we can not truly multitask; we can’t drive and text on a cell phone at the same time. Our attention will not be 100% in either location and we end up in the middle — a foggy gray zone that could be lethal.

My approach to ironing was different. I plugged into an audiobook and began ironing my clothes. For me, audiobooks become easier to listen to if I keep my attention focused on one task. If I lay back and listen, I find my mind wanders and my eyes look around the room. With my attention focused on the task at hand — ironing a shirt — I find my mind clear and primed for listening.

Was It Worth It?
As a first time “iron-er” (is that even a word?), I must admit, there was some major frustration. Right away, I realized that ironing shirts is fucking hard. I don’t know what I expected as it is a professional service that people pay good money for.

Several attempts and a few verbal outbursts later, I finally managed to get the hang of it. In the process I learned that ironing without a good starch spray is kind of like shoveling your driveway while it’s still snowing.

Learning curve aside, this new undertaking has me on track to save $1,347 this year. Even if we discount the start up cost of the ironing board, iron, & spray, my savings are over $1,250. What’s more important is that these savings don’t factor in the intangible benefit of being able to absorb that much more information via audio books.

Bottom line: I save money while simultaneously investing in my own growth and development. A Win – Win.

Finding 1% opportunities might seem small but even a 1% difference in our savings rate could translate to retiring multiple years earlier.

Is a daily coffee habit from a nearby shop worth multiple years of a life? Is that nicer car worth five years?

The final decision comes down to what we value — what makes us happy and enjoy life. If we choose to cut spending in one area of our life to improve the quality we receive from another, then that’s a success worth celebrating.

– Matt
Master Distiller

9 comments… add one
  • Johnny @ May 2, 2016, 8:58 am

    Thinking about expenses on a pre-tax basis is a smart way to conceptualize how much money you’re really sacrificing by not maxing out your retirement accounts. I’d never quite made that leap, good idea!

    It’s all about people sometimes forgetting to value future you on par with current you. If you can make some easy sacrifices (I’ll jump on the iron my clothes bandwagon if there’s room) you can be in much better shape down the road!

    • Distilled Dollar May 2, 2016, 9:34 am

      Ironing has been awesome! I still look forward to it each time even though it takes me about 10m/shirt and so about 3 hours to get through all my shirts. That’s three solid hours I have to learn!

      Yep, I wonder why we don’t value our future selves on par with our current state. Sometimes when making a tough choice, I think to myself, ‘what would I think in 10 years time,’ and it usually works to help clarify what I should do. That being said, the ‘should’ doesn’t always translate into what I end up actually doing, but that’s all part of trying to get better each day/week.

  • Ty @ Get Rich Quickish Jun 7, 2016, 12:58 pm

    I hate ironing with the passion of a thousand burning suns – yet I do weekly. I need a jeans a t-shirt job.

  • Lynn Ling Aug 9, 2016, 6:41 pm

    I like how you see step two. But for step one, it seems too much to me. Our tax here are tiered so the mental calculation have to change as time goes by. Second, It became a question of do we buy the item because of the cost instead because we truely wants or need it. To me, that kills the joy of spending.

    • Distilled Dollar Aug 11, 2016, 8:41 pm

      Very true. I would basically put “need” items ahead of any of this. Even if they border on the line of those F-you type expenses, I still think its healthy to be proactive and make money a source of good.

      I think the more sustainable approach is 90% with 10% built as the FU funds (expanding slightly past the need category), instead of 100% savings.

  • Kevin Mathew Apr 26, 2017, 1:21 pm

    It seems that personal finance is a way of life, and requires a shift in mentality and priorities. With that said, the calculations of $spent vs $earned is a novel idea that puts expenses into perspective.

    For saving time on being an “iron-er,” have you thought about minimizing your wardrobe? I’ve read books and articles around reducing decision fatigue by down-sizing one’s wardrobe. There’s a psychological benefit to reducing the number of decisions you make, and you can save time with few clothes to maintain.

    • Distilled Dollar Apr 26, 2017, 1:27 pm

      I love the Steve Jobs concept of a work uniform, but I haven’t taken that plunge yet.

      Regarding decision fatigue, most of my work clothes are about the same, but I do see your point. To further help out, I pick out what to wear the night before and that helps my mornings go 1% smoother.

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