The $10 difference

Some of my coworkers find it amusing I "brown bag" to work almost every day. There are plenty of restaurants nearby--everything from fast food to fine dining. I think I'll be forwarding this story to some of them:

Little amounts can make a large difference to your finances.

There is often a false assumption that saving $10 and spending $10, although opposite, are relatively the same. ... It is... failure to understand the concept of compound interest and the dramatic effect it can have that greatly changes these results.

It's important to understand that it takes very little to start sinking into debt. For most people, spending $10 a day would not be considered extravagant spending by any means, but $10 can result in tens of thousands of dollars of debt. It's simple to see when you compare the results of what happens when one person saves $10 a day while the other spends $10 a day that he doesn't have.

If a person were to save $300 a month (approx. $10 a day) and invest it to get a 5% yearly return, that person would have $20,402 in the bank after five years. On the other hand, if a person ends up spending $300 a month more than he has and puts it onto a credit card that he doesn't pay off over the same 5 year period, that person will owe $36,259, assuming a 26% credit card interest rate. ((higher than the current average, but not an unheard-of rate -- Jemison))

After five years, the difference between saving $10 and spending $10 each day results in a $56,661 gap in net worth between the two.

One of the problems is people are more alert with large amounts than small... but many small decisions can easily outweigh a few large ones over time. My grandmother (who helped raise her siblings during the Depression) used to say it best: "take care of the pennies, and the dollars will take care of themselves."