I was reading over at Early Retirement Extreme a post about breaking down financial independence into smaller parts (I can’t find the exact post I was reading yesterday so if anyone knows please send me a link). Basically you take your saving to date and divide it by 25 and that is how much of your annual expenses you are financial independent on (you are basically using the 4% rule).
For example, if you have $50,000 saved, that would produce about $2000/year or $166/month. So out of my usual bills this would represent about my power bill ($55), water bill ($50), my wife’s cell phone ($11) and about half my internet/cable/ phone bill. So in order to cover the rest of my phone bill and my heat ($59+$90=$149/month) I need to save about another $45,000 to be financial independent on my basic utility bills.
Really this is only a mind trick of breaking down a huge goal of complete financial independence into smaller bits that are easier to deal with. Saving another $45,000 is a lot easier to think about than looking at saving another $450,000.
Yet there is another side to this trick, which is realizing of the cost to you of repeating expenses. For example, if you buy a coffee and a muffin every morning for breakfast at a cost of $4 per day, compared to making your own muffin and coffee for around $0.50/day.
In the first case that is an annual cost of $1460 which represent about $36,500 of your savings to pay for the in retirement. The second case costs about $182.50/year which represents about $4562.50 of your savings. For a difference of almost $32,000!
So every little choice on repeating expenses makes a huge difference to your savings goals. Just something to think about as you go through your day.