You don’t need a fortune in order to start saving for retirement. You also don’t need to wait until your finances are strong enough where you feel you can afford to set aside hundreds of dollars every month. The reality is that even cutting $5 from your daily expenses can generate significant savings for you in the long term. Whether it’s not drinking that cup of coffee at Starbucks or cutting back on fast food, there are plenty of ways that you can potentially trim some costs from your day-to-day expenditures.
Below, I’ll show you just how much that $5 savings could add up to if you put that money into a Tax-Free Savings Account (TFSA) and invest in a stable dividend stock like Fortis (TSX:FTS)(NYSE:FTS).
How much you can make over 25 years
If you save $5 every day and invest that money, then that’s about $150 a month you’re potentially setting aside, and over a year that’s $1,800. Let’s assume that you save up $1,800 and invest that every year and buy shares of Fortis. The stock normally pays around 3.5% in dividends, and over the past five years, its share price has risen by 45%, averaging a compounded annual growth rate of 7.7%. I’ll use those assumptions moving forward and assume that the dividend income isn’t re-invested. Here’s how your portfolio might look over the years:
| Year | Total Contributions | Beginning Portfolio Balance | Growth | Ending Portfolio Balance | Dividends | Total Dividends | Portfolio + Dividends |
| 1 | $1,800 | $1,800 | $139 | $1,939 | $63 | $63 | $2,002 |
| 2 | $3,600 | $3,739 | $288 | $4,027 | $126 | $189 | $4,216 |
| 3 | $5,400 | $5,827 | $450 | $6,277 | $189 | $378 | $6,655 |
| 4 | $7,200 | $8,077 | $623 | $8,700 | $252 | $630 | $9,330 |
| 5 | $9,000 | $10,500 | $810 | $11,310 | $315 | $945 | $12,255 |
| 6 | $10,800 | $13,110 | $1,011 | $14,121 | $378 | $1,323 | $15,444 |
| 7 | $12,600 | $15,921 | $1,228 | $17,149 | $441 | $1,764 | $18,913 |
| 8 | $14,400 | $18,949 | $1,462 | $20,411 | $504 | $2,268 | $22,679 |
| 9 | $16,200 | $22,211 | $1,713 | $23,925 | $567 | $2,835 | $26,760 |
| 10 | $18,000 | $25,725 | $1,985 | $27,709 | $630 | $3,465 | $31,174 |
| 11 | $19,800 | $29,509 | $2,276 | $31,786 | $693 | $4,158 | $35,944 |
| 12 | $21,600 | $33,586 | $2,591 | $36,177 | $756 | $4,914 | $41,091 |
| 13 | $23,400 | $37,977 | $2,930 | $40,906 | $819 | $5,733 | $46,639 |
| 14 | $25,200 | $42,706 | $3,295 | $46,001 | $882 | $6,615 | $52,616 |
| 15 | $27,000 | $47,801 | $3,688 | $51,488 | $945 | $7,560 | $59,048 |
| 16 | $28,800 | $53,288 | $4,111 | $57,399 | $1,008 | $8,568 | $65,967 |
| 17 | $30,600 | $59,199 | $4,567 | $63,766 | $1,071 | $9,639 | $73,405 |
| 18 | $32,400 | $65,566 | $5,058 | $70,624 | $1,134 | $10,773 | $81,397 |
| 19 | $34,200 | $72,424 | $5,587 | $78,011 | $1,197 | $11,970 | $89,981 |
| 20 | $36,000 | $79,811 | $6,157 | $85,968 | $1,260 | $13,230 | $99,198 |
| 21 | $37,800 | $87,768 | $6,771 | $94,539 | $1,323 | $14,553 | $109,092 |
| 22 | $39,600 | $96,339 | $7,432 | $103,771 | $1,386 | $15,939 | $119,710 |
| 23 | $41,400 | $105,571 | $8,144 | $113,715 | $1,449 | $17,388 | $131,103 |
| 24 | $43,200 | $115,515 | $8,911 | $124,426 | $1,512 | $18,900 | $143,326 |
| 25 | $45,000 | $126,226 | $9,738 | $135,963 | $1,575 | $20,475 | $156,438 |
By year 25, you would’ve contributed $45,000, and your portfolio would be worth more than $150,000 when you count the returns and dividend income. And inside of a TFSA, all these earnings are also tax-free. It’s a long way out but this is also setting aside just $5 a day. Whether it’s cutting out a cup of coffee or other recurring transactions, you can see how quickly even a modest amount of money can grow over the years. You likely won’t be able to retire comfortable on $150,000 but it’s just one way you can supplement your savings and give you a bit more breathing room.
I use Fortis stock as an example here, because it pays you a decent dividend, and it’s a fairly stable investment. With a beta of close to zero, this is a stock that won’t move as widely as the markets will, which, for income investors, is important since it means its returns won’t be all over the place. This is an investment that can grow steadily over the years. There are certainly many other dividend stocks you choose from, but if you’re having difficulty selecting one, Fortis can be a safe option, as it gives you a great mix of stability, dividends, and growth.
Bottom line
Regardless of which stock(s) you choose to invest in, the point remains the same: saving a modest amount of money today can pay off later in life. In this example, I looked at a 25-year model, which means that even if you started putting money aside at the age of 40, you could achieve these results by the time you retire at 65. There are ways you can even accelerate these returns by saving more money or taking on more risk and investing in growth stocks that may not pay dividends but could deliver stronger overall returns.
