How much money would you end up with if you saved $1 every day for a year? This seems like a simple calculation, but carefully thinking through the details reveals some interesting insights. In this article, we will walk through the math step-by-step to find the total amount saved. We will also discuss factors that could affect the final result and alternative ways to think about this calculation. Understanding the mechanics of savings and compound interest helps build good financial habits.
Quick Calculation
Let’s start with a quick approximation:
- There are 365 days in a year (ignoring leap years)
- We are saving $1 per day
- So saving $1 x 365 days = $365 total saved
So our quick answer is that saving a dollar a day for 365 days results in $365 saved by the end of the year.
Detailed Calculation
Now let’s look at this calculation more carefully. Specifically, we will account for compound interest, which will increase our total savings over the year.
Here are the details:
- There are 365 days in the year 2023
- We save $1 on day 1
- We save another $1 on day 2
- And so on, saving $1 each day
- We deposit each day’s dollar into a savings account that earns 1% annual interest, compounded daily
- So each day, we earn 1%/365 = 0.0027% interest on our balance
- On day 365, we calculate the final amount saved plus earned interest
Let’s walk through an example of how this would work over the first few days:
| Day | Amount Saved | Balance | Interest Earned |
|---|---|---|---|
| 1 | $1 | $1 | $0.000027 |
| 2 | $1 | $2 | $0.000054 |
| 3 | $1 | $3 | $0.000081 |
On day 1, we save $1, earn $0.000027 in interest, and have a balance of $1.
On day 2, we save another $1, earn interest on our $1 balance, and have $2 total saved.
This pattern continues each day for 365 days. The balance and interest earned gradually increase. On day 365, we would calculate the total balance including all interest earned to find our final result.
Calculating Final Amount
Rather than showing the full 365 days, let’s jump to the final amount on day 365.
Using a compound interest calculator, we find that the future value after 365 daily deposits of $1, at a daily interest rate of 0.0027%, results in a total balance of $365.25.
So accounting for compound interest, saving $1 a day for a full year gives $365.25 by the end of the year. This is a bit more than our quick estimate of $365.
Factors That Could Change the Result
In the detailed calculation above, we made some assumptions that resulted in a total of $365.25. Here are some factors that could potentially change that final number:
Account Interest Rate
The interest rate earned on the account holding the savings impacts the total amount. We assumed a rate of 1% APY compounded daily, which is reasonable for an online high-yield savings account. However, rates could be higher or lower, changing the outcome:
- 0.5% APY would give around $365.13 total
- 1.5% APY would give around $365.38 total
- 3% APY would give around $365.63 total
Higher interest rates compound to higher returns, while lower rates reduce the final amount.
Frequency of Deposits
We assumed deposits were made each and every day for 365 days. Missing some days would result in less money saved. For example:
- Depositing $1 on only 300 days would give around $300 total
- Depositing $1 on 330 days would give around $330 total
So the frequency and consistency of deposits impacts the end result.
Amount of Each Deposit
We assumed a fixed deposit of $1 per day. Saving a higher amount each day would change the totals. For example:
- Saving $2 a day would give around $730 total
- Saving $5 a day would give around $1,826 total
- Saving $10 a day would give around $3,652 total
Saving more money each day leads to higher final balances. The daily deposit amount can significantly impact the outcome.
Length of Time Saving
In our calculation, we assumed savings for a full 365-day year. If the saving period was shorter or longer, the totals would differ:
- Saving $1 a day for 180 days would give around $180 total
- Saving $1 a day for 5 years would give around $1,826 total
A longer period of consistent saving allows interest compounding to build up over time.
Alternative Formulas
While we used a compound interest approach above, there are a few other ways we could calculate the total for saving $1 a day:
Simple Interest
The simple interest formula does not account for interest compounding and would just be:
- Principal amount = $365 (365 days x $1 per day)
- Interest rate = 1% annual interest
- Time period = 1 year
- Total = Principal x Rate x Time = $365 x 0.01 x 1 = $365.65
So with non-compounding simple interest, the total would be $365.65.
Future Value of an Annuity Formula
Since deposits occur at set intervals, this can be viewed as an annuity. The future value of an ordinary annuity formula is:
- Future Value = Payment x [(1 + Interest Rate)Periods – 1] / Interest Rate
- FV = $1 x [(1 + 0.0027)365 – 1] / 0.0027 = $365.25
This gives the same result as our daily compound interest approach.
Sum of a Geometric Series Formula
The deposits form a geometric sequence that can be summed. The formula is:
- Sum = (First Term) x (1 – Common RatioTerms) / (1 – Common Ratio)
- Sum = $1 x (1 – 1.0027365) / (1 – 1.0027) = $365.25
Again, the same total as compounding daily interest.
Conclusion
Saving a small amount like $1 every day can really add up over time. Simple daily habits, compounded over months and years, lead to significant financial growth.
Based on our detailed calculation using daily compound interest:
- Saving $1 a day for 365 days results in $365.25 total saved
- Interest rate, deposit frequency, amount, and time period impact the total
- Alternative formulas like simple interest, annuity, and geometric sequence also work
- Small consistent actions compounded create big results
Establishing steady daily savings, invested in accounts earning competitive interest rates, lets you take advantage of compounding to grow your money. Saving just $1 a day demonstrates the power of consistent disciplined investing over time.
Key Takeaways
- Saving $1 a day for a year results in around $365 total saved
- Factoring compound interest, the total is $365.25
- Higher interest rates, more frequent deposits, higher deposit amounts, and longer time periods increase the total
- Making small consistent daily deposits lets compound interest work in your favor
Use this explanation of saving $1 per day as motivation to start building daily saving and investing habits. Small amounts add up over time through the power of compounding interest!