Experience says that saving money is hard. There are so many good things to spend money on. The call of modern marketing is stronger than the sirens’ calls that lured Odysseus’ ship onto the rocks, and the cost of living keeps increasing. But it is that last comment about the cost of living that makes the need to save a “need” and not a an option. Social Security is not a retirement program, merely a supplement. And no one should expect Social Security to keep up with the cost of living – the most we can realistically hope for is that it keeps paying benefits at all. See Social Security Can’t Do It All – A Primer. Planning ahead, starting early, and developing a “saving ethic” is a wise path.
Are you average or better than average?
The average American retiree has saved a bit less than $100,000 for retirement by the time retirement is reached at about age 66. Taking the current life expectancies into consideration, that means each retiree can expect to add to planned retirement spending less than a whopping $4,170 per year! While that is not a meaningless amount at all, it also isn’t exactly a retirement supplement capable of treating a retiree to a great trip overseas or even around the state for long.
But how can I make saving possible?
But how can you save? We know it is hard, but start by saving a little bit at a time. See Ideas for Living Better Through Stewardship, 7 Steps for Financial Progress, It’s Time to Start Saving, Planning Your Financial Future and …, and Save More, 10% Isn’t Enough for a few ideas and examples. A little bit here and a little bit there add up. The key to making it work is one word – consistency. Make a commitment and keep it! Make the word “commitment” fulfill its dictionary definition:
Constantly adhering to the same principles, course, form, etc.
There is it – constant! Try starting at $25 a week. If you think that doesn’t add up, you are very much mistaken. Between the consistent saving and the investment of the money where it can beat inflation, you may be surprised how quickly it can add up. See 8 Financial Moves to Make in Your 20’s for a chart that shows how compound interest adds up over time.
Another way to illustrate this point is through a graphic illustration by CalculateMyWealth.com that can be seen here. That site proposes a simple means of saving. Save $6 a day by forgoing an expensive daily latte. $6 per day comes to $180 a month and over a work life of 45 years that is $97,000. If, instead, that same $6 a day was invested in a savings account at 2% interest, it would become $157,000 in the same 45 years. If, instead, it was half in savings and half in the stock market at the 10% (which is above the average rate of return for the past 20 years), you would have $494,000. If, instead, you invested only in the stock market and made a 10% return, you would end up with $1,848,000! Given the more likely return of 7-8%, closer to the true average over recent years, the amount would be less; “only” a little over $1,000,000. Regardless, let me ask, “Would you rather have a few hundred thousand dollars (or about a million dollars) at retirement or all of the pounds the calories in those lattes put into and onto you?
Is that all I can do?
You can even do more and much better. Take it a step or even two farther towards saving for your future. Increase the amount saved and you will find that compound interest will work as well for you in investing as it does for the credit card companies as they make money off people who don’t limit their spending. Instead of $6 a day, save $12 a day by finding another common expense you can cut. That adds up to $360 a month or $4,320 a year. The same figures enable you to end up with over $3 million at the end of 45 years.
But don’t stop there. When you get your next raise, allocate the increase to savings. If you get a tax refund, allocate it to savings. If you receive a cash gift, allocate it to savings. You may end up retiring early!
You also need to recognize that if your employer offers a match for 401(k) contributions, you should take maximum advantage of it and contribute at least the amount necessary to get the match. It isn’t “free money” because it is an employee benefit your employer is providing to you. But if you do not take advantage of a match, you literally are giving up an employee benefit that has real financial value; you are giving money back to your employer.
What’s the catch?
Here’s the catch. None of this works very well at all if you are inconsistent or if you withdraw money from your savings and investments. You must always remember that by decreasing your savings and investments or by not consistently saving and investing, you are stealing from someone – yourself in the future!
If you would like to discuss this and get more information, or discuss how budgeting can make this possible, give us a call at the Idlewild Foundation, (813) 264-8713. We would love to help.
About the Author
John Campbell has retired from a 40-year legal practice as a trial attorney in Tampa. He has served in multiple volunteer roles at Idlewild Baptist Church in Lutz, Florida, where he met Jesus. He began serving as the Executive Director of the Idlewild Foundation in 2016. He has been married to the love of his life, Mona Puckett Campbell, since 1972.