Retirement may seem a long way off, but taking seemingly small steps now can make a big difference in the future.

The Time value of Money

As Ben Franklin famously said, "A penny saved is a penny earned". That statement could not ring more true than when you are saving for retirement. Investing in small increments now can pay big dividends (literally) in retirement. See our previous article about time in the market here. I would define small steps as things that don't negatively affect your current quality of life. No need to become a miserly hermit in order to save up for retirement. Below I will look at 5 mistakes that you can avoid and save an extra $500,000 for retirement.

TV vs Retirement

What's more important to you, having every TV show available or having a comfortable retirement? The average American family now spends $217/mo on their cable/internet bill. If you add in all the streaming services we love today, the total is likely much more. Cutting back on this may not seem like it will make a big difference in the long run, but for a 40 year old couple who plan to retire at age 65, cutting this down by $100 per month could provide an additional $66,000 at retirement. And that still leaves enough to get strong wifi signal and multiple streaming services where you can find most, if not all, of your favorite shows.

The price of that New Car Smell

We all know that used cars cost less than new cars, but who doesn't like that new car smell? That scent is one of the most expensive scents in the world! If we compare the price of a new (2020) model of one of the most popular large SUV's to the same model two years older (2018) the difference is astounding. The newest vintage will cost you $20,000 more than one just two years older. And if you were to finance that car (which I don't recommend) the difference in payment would be $300 per month! If you bought the less expensive version and invested that difference for five years and then let it sit invested until retirement, that could be another $65,000 to enjoy! Considering you would likely purchase a car at least twice before retirement would mean $130k toward your retirement.

Coffee, Tea, or Retirement?

According to the Motley Fool investing site, 1/3 of Americans spend more on coffee than on investing, for an average of $1,100 per year. Easy to lose track of with certain coffee chains charging over $5 per cup for their specialty blends. Making your coffee at home gives you a big economic advantage. Investing the difference from age 40 to 65 at a moderate 6% interest rate can set you up with an additional $66,000 in retirement. That's a lot of "grounds" for celebration, don't you agree?

The High Cost of Higher Education

There are many factors to consider when choosing which college or university to send your child. Unfortunately, affordability often isn't often one of the top factors families use in determining where they will go. The difference in needed monthly savings to help your current 8 year old get a four year degree at a state school vs. the average private school is $677/mo. ($282/mo vs $959/mo in needed savings if you start now). Investing that difference in a retirement account for the 10 years until they go to college then letting it sit until retirement means a difference of $170,000 in your golden years. And that's just child #1! And you still invested in their future by helping them get a quality degree.

Credit Cards

I saved the most detrimental for last. Credit card fees and interest payments can rob you of a more successful retirement. The average family carried over $6,100 in credit card debt as of June 2020. (Nerdwallet ) mainly due to overspending and not having a proper emergency fund. The average interest rate is 14.5%. Making the minimum payment would cost you more than $7400 in interest over the 22 years it would take to pay it off! Getting on a budget and having a fully funded emergency fund can avoid these charges and add $50,000 to your retirement.

The big picture

These small changes add up to a big difference. $500k additional retirement savings could provide that incredible lake house, or (at a recommended 4% withdrawal rate) mean $20k a year to travel (an extra 2-3 AMAZING trips per year) or to spend on your hobbies.

Where do I start?

While each of these are small changes, the overall picture can be overwhelming and cause us to freeze in our tracks. If you are unsure, it is time to call in a professional (for help in deciding which type click here for our previous article on that subject). A financial coach can help you with budgeting, getting an emergency fund in place and planning for savings. No matter what, there is no better day to start than TODAY! Let us know how we can help!

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