There are only two ways to have more money. Earn more or spend less. Spending less may be the easier.
There are ways to live as you want at a lower price. Sometimes convenience forces a higher amount but that is okay. What we want to avoid is careless and its brother thoughtless.
It is a skill you can learn.
Lifestyle is spending $30,000 per year after taxes at age 23 and increasing 7% a year to 35 and then growing at 3% inflation to the end of the 40th year. Cost of living then becomes 70% of the old number and continues for 20 more years. Assume a tax free savings account to accumulate the savings invested at inflation plus 1%.
So, what is a 3% cost saving worth?
Quite a lot actually.
There are two ways to look at it.
How hard would it be to get about 25% more pretax income for your retirement? Probably harder than trying to find a small saving in your monthly spending. A little hydro here. A little cable there. Clothing, credit card interest, negotiated mortgage interest, golf balls, a car’s fuel efficiency, magazine subscriptions and newspapers and, and, and. You get the idea. It is not such a formidable task. Extreme couponing is not required.
The 18% improvement in cost of living after retirement is from finding 3% of your unmanaged cost of living.
Higher saving gains are obviously much better. 5% saving is 30% more retirement spending, or $900,000 more security, or more for the kids. (Right!)
Start with what you spend now. In some detail. Could you save 3% of it with a little effort? Not enough to make you ruin your enjoyment of life, just enough to be money-smart.
I’m thinking you can and probably should.
I wish I had thought this through when I was 23.
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Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. Contact: email@example.com