How much do you spend on goods throughout the year? What if you saved an average of 10-25% on everything you HAD to buy and put the savings aside for the future? We will explore some of the numbers and potential you have!
Interesting facts:
$20,748 is the average American's discretionary income per year according to the Bureau of Labor Services (BLS)
$19,700 is the average yearly mortgage payment in California according to CA Dept. of Finance
The average monthly car payment in America is about $500. Assuming you have two cars that comes out to $12,000 per year
A family of four generally requires $800 per month for groceries which comes out to $9,600 per year.
The numbers above actually are staggering when added up and in combination with all the other necessities like fuel, electricity, water, taxes, energy drinks, and of course the weekend beer!
Step 1. Bargain shop when spending "fun money", clothing, and groceries.
There are so many options out there to cut out 10% nearly immediately. If you are going to splurge and go out for dinner and a movie, maybe plan dinner around a happy hour time. You can also use apps like "Groupon" to book fun activities in advance for sometimes half the price!
Clothing is another necessity for most Americans. Do you have to buy that Gucci tee shirt today? I would be willing to bet that it'll be on sale in three months... and of course you can go straight to Amazon and find it cheaper immediately. Shopping can still be fun. Turn your shopping trip into a fact finding mission. Browse, window shop, and make a list of what you actually need and what you actually want. You would be surprised how your opinion will change when you get out of the mall's constant (and effective) advertisements and promises of instant gratification streamed directly into your brain.
Eating keeps us alive, there is no escaping that! But like the mall, grocery stores are aggressively advertising to you from the second you walk in: from the placement of products to the colors of packaging. Making a list and sticking to it is imperative. Go in like a special agent and evacuate the hostage foods before detection! You can take back-up too... coupons. They magically appear in your bag every-time you check out, then they follow the bag to the trash. If it's a product that you know you will have to buy again, why not hold on to them and save a dollar here or there... it adds up! There are many other tools to saving at the grocer, but I'll leave you with this last one. BUY THE GENERIC STUFF. Sometimes it's actually made and packaged by the same name brand stuff, but labeled generically.
Step 2. Less car = more money.
Everyone's car requirements are different, but there are a few ways to save. Firstly, if you don't need a car payment, don't have one! Whether you can buy a (gently used) car outright, or you managed to pay yours off... keep it that way as long as possible. That can instantly pocket you up to $12,000 per year. Do you need two cars? That depends on your situation, but if you only have one car you save in fuel, payments, insurance, and maintenance. Around $6,000 per year. And finally, if you are in the market for a new car make sure you have expectations and budget in mind before shopping. Certified pre-owned cars save at least 10% off the top, still carry a warranty, and are scrutinized prior to sale. Of course don't let status be a factor... keeping up with the Jones' will only cost you more. While they are struggling to retire, you will be laughing to the bank, literally. Did you know one of the most common cars for millionaires is a five year old Ford F-150? You don't have to show your status, earn it and keep it.
Step 3. Less house = more money.
This is tricky because home prices vary from place to place, and peoples requirements vary. A report just came out that says Baby Boomers are staying put in their large houses instead of downsizing. Two people in a four bedroom house may be too much to maintain, and a waste of time, space, and money! Living in a house that is simpler can easily save 20% of your monthly mortgage expenses. Not to mention more time for friends, family, and relaxing.
A lot of words that may sound obvious lead us here... how much saved, what to do with the money, and what it can be in 30 years.
We will use 15% annual savings (not total savings, just bargain savings)
$9,300 per year saved
$279,000 in 30 years
Now if that was invested in a retirement account with a 7% rate of return, it would equal... drum roll please!!
Approximately $900,000 in the bank.
I would not mind an extra million dollars going into retirement. And this does not include what you may be putting away into stocks, 401(k), IRA, etc...
It is never too early or too late to get on track. The smallest changes in your spending activity today can make mountains of difference for you and your family as you go into retirement.
Do you need help making a plan? Contact us directly at barry@bdo-financial.com or rebecca@bdo-financial.com or call at (805) 434-6971