Bill DeShurko

The following was written by Jim Kilgore, an Investment Advisor with 401 Advisor, LLC. Jim has been a welcome addition to the firm, adding a financial planning perspective to our practice. If you are interesting in the financial planning process for yourself, contact Jim at: Jim@401Advisor.com.

I wish I could tell you I have followed the advice I am about to give, but sadly I didn’t.  I am older and a little wiser now in my mid-forties, and I have six kids.  I am in the business of helping people with money, and so it is natural for me to take some time to write down some principles I want my children and my clients to learn and practice in their own life.  I’d like to make you aware of three things that are derailing people’s ability to save for emergencies, and squirrel away money for their later enjoyment during retirement.

It’s the Little Things

Almost every day I run across someone who tells me they don’t have the money to save for retirement after I just watched them spend $8 on a white mocha and a scone from a busy coffee shop.  Recently, I engaged a young lady in a conversation for several minutes to find out a little more about her and her spending habits.  She goes to that coffee shop almost every day and gets the same thing.  Next, I asked her about her lunch plans.  She said she usually goes out to a deli or a fast food restaurant to pick up lunch.  Having found out that most of her coworkers do the same thing, the wheels began to turn in my head.  It caused me to stop and think about the effects this is having on many people’s ability to save money.  Do they even know, they are chopping off their own feet?

According to a study conducted by the Simple Dollar, the average American spends $232 on meals away from home every month.  That dollar figure doesn’t include the swipes at the gas station for a candy bar and a soda, and it also leaves out the regular stops for a mid-afternoon coffee at a high dollar coffee shop.  In total the average person spends nearly $500 per month on quick convenience items throughout the month.  What could cutting this dollar figure down to say $200 add up to over a long period?  Let’s take a look.  

If you decided you were going to change your spending habits a little and take the monthly expenditure and reduce it to $200 per month over your lifetime, and save the rest in an investment account ($3,600/yr).  Saving what equates to your lunch money can add up to a significant dollar amount over time. 

The Tax Trap

I can’t tell you all the reasons people give for liking to get a tax return at the end of the year, but it happens all the time.  After learning just a little about personal finance several years ago, I realized how silly this is.  Many people would not argue that the federal government has severe spending problems.  I don’t trust them to use my money in a smart efficient way, and if I have to pay taxes anyway, why wouldn’t I try to hit my tax liability as close as possible each year.  Thereby getting the money in my paycheck throughout the year and putting it to use in the way I see fit. 

According to the IRS, the average income tax return in this country is $2,000.  If you average that out, it comes out to about $166 per month you are sending to the IRS for them to use all year at 0% rate of return.  Technically speaking you lost money because of the invisible tax called inflation on those dollars.  Let’s add that $2000 to the money we were saving from packing our lunch and see how that changes our retirement savings.  See the chart below.

If this is starting to make sense to you, then you can go to www.irs.gov and use their withholding calculator to help you estimate what you should have your withholding set to so you can pay the right amount of tax each year without giving them free use of YOUR money.

 The Car Payment

If you are not ready to run me out of town with pitchforks yet, this last point will bring the rest of the way.  According to nerdwallet, in 2018 the average new car payment was $530 per month and the average used car payment is $381.  New cars are great, and they smell good too.  Do you know what else is great?  Not spending $530 per month on a car every month.  I have almost always bought used cars and when you take your time to find one, you can find some great deals. 

Given the fact that many people have resigned to the fact that a car payment is an automatic this day and age, let’s look at what buying a used car and investing the difference would add to the total.  The difference between a new car payment and a used car payment is $149 per month.  So, let’s add that total to your already growing savings.  That added $1788 per year to your retirement savings and the changes can be seen below.

All the ideas I just shared with you, anyone can do.  I don’t care if you make $40,000 or $200,000 you can pack your lunch, make sure you don’t send the IRS too much money this year, and make wise car buying decisions.  Doing these three things and saving the difference for a long period of time adds up to a significant dollar figure. 

Don’t Give Up

What if you are already 40 years old and have not started saving for your retirement?  There is hope and it is not too late.  While the results won’t be as impressive as the chart above, there is no reason to abandon all hope.  The chart below shows you what you could save if you started saving at 40.

What are some of the ideas you have for increasing retirement savings?  Email jim@401advisor.com to share your ideas for possible use in future articles.

*Jim Kilgore is a financial planner and investment advisor with 401 Advisor, LLC.  401 Advisor, LLC is a Registered Investment Advisor, with the State of Ohio. The views expressed in this article are those of Jim Kilgore.