LWM

Savings

There are a lot of reasons to save money, we have talked about the emergency fund and that is the first place we want to start but we cannot stop there. After we get through with paying off our debt we will begin savings for several different things.

Don’t not get the cart before the horse here, I do not want you to start savings on these other things until you have your $1,000 emergency fund AND you have paid off all of your debts (except the house).

Sometime in the future you will retire, that is unless you die first and that is not an option I am willing to consider at this point in my life. Retirement will cost money and with the price of inflation it will cost more in the future than it does today so we need to plan for it.

Do you have kids at home? Do you plan on sending them to college? That too will cost money and we have to plan for those expenses. My kids are 19 and 21 so it is a little late for me to start saving for their college but there are things we can do and we will look at those in the weeks to come.

We can start by encouraging our children NOT to repeat the things we did and to stay out of debt by not getting into debt to begin with. I have told my children that they do not need a credit card and should not apply for one regardless of the “special promotion” the bank are offering. You know who pays for those promotions, right? You pay for them with your high interest rates so you would be ahead of the game if you just bought your own tee shirt or what ever they are giving away.

Now think about this, if you wanted a new cloths washer and dryer with the pedestals and all the fancy stuff you might have to spend $4,000 to get them. You could finance them through the store or your credit card at 24% and with payments of $211 a month for 24 months, at the end of the 24 months you would have paid a total of $5,064 for your appliances or you could put the $211 in your envelope fund for 18 months and pay cash for the appliances which would save you $1,064.

Did you know that if you started saving $100 per month (at 12% interest) from the time your turned 25 until you retired at age 65 you would have $1,176.000 in savings for your retirement? So the question is why are we not saving?

Here is another thing to look at, what do you spend money on that you really do not need and what could you have saved if you had avoided those items? For example if you are a smoker and spend $3 a day on your cigarettes you are spending $90 per month. If you invested that same money at 12% from age 16 to 76 you would have saved $11,622,000.

But not to pick on smokers alone… If you purchase a Starbucks coffee everyday at 45 you are spending $150 per month that same money invested at 12% over the same 60 years would have saved you $19,371,943.

Now I do not smoke or drink coffee so I guess I am okay, right? Not so fast…

If I eat out for lunch 5 days a week at an average cost of $8 per meal I would be spending $160 per month on lunch. That same money invested at 12% for 60 years would have netted me a retirement fund of $20,663,319.

And for those who are still having trouble wrapping your arms around potential savings let me share one more example with you:

If you were able to put $2,000 into a savings account per year at a rate of 12% from the ages of 19 to 26 and then stopped investing due to any reason that account would have $2,288,996 at age 65. If you started saving $2,000 per year at age 27 at the same 12% you could put $2,000 away EVERY YEAR until age 65 and still only have $1,532,166.

The point here is to start saving money and to start your kids saving early in life as well and then don’t stop! We will talk more about kids & money next time.


Feel free to send me a PM if you have questions or you can add them to the comments section if you feel others can benefit from the discussion.