Here’s a $1 million idea: making breakfast and lunch at home every day rather than eating out has the potential to generate seven figures in retirement savings.
A 25-year-old woman who eats breakfast at home and pockets her lunch can save an extra $10 per day. Invested in a retirement account that generates an average annual rate of return of 8 percent, those savings could generate more than $1 million by age 67.
This hypothetical example shows how making small changes in behavior can ultimately lead to big results, according to Elaine Sarsynski, executive vice president of MassMutual Retirement Services. This is particularly instructive with regards to retirement savings, he says, because many Americans think they do not have the money to contribute to their employer’s retirement plan such as a 401(k), 403(b) or 457.
“Many of us never think twice about how much we are actually spending on expenses like eating out, the interest we pay on credit cards, or even the cable channels we no longer watch,” says Sarsynski. “If you track your expenses and think about what you really need, many of us can find money to save and invest.”
Farnoosh Torabi, bestselling author and financial planning coach, agrees with Sarsynski’s assessment and recommends a few personal and household expenses to check for potential savings:
* Order in large expenses. If your monthly rent or mortgage takes up more than 25 percent of your net salary, find ways to cut back on this big expense. If you have a mortgage, refinancing may be an option. Tenants can sometimes renegotiate lower rents because good tenants are hard to find.
* Cut costs smaller. Chocolate bagging is one way to save. Track all of your expenses to determine where else you can cut back. It’s astonishing how extra costs like a $3 latte and $10 iTunes download can add up.
* Stick to cash. Using cash rather than credit can save up to 20 percent. Not only will you be charged less interest, you may end up holding off on some fees until you have cash.
* Attack high-interest debt. Credit cards are generally the most costly debt so pay off this debt as soon as possible. When you are debt free, continue to pay the same monthly amount into your retirement plan.
* Get professional tax help. If you are middle-aged or older, depend on a certified public accountant to be sure you take advantage of all credits and tax deductions that come from having kids, owning a home, or contributing to an IRA. Put your tax savings or rebates in your retirement account.
* Throw away unnecessary baggage. As we age, we tend to collect more things than we need or can fairly use. Consider saving by downsizing to a smaller home, selling extra cars you no longer use, and clearing out your basement, garage, or attic by selling unneeded home items in a tag sale.
* Cut the wires. Double check your cable TV channel list; You may find that you pay a premium price for channels you barely watch.
* Spend time rather than money. It’s at all times tempting to pamper grandchildren, nephews with gifts. You can save money by cutting back on gifts and giving kids what they truly want: your time and attention.
“We all spend more money than we realize on things that don’t necessarily contribute to our happiness or quality of life,” says Torabi. “By keeping a close watch on our spending, most of us can find money to contribute to our retirement plans and, ultimately, improve our quality of life when we are no longer working.”
For more information on planning your retirement, visit www.RetireSmart.com.
