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SENTENCES THAT BEGIN with “I can’t” drive me nuts—and I especially dislike the sentence, “I can’t save.”
“Pish-tosh,” I say. Every household in America earning at least the median income can save for the future. If they try hard, many lower-income Americans could also save.
Of course, the amount saved will vary, but even small amounts can help over the long haul. If a household earning $40,000 a year can sock away enough to generate $300 or $400 in monthly retirement income to supplement whatever they get from Social Security, that’s significant. Saving early and regularly quickly makes life far less financially stressful.
How can I be so confident that most Americans have the ability to save? Look around at the many nonessential businesses—including entertainment companies—that are sustained by the spending of the average American. I don’t advocate living like a hermit. But a touch of frugality and a sense of spending priorities wouldn’t go awry.
Last year, I wrote about the ways many people waste money. Earlier this year, I suggested “financial fasting” as a way to accumulate funds to start investing. But enough of theory. Let’s look at some numbers. For the 10 examples below, I assume a 40-year saving period, with those savings earning a 5% annual return.
1. The pause that refreshes. It amazes me how much soda makes its way into shopping carts. Americans consume 39 gallons of soda per person per year. Who needs all of that? Where I live, a case of 12-ounce cans is about $25. Skip one case a month and you can accumulate $38,000 in 40 years.
2. Light up (or not). Yes, smoking is down. But there are still 34 million smokers and they spend an average $6.28 a pack. Eliminating one pack a day will get you $291,000 after 40 years. Do that in New York City, where cigarettes are even more expensive, and you’ll be in a penthouse in Palm Beach at age 65.
3. Your turn. Video games are big business. Americans spend about $43 billion a year on games. The average player is in his or her mid-30s. Assume a player skips buying just two new high-end games each year. That will net about $11,000 for retirement.
4. Ink. A skilled tattoo artist earns around $200 an hour. The cost of a tattoo ranges from $30 to thousands. About a third of Americans, most of them under age 55, have at least one tattoo. Those with a tattoo typically have more than one. Let’s assume a onetime total tattoo cost of $500. Skip that and you’ll add $3,500 to your pot of gold.
5. Fluffy or Fido. Nobody is giving up his or her fur baby to save money. But if you aren’t already supporting that dependent to the tune of $1,000 a year, avoiding the expense could get you $127,000 for retirement.
6. Transportation. Most people can get around town without a pickup or an SUV. Save $100 a month on your car payments and retirement gets easier with an extra $152,000.
7. Caffeine fix. Give up one grande caramel macchiato at $4.50 a week and you can add another $30,000 to your financial security.
8. What’s the special? Hey, we all enjoy a good meal at a nice restaurant once in a while, just make the “while” a tad further apart. Skip one night out a month, so you save perhaps $35, and you’ll be dining in luxury at age 65 with an additional $53,000.
9. Cash in hand. Literally, that is. This is my favorite strategy and maybe the easiest: Simply save your change. Let’s be conservative and say 75 cents a day goes into a jar. After 40 years, almost $35,000 will be in your bank account.
10. You betcha. News flash: You aren’t going to win the big lottery and those occasional $30 “pick four” wins will be easily offset by your losses. While reports vary, it seems adults spend an average $1,000 a year on state lotteries. Invest that in a surer thing and you’ll have $127,000 in retirement.
Don’t laugh. I know some of these daily and monthly amounts are modest, but they add up. Saving and investing is possible for just about everyone. The power of compounding is real. Indeed, if you followed all 10 of my examples, you’d have some $870,000 after 40 years.
Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include Taking Credit, Do as I Don’t and About That 4%. Follow Dick on Twitter @QuinnsComments.
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11. Move to a state/community with lower taxes…savings ?
I always cringe when there is mention of moving in order to save or live in retirement. I live in one of the highest cost and tax states. My family has been here since 1840s I don’t want to move, but on the other hand I don’t like paying $13,000 property taxes on my condo either. People being forced to move to live comfortably is a sad commentary.
Absolutely right! It’s a simple strategy called living beneath your means. My wife and I followed this approach for decades. We didn’t live poor, just modestly. We retired in our late fifties while many of our big income big spending friends continued to work.
I listen to people who tell me how tough it is getting by let alone saving and then I look at all the possessions they and their children have … and I have to bite my tongue. One of my grandchildren was at my house recently and observed “gee Pa, you sure have a small television.” Yup, and no debt too.
I enjoy your reason Richard. Perhaps because it’s similar to mine. (Confirmation bias) How as a young person do you save one million dollars for retirement? $1 @ a time. How do you save five million dollars for retirement? $5 @ a time.
Too bad so many young people can’t figure that out.
What is cash? 🙂 I rarely used it before the pandemic and haven’t made a single cash transaction since it began. In addition to the move away from cash people now don’t want to handle cash that might be contaminated.
Like many others here, I have always had a frugal mindset. However, frugality can be carried too far and I think cutting ourselves some slack in this regard is money well spent if it helps us cope with the pandemic.
I agree with cutting back wherever you can (and pushing past your comfort zone), and I do this myself. But lately, I’ve come to realize that it is possible to be too frugal. I used to feel a lot of guilt for spending any money that was non-essential. A little bit of this is good as it keeps me from becoming wasteful. But taken to an extreme, it just leaves you feeling bad about yourself, and at least in my case, was also making me judgmental of others’ purchasing decisions.
So I’ve decided to lighten up a bit. So what if someone else decides to shell out a few hundred dollars for a tattoo? That’s their prerogative, and in the scheme of things it really won’t make much of a difference. Will having an extra $10,000 really matter when you’re sitting on a 7-figure nest egg? Also, if someone is frugal 98% of the time, I think they can justify indulging on occasion (within reason of course). The key is living below your means and to make spending decisions deliberately and with careful consideration.
Yes indeed, if most people did that they would be able to come up with the famous $400 we hear so much about 🤑
So I guess I do pretty well according to the list. I don’t drink soda (or alcohol anymore), don’t smoke, I’m not into video games, and I don’t have a tattoo. We do have one fur baby at the moment and I drive a 2003 Ford Ranger. I enjoy a good Starbucks coffee every once in awhile, but I brew a lot of “good” coffee at home. I’m not giving that up. I’m usually disappointed in a meal out for what it costs, but I love to cook at home. My vice is I like to play golf, but I prefer walking and on our local municipal course. I’ve never personally bought a lottery ticket, but to each his own. I just try to live beneath my means and pay into my retirement accounts first. It’s been working for us so far.
Sounds like you are on your way to $870,000😊
I take your points. But while sugary soda is bad for your long-term health and should be avoided, where does a 12-pack cost $25? Maybe $5, and often much less. You’ll save by avoiding it, sure, but nowhere near $38k. And the moralizing on small weekly/monthly purchases and other items is a bit much. Focus on right-sizing the big stuff – housing, transportation – and you’ll won’t need to sweat the small stuff. The problem is that the big things are a higher percentage of the budget for lower income folks.
Are you reaching your savings goals by focusing on housing and transportation alone and not sweating the small stuff?
I was about to post much the same thing. Housing and Transportation are where you are going to free up the cash flow to enable savings. The next tier of savings is stuff like Insurance, gym memberships, clothes, which can also drain cash flow if one isn’t astute. Saving on that latte is largely going to be gilding the lily, but for someone like me who doesn’t like coffee – I do like my lilies with gilding!
I don’t mean to say small savings don’t matter, they do… but their impact tends to be marginal, and no one should feel guilty indulging in things that bring them joy… as long as it really does do so.
Now, we have our areas of savings to be sure:
– Never spent a penny on a TV until our late 40’s. We took everyone’s castoffs.
– Haven’t had cable since we were late 20’s, except for when they gave it to us free.
– We bought new cars, 2 base models at good prices… and drove them 20 years until they died. Very low TCO. (We now own used cars.)
– We have refinanced on multiple occasions to both knock off time and knock down rates.
– We payed down our business loans years ahead of time.
But…
– We borrowed from our heloc to take family vacations when we otherwise could not have afforded it. Don’t regret a dime that we spent. Probably should have indulged more.
– Participate in rec leagues all year round. Our family loves sports.
– No budget on books. I do use the public library, but if I want a book, I buy it (with one exception, but that was about value for the dollar.)
For our age group and income range, we appear to be in the top 5% of savers from data I can find, which I say only to show that we are serious about saving.
More about the flip side:
– A recent study indicates the gap in net worth between rich and poor is primarily determined by the starting point – not behavior. Obviously there are exceptions, and we love to notice those exceptions and point them out, but they remain exceptions. Several studies on social mobility as well as family income over generations bear this out. (Though inheriting too much is generally counterproductive, as many other studies show.)
– Other studies have shown that for people below certain income thresholds, social capital has greater value than financial capital. So they act (rationally) to maximize social capital. Rational behavior is hard to recognize when measured with the wrong yardstick.
Richard’s column specifically points out he’s addressing those of near average income or greater, so I want to be clear that I’m not trying to criticize him or his article. My intent is simply to bring awareness to a very misunderstood topic.
Amazon has a case of 20oz Coke for $46.00
Richard, your article has a lot of great examples for people to think about.
I believe the important thing for most people to remember when they read a list like this… if you love your latte, and it makes your every morning, buy it. Do not feel guilty about it. Save on something else.
Find something you don’t or shouldn’t use that much and eliminate that expense. You’ll soon find out if it’s something that is essential to your life… or not. For me, that was Cable TV, for example. For others, it’s something else. Good luck finding those savings!
I remember when my husband and I were in grad school and really pinching pennies, we’d still buy good coffee beans to brew at home. We weren’t going out for lattes, but we weren’t going to drink Folger’s from a can, either.
We’re not on a tight budget now, but one thing I’ve discovered in the pandemic is that I can accomplish things much more inexpensively. I was taking private sessions at a local Pilates studio, and it wasn’t cheap. I loved my instructor and knew it was good for me, so I didn’t worry about the price tag too much—we can afford it. But then March hit, and the studio closed for months (still closed), and I found a good online workout program I can do at home for a tiny fraction of the Pilates cost. I don’t know that I’ll ever go back to those twice-a-week private sessions. Cooking nice weekend brunches at home (and mixing our own Bloody Marys or mimosa) instead of going out also comes to mind.
Right, there are many options. These are just examples. My basic point is that unnecessary spending should come after accumulating a emergency fund, and having a retirement savings plan in place.