In light of Military Saves Week, let’s talk about saving for a bit. Yes, I more often than not talk about debt eradication. However, today let’s turn the tables and talk about compound interest working in our favor!
On Friday, I shared this article, “How a 1% Savings Boost Could Sweeten Your Retirement” on Facebook. This article demonstrates how investing just 1% of your income can make a difference in your retirement. It provides examples of different ages and incomes. Check it out.
Investing Small Amounts of Cash
What Does 1% Accomplish for the Median American Household?
Let’s consider the median income of an American household, which was $53,891 (2014). One percent of this income is just $49/month. Most of us could think of a few ways we could trim back our budgets or make a little extra money in order to “find” an extra $49/month.
Let us assume this person is 30 years old and will retire at 65 years old. Just $49 extra dollars per month will add $104,985 (assuming 8% returns) to his or her retirement! Less than $50/month and you end up with over $100,000! Isn’t compound interest AMAZING! I love when it is working for us and not against us!
This extra $104,985 will provide an extra $745/month in retirement (assuming expectant life expectancy of 100 years). Considering a 3% inflation rate, this is equivalent to $265/month in today’s dollar. This is not a huge amount, but it is plenty to keep groceries on the table or keep your utilities paid or make special trips to see your grandchildren. By sacrificing less than $50/month today, you could possibly ensure a “comfortable” retirement.
Where Can We Find $49/month?
- Call insurance competitors and make sure you are getting the best rates possible.
- Use one less tank of gasoline per month. Carpool, walk when possible and combine shopping trips.
- Avoid your favorite stores. When not careful we mindlessly spend $50 without even thinking about it.
- Eat 1-2 less meals at a restaurant each month.
- Switch your phone plans to a less expensive plan.
- Downgrade to basic cable or cut cable completely.
- Spend ~$10/week less at the grocery store by meal planning, couponing, stockpiling, buying generic brands, meatless meals, and not buying convenience foods
- Cut back on a “bad habit”: one less bottle of wine per week, 2 less packs of cigarettes in a week, less junk food, less gambling/lottery tickets, 2-3 less mochas each week, or whatever your “bad habit” might include.
Not Ready to Boost Your Retirement Investments?
You may be working hard to pay off your debt or saving up an emergency fund and are not ready to boost your retirement investments at this point. What would a “measly” $49 do to your debt? Let’s take a look!
The “Average” American household debt looks something like this (2010. last census performed):
- Revolving Debt (credit cards): $7630
- Student Loans: $11,244
- Auto Loans: $8163
- Mortgage: $70,322
What would that $49 do to this debt when applied in a debt snowball method. Only paying equivalent to minimum payments in addition to the $49…
The “Average” American could SAVE $28,367.81 in interest alone! Not only that, but they would be debt free 16 YEARS earlier!!! SIXTEEN YEARS and nearly $30,000 SAVED… with less than an extra $50/month!!!
Do you think you could find that “extra” $50 somewhere???
Where could YOU find $50 in your budget? Where are you going to apply it, savings or debt?
Use the debt calculator or retirement calculator to determine the impact of your 1% to your finances.
*Interest charges were calculated based on average rates from Bankrate.com on 2/23/15.