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How Can Millennials Save a Lot: Look to The Eating Habits of Baby Boomers

By Posted on In Finding Confidence, Saving, Uncategorized

Recent reports show that the average baby boomer spends less eating out than millennials. On average baby boomers spend $2,386 per year eating out, while the average millennial spends $2,639.  For baby boomers, 37% of  every dollar spent on food is spent outside their home, while the figure for millennials is closer to 43%.

This got me thinking…

If millennials, reduced their out-of-home food expenditure to what baby boomers spent eating out ($253) and instead invested that money in the market at 9% per year, they would have close to $35,000 when they retired.

This simple step of saving less than $5 a week can really add up over time.

 

eat like a boomer

Case Study: Tapping into Retirement During an Emergency

By Posted on In Rule of Thumb, Saving, Uncategorized

Recently we worked with a client who needed about $50,000 for an emergency expense. He was in a bind and didn’t have much in his checking or savings accounts. His only option, he thought, was to tap his IRA.

As we explained to the client, there are a lot of drawbacks to using IRA funds before retirement:

  1. If taken out early, the client would be subject to income tax (maybe 20%) plus a 10% IRS penalty. A $50,000 withdrawal would trigger $15,000 in taxes and penalties. The client would end up with only $35,000 after taxes.
  2. There are very few hardship distributions allowed in an IRA.
  3. There is almost no way to put the money back into the IRA after it has been taken out.

As a solution, we advised the client to look to their 401(k) with their employer. Specifically we advised the client to borrow money from their 401(k). With this arrangement it does not trigger income taxes and there’s no penalty, but it has to be repaid in 5 years and the client has to pay interest, in addition to many other restrictions.

We almost always advise against taking retirement money in any way (including borrowing from a 401(k)). But in this case, the client was in a real tough bind and this became the only sensible option.

 

How to Become a Millionaire: Take Advantage of the 401(k) Match

By Posted on In Saving, Uncategorized

Taking full advantage of your employer’s 401(k) match can be one of the best strategies to save for retirement. In a study of 401(k) millionaires in Fidelity Administered plans, most took advantage of the employer match. In fact, 28% of the balances came from their employer. That includes the employees contributions and the growth of those contributions.

Check with your HR department to make sure you are getting that match – it’s free money! And then continue to check every year to make sure your are still maximizing the match offered by your employer.

Are You Spending Too Much On Coffee?

By Posted on In Saving, Uncategorized

If you’re like the average American who regularly buys coffee, you spend close to $1100 a year on coffee (Source). That breaks down to about $4 a day, every weekday. Over time, that really adds up. At the end of 30 years, you’ve spent over $30,000 on coffee.

Talk about too much caffeine! Will you look back and wish you did something different with that money?

Here’s what happens if you did: Instead of a daily coffee run that runs about $4 each weekday, you take that money and invest the savings every year for 30 years. At the end, you could have a portfolio worth close to a whopping $180,000 (assuming a 10% rate of return, which is fairly realistic, given the S&P 500’s arithmetic average rate of return was 11.29% between 1964 and 2013) (Source).

Can’t live without coffee? Try buying cheaper coffee. Or cut the donut. But even if you bought a coffee for $2 (instead of $4) and invested the difference over the same time period, you still end up with a respectable amount saved – $85,000.

Kind of makes you wonder if you don’t already have enough caffeine in your diet.

 

Coffee Cup Principle