Here is a thought exercise -- think about what you spend money on and if there is a way to cut back on individually small expenditures. Suppose that you routinely order an extra drink or two at a coffee shop or bar. And let's say you're able to pinpoint a few other items to save on, and can spend an average of $15 less per day.
Saving an extra $15 per day, and investing this amount at the end of each year, can boost your finances considerably more than you’d expect. With inevitable fiscal pressures threatening the viability of Social Security, Medicare, and pension systems, you would be very wise to do this if at all possible.
If you’re 25 now, let’s consider the extra money you’ll have at age 65. Assuming 6.5% investment returns and a 2.5% inflation rate, saving an extra $15 per day will generate extra pre-tax savings of… $1,433,208!
Note: Your contributions will need to keep up with inflation, which should rise at a similar rate to your income. In this scenario, you would save $15.38/day next year, $15.76/day in 2015, etc.
You may be wondering how $15/day could generate so much additional wealth for you. Perhaps you’re in a position to save an extra $5, $10, or $25/day rather than $15. If we modify the rates for inflation and investment returns, how would that impact the savings calculation? What if you want to save money for a 5- or 10-year goal, rather than 40?
If you want the answers to any of these questions, e-mail me at krkreflections@gmail.com and I will send you a very user-friendly Excel spreadsheet where you can obtain these findings instantly.
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