Financial Planner Says You Can Save $315K for Retirement by Cutting Back on Coffee or Takeout
There's a simple trick to saving more money.
Americans are facing a retirement crisis. According to a new report from Fidelity, the nation's largest provider of 401(k) plans, more than half of people–52%–are not prepared for their golden years. "Roughly half the workforce, we're talking 50 plus million people, work for an employer that doesn't offer a retirement plan," said David John, a senior policy adviser at AARP told Axios. But there's one simple way to save a significant amount of money. Read on for one financial planner's trick.
Getting your daily fix of coffee is pricey and investment advisor Patrick Donnelly said skipping your favorite coffee shop could make a huge difference later. "Let's say you pick up a coffee every day, so you spend $40 a week on that," he told Daily Mail. "That's $160 a month you could save by forgoing that discretionary spending, or a huge $1,920 a year. He added, "Assuming a 10 percent average rate of return, after 20 years you would have $109,968. After 30 years, it would be $315,828."
It's easy to get into a negative spending cycle, but hard to stop. "We live in a world which is immediate gratification-oriented, and I think that is one of the biggest hurdles to overcome," Donnelly told the outlet. 'We can easily slip into these negative spending habits."
Donnelly advised to look at your budget and really see where your money is going. "Think about what your money could be doing for you in an investment or savings product where you are receiving compound interest," he said. "When you see these pretty fantastic numbers grow over time it really does force you to confront your spending behavior."
Anyone who has a little extra income after bills and financial obligations has a choice on how to spend their money, Donnelly said. "As income comes in we have a choice. We can spend that on today's expenses – some of which are necessary and some of which are unnecessary – or we can invest for our future self."
According to Donnelly, the key to cutting back spending habits is to evaluate your "guilty-pleasure"–the things you spend money on that you don't need to. Choose one thing that you could live without that is hurting your long-term savings goals and cut it out.
Saving for retirement with so many other responsibilities like mortgage, kids, cars and monthly expenses is a challenge, especially as an independent contractor. Fidelity recommends at least the equivalent of your salary by 30, three times your salary by 40, six times by 50, eight times by 60 and 10 times by 67. And many aren't making that goal.
The Fidelity report states there are two reasons why Americans aren't ready for retirement. "People are saving less and investing more conservatively, which are natural reactions during a challenging financial environment, from the pandemic to market volatility to the latest turmoil in the banking industry. In fact, among those taking a conservative approach, nearly six in ten (57%) respondents expressed concern about losing their savings by investing too aggressively."
