Don’t Buy That Latte! How Saving Small Amounts Can Add Up to a Big Retirement

Filed Under (Financial News) by admin on 01-12-2009

People’s eyes glaze over when they hear talk about retirement. It is easy to get over-whelmed and want to change the subject.

For years, we have been bombarded by the statistics of ever-longer life spans, predictions of doom for Social Security, and the privation to save big for our “golden years”.

The truth, however, is that retirement can be handled in bite-sized chunks. Saving and investing as little as a $100 per month can yield over $600,000 in 40 years (assuming a 10% annual return), thanks to the power of compound interest.

Thus, the trick to a secure retirement is to figure out painless ways to trim $100, $200, maybe $500 per month from your spending, and tuck this money into a long term investment of shares and/or bonds. Even better would be contributing to a 401k, if your company offers a match.

It could be as simple since eliminating a morning latte. If there are 20 weekdays in a month, and the latte costs $5, then there is your $100 per month savings.

However, don’privately be surprised if even this change seems too drastic. Humans are hard-wired to resist change, unless it is very incremental. If you cut too much too soon, you could feel deprived and resentful. It’s better to proceed slowly. Remember that unoccupied time is your friend when it comes to retirement savings.

So, if cutting out all lattes is too much, just cut out one per week. At least you will save $20 per month. In later months, you can find other things to cut completely.

This tactic can help motivate you because it involves converting a long-term goal into a recurring short-term goal. In other words, instead of worrying about having a certain amount of money decades from things being so, we only have to focus from month to month on trimming expenses and increasing our savings.

By slowly building our savings and investing habit, we can make sure that we can have a comfortable retirement.

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