How Many Years Of Retirement Will That Cost?
Obviously I have retirement on the brain lately. Turning 40 will do that to a person! Even though we probably have at least a decade before pulling the trigger, I’m already thinking about where we’d like to live and what sort of life we’d like to have when 9-5 doesn’t matter anymore. One rule that I’ve also tried to practice since we started down the correct financial path is to look at today’s purchases and think about how they will impact the future. A good exercise I would recommend for everyone is to ask how many years of retirement will that cost?
Thinking Long Term
Especially with recent events in my family, I want to enjoy every day and live in the here and now. That doesn’t mean I’m not always thinking about the future. A huge reason people stay in debt or can’t save money is that they live too much in the present. While it might be fun to finance that huge flat TV to watch football this winter, what is that worth in retirement years? If you don’t want to work until you drop, it’s time to start thinking long term.
How Many Years Common Purchases Cost
We had satellite TV up until 15 months ago. We paid an average of $80 a month to have background noise as we only actually sat down to watch for a few hours a week. Netflix probably didn’t exist when we first started paying for TV, but let’s just say we rented movies and used an antenna back then and switched to streaming services when it came available. That’s a savings of $70 a month, invested in an IRA at 7% over 14 years, that’s $20,268! Is watching Kim Kardashian’s a$$ worth $20K?
Another good example is with buying cars. From 2000-2012 we always had at least one, often two car payments. When our vehicles turned 3 or 4 years old, we’d trade them in for brand new ones. Even though we usually bought Toyotas and Hondas, our payments for two cars were usually somewhere between $500-$800 a month, for years! If we’d bought used cars, kept them until they wore out, and put $500 a month into an IRA at 7% interest, we’d now have over $114,000. Instead, we have two vehicles that will decrease in value each year until they are worth almost nothing.
Since we project our retirement expenses to be around $3000 per month, buying all those cars cost us over three years of retirement. We only did it for 12 years. If you play revolving cars for 30 years, that’s over $600,000 literally up in fumes!
What Do Purchases Do To Debt Payoff?
If retirement seems too far away of if you are really just into the moment, use this exercise when thinking about debt. The only money we owe right now is to mortgage companies, but feel free to substitute any random debt you might have.
Last year, I really wanted to hire a maid. I was sick of mopping, sweeping, cleaning toilets. Not fun. It would have cost around $200 a month to hire someone to clean for me. That didn’t seem like much money. I was all ready to start interviewing when I did some math.
If we applied $200 a month to our mortgage instead of hiring a maid, that means we get to pay off our house 6 months earlier. A half year of no mortgage is worth much more than having someone vacuum my floor. Unlike Mrs. Frugalwoods, I still haven’t found my cleaning zen, but instead of thinking about dirt, dust, and dog prints, I think about owning our house outright.
So You Never Spend Any Money?
I don’t want to deceive anyone into thinking we never spend money. We spend on lots of things. We put about $6000 a year toward travel. I buy organic milk and shelled pistachios. Jim got a new mountain bike last week, and we’re about to prepay for our skiing this year. We also use our money to invest in different accounts like our online brokerage or online cfds accounts. Aren’t we hypocrites?
No, the reason is that we still think long term. I realize taking vacations or going to ski might cost us several years of retirement, but that is a sacrifice that we’re willing to accept. Driving a new car or having a manicure every month are not things we value enough to trade for years of work. I’m not trying to decide what things are important to you, but finally realizing the future value of our choices can be a huge eye opener. If everyone spent money out of value and not based on habits or what society says is normal, I think we’d all be much happier.
What has mindless spending cost you in terms of your future? Do you think about how purchases today affect long term goals?
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“Is watching Kim Kardashian’s a$$ worth $20K?” I’m still working the math on this….but just taking an educated guess….I am going to say no 🙂 Awesome, awesome post!
Her ass might be insured for more than that, but it’s certainly not worth it to me!
“finally realizing the future value of our choices can be a huge eye opener. If everyone spent money out of value and not based on habits or what society says is normal, I think we’d all be much happier.” Amen, Kim! I talk nonstop to the girls about making value-based decisions. Everyone might not agree with their choices, nor might they agree with the choices others make, but that shouldn’t be how you make decisions anyway. It should be based on what matters to you. I completely understand why you nixed hiring a cleaning service because the value in the end wasn’t worth it. For me, the value is there. Great post!
Until I started thinking about future value instead of instant gratification, getting out of debt and saving aggressively for retirement were just never a priority. I am probably a bit envious of your maid though!
I certainly think of items that go above and beyond the budget. Buying new clothes, eating out, etc for the most part we have cut out areas that we don’t need have most of our financial items heading down the right path. I have done the phone savings, cable cutting, car vs public transport Excel spreadsheet a few times though.
I am always re-evaluating our spending and bills to see if we are doing the best we can of if there are areas that need improvement.
I never used to think this way, but now I’m always calculating how many hours of work “this” is going to cost me and how much it could be if I invest it. People look at me funny when I say things like that, but I don’t care. I embrace my crazy.
I think people would spend much less if they looked at things that way.
It’s a very delicate balance trying to enjoy life but plan for the future at the same time and I go back and forth a lot. I want to make sure I have a comfortable retirement and can do fun things and not be stuck on a tight fixed budget. On the other hand, I want to enjoy the now because a) I could die tomorrow and there won’t be a retirement and b) living strictly in the future is no fun. So I try to spend wisely and enjoy life while still building up the nest egg. It can be frustrating not being able to see into the future!
I think we will always be looking for that balance. If I really want to do something in the present that adds joy to my life, then I don’t feel bad or think it’s a sacrifice.
I definitely try to do things myself instead of hiring out work because of the very reasoning you are talking about in this post. I would LOVE to have someone come and clean a few times a month, but that’s X dollars a month, X dollars a year, and it could really help us with debt payment, building savings, building investments, travel….there’s just so many things I’d rather have that money go towards.
I would absolutely rather mop my floor than give up a vacation or maxing out my HSA. Usually the thought of it is much worse than the actual task anyway.
This is a good exercise, and one I practice to some extent. Instead of retirement, I think about what it’s taking away in terms of my goal to pay off student loan debt. Do I really need this right now, or is the money better spent going to debt? I try to be mindful of spending as much as possible. Like you said, there are things I’m willing to pay for that are worth the sacrifice. It’s all about prioritizing!
A big problem we used to have was not making a list of priorities. We thought we needed it all when in reality, we didn’t need hardly any of the things we bought.
I don’t really think of retirement per se, but I definitely think of financial freedom, so in my mind, all of our excess purchases just take us further from our financially free days. We do balance everything, though, and make choices. We are saving for Will’s college education and we could be putting that money toward retirement and become financially free even sooner; however, education is an important gift we want to give our son and it is worth the sacrifices. Cable and new cars are not.
I guess I use retirement and financial freedom interchangeably, and I probably shouldn’t. If anyone really wanted to amass a huge savings, they would never have kids, but I can’t imagine life without mine and I’m willing to save for her future as well.
I do think about how recurring purchases affect us in the long run. Fortunately, I think we’re in a place where we are living for today without sacrificing our future much.
That is an excellent place to be!
Thank you so much for mentioning my vacuuming zen post! Sometimes I lose my cleaning zen and I have to remind myself… oh yeah, I’m supposed to be enjoying this ;). I love your monthly payments multiplied by months and years exercise–it’s math that people too often fail to do. I think it really helps to think of purchases in light of the lost investment opportunities, just as you outlined. It all adds up!
Everything does add up, even the soda I used to buy everyday. Some expenses I’m OK with and some are just not worth it at all, so why continue with them? I do enjoy the afterglow of cleaning. Kind of like a good workout. Not so fun in the middle but awesome when it’s done.