The expression that the “devil is in the details” refers to the little often overlooked items that can sometimes “cost you” whether it is an overlooked item requiring compliance, a payment or exit clause for ending a contract that you did not see or just overlooking some ingredients in a recipe that resulted in a dud recipe.
In the world of personal finance we can at times be stretched when trying to find money in our budget to allocate to our investment and retirement plan. Inspecting our spending patterns and finding ways to cut expenses and save what may seem like small inconsequential expenditures can significantly miss the “devil in the details” and the bigger financial picture.
We are discussing this by way of example to illustrate how this one exercise can make a big difference. Just imagine if your investments and all the other details concerning your wealth were managed with the same expert precision. As we will illustrate, it can make ALL the difference and ensure you enjoy a more comfortable retirement. Let’s look at just 4 examples of where you may be able to cut expenditures and then add up the savings and what the value of doing this for 5 years could add up to over a 25 year period.
Potential Sources of Savings
1. Eating Out
According to the Bureau of Labor Statistics, the average household spends approximately $3,459 on food outside of the home each year which is approximately $288 per month. In california, we can add 50% to this number due to higher living costs, so say $432/month.
By eating out less by 50% less the cost of food you would eat instead, that can provide a savings of say 35% or $151/monGroceries
2. Food Costs
Planning your buying to optimize your food costs takes time. However you would be surprised how many savings are available if you buy foods that are in season, buy less branded goods, buy some items in bulk and take advantage of sales on items which are ongoing these days. Saving $75-150 per month is possible with a few adjustments to how you plan your grocery purchases.
3. Coffee Consumption
While Starbucks, Peets or Philz won't appreciate this, coffee drinkers are driven to keep this habit going by supporting high retail priced drinks. At $5 per daily visit, that can be $150 per person per household. By buying a good coffee machine and frother, you can produce a better latte or coffee than you will get at any retailer, for much less.
For a household of 2 coffee drinkers, that can be a savings of $200/month
4. Credit Cards
The interest rates on credit cards are one of the most profitable service centers that banks offer. The costs can really add each month. Aim to pay your cards off in full each month, so you don’t pay interest or try to reduce the balances on your cards. It’s not uncommon for households to be paying $35 - $150 and more in interest on their cards every month.
5. Refinancing your mortgage
Can you make use of historically low interest rates and refinance your home. That can potentially save anywhere from $75-300/month
We have provided a handful of examples of how you might be able to save some money. The amounts will vary for each household and their own unique circumstances. The point is that everyone can probably dig into their spending habits and find a way to save some money.
Potential Realized Savings from the Above Examples
By taking the mid-range of the examples above for a family of 4 and doing all the above you could potentially save approximately $735/month with refinancing or $550 without refinancing per month.
If we take the $550 amount as our base example, that adds up to $6,600 per year. Over 5 years that is 33,000, over ten years it is $66,000 and over 20 years it is $132,000.
Potential 20 Year Value of Savings by Investing them in the Markets
Now, you invest all this money into your investment portfolio and invest in a fund that tracks the S&P 500. The S&P has averaged approximately 10.5% since 1912 to the present day.
So, if you bought and held such a fund through bull and bear cycles over a 20 year period you could accumulate approximately $432,000 in savings if the average returns stayed constant with the historical returns. Even if the average S&P returns fell to 7% it would still amount to a total of $281,273
Often, we will not think through the entire chain of events that begins with examining our spending habits and the “what if” scenarios if those monies were invested toward our future retirement.
That’s an impressive number and makes one think at least twice, if not three or more times of the merit of going through this exercise. In this case it is not “the devil” but the “NEST EGG that lies in the details” and if we pay attention, we are paid in return with a more easeful and worry free retirement.
A good financial advisor will ask the hard questions and help you see what is possible. They will help you with the heavy lifting that covers all the areas of wealth management which includes investing, capital allocation, risk management, pensions, insurance and much more.
Talk to Professional Financial Advisors
Planning for retirement on one’s own is like navigating the Himalayas without a guide. There are a lot of potential financial pitfalls you may not know about that can negatively impact your investment and retirement plans. For a free complimentary consultation call us at 925.906.9800 or contact us online.
1600 South Main Street, Suite 190 Walnut Creek California 94596