Retirement And Savings, The Secret To Becoming An Automatic Millionaire
We are all facing retirement someday and savings and investing are the keys to becoming a millionaire. But people come to me all the time and say it is impossible to save money and pay themselves first. They truly believe that they don’t have the money. The truth is that they really don’t know where they are spending their money or have never really thought about whether they should be buying all those little items they buy every day.
Now David Bach coined the phrase “latte factor” to describe the value of all the little things that people buy regularly that they really don’t need to buy and could get along just fine without.
Let’s use my friends Jill and Shawn as an example. They were over the other night and we got talking about retirement and savings and I was explaining how paying yourself first was the real key to coming up with the money for retirement and that if they wanted to become an automatic millionaire they needed to set it up so that money was transferred automatically, after every pay day, into their retirement savings account. Of course the first thing they said was we don’t have that kind of money. So I told them about David’s “Latte factor”. I got my white board out and we went through the exercise to see what their latte factor was.
Jill volunteered to go first. Jill works as a secretary in a legal office down town. I asked her; Do you buy a morning coffee? Yes she stopped at Tim Horton’s every morning and bought a large coffee and a couple of times a week would get a doughnut to go with it for $3.50 per day. I asked if they provided the staff at work coffee and she said they did but she liked Tim Horton’s and besides she would have to make the coffee when she got to work and first thing there were a lot of other things to do. So what about coffee breaks and lunch? Well there’s a Starbucks across the street and the girls and I get a latte and cookie costing me $5.00. At lunch we go out a couple of times a week and that costs me $40 or $8.00 per day. Is there anything else? On Saturdays I go jogging and stop at Chapters for a break and that cost me $5.00. With a couple of other little money ideas she conceded that the total could easily be $10 per day or $300.00 for the month that could be used for retirement investments. Shawn had similar monthly expenses.
So if you were to put an additional $10.00 per day or $300.00 per month at 8% savings interest for 35 years. What would you have in your investment savings when you retired? Well that works out to something like $692,753. And if both Jill and Shawn did it, the amount would be $1,385,505. And what if you waited another 5 years? The amount in your retirement account would be $2,108,569. And what if you took some financial courses and you were smart enough to get the best interest rates on savings, a couple of percent higher. Wow.
Jill said to me, Are you trying to tell me that my lattes are costing me two million dollars? YES. Now this is not really about not drinking coffee. It is a metaphor. There are so many little things in life where we waste money. So the question is. Could you come up with $300 per month? Would that be a reasonable amount of money to invest in your retirement account? So you could retire an automatic millionaire?