Going to church Sunday mornings was a pretty routine experience as a kid. The only part that was unpredictable was the sermon, as everything else pretty much stayed the same from week to week.
One Sunday in June though, the church had its picnic after the 10 o’clock service, and the priest didn’t want Mass to run late. Unless he wanted to speed read the gospel, his only real option to keep things short was a short homily. I don’t know if he really was trying to keep things short, or if he got up on the wrong side of the bed, but over 20 years later, the sermon stuck with me. It went something like this.
“Every three years the gospel readings repeat, which means many of you have heard this same message more than 10 times, and listened to a homily on it just as many times. Yet, none of you have changed your actions after the first few times you heard it, and I’m sure no one is going to change after hearing it this time either.”
20 seconds later, I didn’t know what happened. Part of me couldn’t believe what we just heard; another part couldn’t believe we’d get out about 10 minutes earlier. As far as impact goes, it was a message I never forgot.
When it comes to preparing for retirement, we all hear the same messages repeatedly, and realize we need to take action. But often, hearing the message and thinking about taking action is as far as many people go. How many people have followed through and:
- Created a will
- Set up beneficiaries for insurance and investment accounts
- Researched the right types of insurance to buy
- Purchased prudent insurance
- Looked at the investment fees being paid
- Scrutinized their spending to see if they could invest a couple additional dollars
- Actually invested a few extra dollars when they can
- Analyzed what they’re investing in, and if it still makes sense to keep money in those funds
- Called to see if they could get discounts on any bill they pay regularly
- Took time to research health insurance options
- Tracked their expenses over a year
- Examined habits to see if there are opportunities to trim costs
- Checked out of they were getting maximum rewards from their credit cards
- Saw if there was a bank with lower fees or higher interest rates
- Performed an energy audit on their house to see where they could save money on their biggest housing expenses
- Negotiated their rent down
- Investigated refinancing a mortgage
- Examined the job market to see if a better job is available
- Looked at the impact from raising their 401(k) or other retirement contribution
You don’t have to be religious to follow the spirit of this sermon. Ultimately, we can’t be lazy and say we’ll take care of personal finance obligations at some other point in the future. Time is on your side in two ways. The first is the faster you patch money robbing leaks in your finances, the more money you’ll have at retirement. The second is the sooner you invest money, the more time it’ll have to grow.
To drive home the importance of time, imagine in 2015 you turned 67. If you invested $100 a month in the S&P 500 when you were 23 until you were 33 (10 years), you’d have $777,881 when you turned 67. If you invested $1,000 a month, or 10 times more, from age 53 until you turned 63, you’d have $227,943 at age 67.
To look at that another way, you could have invested $29.30 a month from age 23 until age 33 to have the same amount of money saved as if you invested $1,000 a month from 53 until 63; $227,943. You can probably free up $29 a month by cutting back on something small. That’s a dollar a day. What could you realistically cut from your budget that would free up $1,000 a month, or $33 a day?
Notice how close those numbers are, $29 and $33? What this person invested per month when they were young is what they’d have had to invest per day closer to retirement to see the same growth in their retirement account balance.
One last thought. Imagine if that 23-year-old didn’t go out for pizza and beer one night, and wasn’t lazy with the savings. If he invested that $30, instead of having $777,881, he’d have $780,215, or $2,334 more at age 67. I hope this really drives home the importance of not only saving money, but investing it as well. Imagine how carefully people would think about spending decisions if they realized that they could pay for a Caribbean cruise by investing the cost of a nice dinner at a restaurant 44 years ago. Monitor your spending today, and save for your future; your future self will thank you.
Of course, past performance is no indicator of future results, but the ages and dates I picked were random, just to line up with a 2015 retirement.