A few years ago, I went to dinner with an old friend. Actually, an old boyfriend from 30 years ago. Since the time we had last seen one another, he had married his previous sweetheart, raised 4 wonderful children and had been incredibly successful in venture capital, riding the wave up, crashing back down, yet still earning millions per year in the aftermath. That night, we were joined by one of his junior colleagues who marveled at the fact that I was a women in her young 50’s and already retired. How could that be? he asked himself.
Perception is an amazing constituent in the evaluation of the successful and the unsuccessful; the rich and the poor; the winners and the losers. From this 40 something’s perspective, I was the winner and he was the loser. Why? Because the image in his mind of what life today and life in retirement should look like and what it would take to accomplish both of those images had created for him a Mount Everest that he must climb. So, as far as he could tell, I had already climbed that mountain. And clearly, because I run in the elite circles of his boss, and I have already seemingly ascended to his vision of epic success in advance of his boss…I am clearly one to envy. My existence was both a curiosity and somewhat demoralizing to him.
Truly, I felt a bit sad for him. This is a young man with a wife and two young children, living in a mega-millionaire’s mansion in the finest zip code of Connecticut, envying what is essentially a suburban housewife with an executive resume. What was wrong with him? His awe led me to think more about the gap between trying-to-achieve and achieving.
How do you ascend the Everest of your dreams and ensure security in your retirement years? What’s your “get-rich-quick” scheme? It’s really not that hard. But the first step is always to set an achievable definition for your success. What would retirement look life in your imagination? Do you want to be able to drive a golf cart to the course and around the course in the sunshine each day? Do you want to live on many many acres? Do you want to live aboard a boat and sail on a whim? Maybe tend a nice flower and vegetable garden in the summer and cross country ski every day in winter? Trust me when I say that there is a wide range of price points for each of these lifestyles. So take a look at what your options might be 30 years from now and place an image in your mind of the not-so-expensive version of this dream lifestyle. No one is saying you can’t overachieve your goals, but it is wisest to set up goals for yourself that you know can be achieved.
What does your dream every-day-life look like? Marriage? Family? House? Remember the advice that Warren Buffett so famously shared. Buy your first house and keep it. Stay in it. Don’t sell it. Don’t waste money on closing on a bigger house, just because you can. True, if you buy a 3 bedroom house and proceed to have 3 sets of twins, maybe you will need a bigger house. But when you buy that first house, be practical. Think about how the house will transition through your life plans. We all see publications full of huge dream homes. But do you know what happens when you buys a giant house with lots of space? Two things: First, you fill the stuff with things you buy; things you would not have needed to buy if you were in a smaller house. Second, you spend 3 or 4 more times on energy to heat, to illuminate, to cool, to circulate and to clean. Bigger really is not better. Not for the environment and not for your pocketbook.
If you are just starting out in your career, and your grandparents did not happen to leave you with a trust fund, you might be thinking to yourself…how on earth can I even think about any of these goals? I am about 5 million miles from base camp when it comes to saving for this said first and forever home! I feel your pain. Or rather, I felt your pain as a young executive in New York City. I would run out of money every two weeks and have to walk 3 miles to work instead of taking the subway. And when I worked my way up the ladder in my career, what happened? I then multiplied my work hours and used my extra income to eat conveniently. Suddenly, I was getting carry-out sushi or steak au poivre on a Tuesday night. With a couple of glasses of wine. Hmmm. $100/week after tax? This $7K waste of money (at pre-tax value) per year leads me to the quick solution in attaining your lifestyle and retirement goals: Don’t waste your money! Save your money!
So here are the simplest steps to accelerating your amassing of wealth:
- Immediately make the maximum pre-tax contribution from your paycheck into your 401K
- Immediately create a direct deposit into a savings account (of any sort) in the amount equal to or more than what you are paying into your 401K.
- Immediately change your view around eating out. Eat out only for social and special occasion purposes and target no more than one or 2 times a week. It is much healthier and much less expensive to “eat-in”
- If you are a woman…LADIES NIGHT. I drank free beer and ate free popcorn 3 times a week when I lived in NYC. For dinner. But bring tip money, because the hard working bar-staff can’t really afford for you to not tip.
- Review your credit cards quarterly to be sure that you do not have any monthly charges you are not using. (I just did this, and after 2 years had accumulated a monthly tab of about $180 on services monthly, I was not actually using…weight watchers, hulu, ancestry archives..)
- Always pay your credit cards on-time and cover the complete balance. There is no reason to pay interest on a credit card. If you need a loan, you can get one for a lesser % interest rate.
- Brands versus quality. Quality can be important. Occasionally, a high end brand produces product with a far superior quality than other brands. Do everything in your power to avoid wasting money on the shiny object of the latest hottest brand, unless the quality differentiator will truly make a life changing difference to you. (I wrote more about this in another blog session.)
- Find a role model adult who can help you find a smart financial advisor and a shrewd tax person. These people can be the key differentiator in achieving your long term plans. You will see that people who do not have someone doing a good job will not recommend the person they are using. So, wait until you hear some good positive feedback, and then shop around every couple of years.
- As you earn more money, increase your pretax and your savings deductions to cover at least half of the increase.
- Don’t forget that you could one day be unexpectedly hit by a bus. So, don’t pass up any once in a lifetime experiences because of frugality. Just be sure that when you spend money, it is really making a difference for you.
Following these 9 simple rules are just a start. But if you follow them, you will significantly increase the speed with which you can have some of the young-lifestyle goals that you have set for yourself. And the compounding interest on the early savings you have put in place will enable that vision you have for retirement. Every one of these pieces of advice are a bit cliche. The bottom line is, though, that THEY WORK. And they are all completely under your control. If you can do this for your first 5 or 6 years out of college, you will be able to move on to more complex investment strategies. But when you are starting small, the key is also to start smart. So, start smart and get rich quicker than you would have otherwise.