Computers, stereos, adventure sports equipment—we just have to have the latest. A quality new shirt can run $85, a tie $50. The house just has to be remodeled. And of course, we need all of it brand new. The latest. We are such a consumerist society that we no longer question these things.
You don’t need to replace something just because a newfangled one comes along. How many things do you have in your life that you spent good hard-earned money on, that are sitting in the attic or in the basement? Consider them the next time you feel the urge to buy something new.
A client just shelled out $42,000—more than half his after-tax income—on a new car. I asked him why he did that. He told me that his old car was four years old and it was time to get a new one. Four years old!
A typical consumer-minded American is programmed to march down to the local car dealer every three to five years, dicker for five minutes on the price of a glossy new set of wheels, and then sign a contract for something that costs more than a home mortgage did a few years ago—not to mention how much the car depreciates: an average of 25% in the first year.
I’m not against buying a car which represents the fulfillment of a lifelong dream. In fact, I support it. I have clients who have yearned for a particular car for ten, even twenty years. They have wanted that black 1966 Mustang Fastback or that 1954 Corvette Convertible since high school. To them I say, “Go ahead. Buy it if you can afford it.” To buy something special in fulfillment of a long-term dream is different than buying a new toy just because everyone else does. Some people feel they must buy a new car every few years. This naive belief costs a lot of money—money that won’t be there in retirement when they need it.
The calculations for Tom and Didi showed that upon retirement, they could afford living expenses of about $4,000 a month. I asked them to investigate how they could reduce their current living expenses of $5,000 a month and begin to live on $4,000 a month now. They could then save the extra $1,000 and apply that toward retirement. If they are successful, retirement will not result in any substantial change in their lifestyle, and with the extra $1,000 per month of savings, they could have more than $4,000 a month to spend. Retirement may not turn out to be about skimping and deprivation for them.
Remember that your retirement will likely last from twenty to forty years. That is a long time to live in a state of deprivation. If you begin to live below your means now, this simplified lifestyle will last for the rest of your life—and the extra money you’re putting away now will raise the amount you can spend in your retirement.