Author: Matthew

You Bought More Cookies Didn’t You?

Posted on by Matthew

Can you imagine what would happen if I bought a house without consulting my spouse, Anna? I would probably be living in that house alone for quite some time. What about a car or an animal shelter? It would not go over well. This is because: a) married couples should be a team making joint decisions and b) people have different attitudes towards money due to their own personal history. One of the main triggers for fights in a marriage is money, and there are many factors that influence behavior and opinions in financial situations. The article below highlights some of the major differences on what people find attractive, what is an acceptable amount to spend, and what stresses them out. There were a few things that were interesting to me with the first being that most people find themselves more rational than their spouse and found their spouse more impulsive than themselves. The other interesting graphic was the average amount people spend before discussing the purchase – $396 for women and a ridiculous $1231 for men. I am no marriage expert (just completed 1 year, wohoo), but it seems foreign to me to spend $1231 without first consulting with your spouse. Now this article is not about marriage counseling but about some of the things Anna and I do that we find helpful and some areas that we had to work through.

As I mentioned in a previous post, Anna and I have a budget we created together based on our income and things we wanted to save for or spend money on. What we try to do is sit down twice a month to input our expenditures and compare them to our budget. When this happens, we both are present, and read out all of the expenses (even the 90 cents I spent on two double chocolate cookies at the work cafeteria which Anna now knows that expense by heart!), and input it in Excel. The reason we use Excel instead of say Quicken or Mint is due to the pain and thinking it takes to enter in the value, it makes the money more real and painful. Our goal is to review our progress in the middle of the month and then our results at the end of the month against our budget. If our spending was way out of the range, we talk about it and understand why it happened and whether we need to change behavior. While we could enter in our expenses at different times, we find that sitting down together and sharing our transactions helps to facilitate discussions and provides transparency.

A second financial exercise I particularly enjoy is at the end of every quarter updating our Net Worth. For those who are not familiar, Net Worth is assets (we just do financial assets and not material assets) minus liabilities (loans, mortgages, etc.). Now some people might think it’s crazy, and Bill Gates probably spends more on a pool then what Anna and I are financially worth, but it allows us to document where our money is going on a larger scale. It is exciting and rewarding to see our Net Worth increase over time and how much of an increase we get every quarter by saving, paying down debt, and investing. It makes me happy since I see some of the delayed gratification from saving.

A third area of importance for me and Anna is setting boundaries on expenses. We discussed the sharing of all of our expenses so she knows if I somehow bought a 5lb bag of M&Ms but we identify purchases that would need more discussion if they exceed a certain dollar amount. For us it is lower than most at $100 but if I want to buy a new golf club, and we are managing our financials as expected the conversation is more of a “hey, I plan to buy this, is that ok – sure” type deal. It is helpful to define expectations on both the amount of money that needs to be discussed and what are some things that are important to a person; golfing, doing races, concerts, trying new food, etc.. Setting expectations is something that has helped in my marriage.

 

Now I don’t want to pretend like Anna and I are perfect and don’t have any disagreements about money because that is not the case. We have had many discussions on the topic and had to talk through differences and come to compromises. For example, when we married, I had been used to an Engineering salary for 4 years and could spend money on almost anything I wanted, so I had no concerns buying an iPad or a new set of golf clubs. On the flip side, Anna just graduated PT school with large student loans and being accustomed to saving as much money as possible and a $10 dinner out was a treat. It was a clashing of expectations and we had to come to a compromise on prioritizing her student loans but still having enough left over to spend on fun experiences. Even to this day, Anna is much more conservative and less excited about personal Finance then me (if she wrote a blog I think it would be about ice cream) so I have to be careful not to steamroll her with my ideas or opinions and ensure her input is factored in. We will continue to have to work through our differences, but I find it refreshing that we have differing views – I mean we both can’t be spending all of our money on candy.

In closing, with how important money is in any relationship, it is imperative to have open discussions. I have shared what works for me and Anna, and something else might work for you, but the biggest thing is to communicate and compromise since everyone is different. I am no marriage expert, but it seems like a healthy marriage would consist of an agreed upon financial plan.

http://www.wsj.com/articles/how-couples-can-resolve-their-biggest-fights-over-money-1428895317

 

You’re Offering Interest-Free Loans?

Posted on by Matthew

How many of you have access to interest-free loans? Wouldn’t it be great to buy a house or take out a student loan and not have to pay any interest? That would be a dream for everybody, but lenders would never agree. Just go ask your bank if you can take out an interest-free loan and you might get laughed out of the building. Interest-free loans are normally reserved for family and friends, and even then, that is asking a lot. So if lenders won’t offer an interest-free loan then why the heck are you?

What I am referring to is that huge tax return people receive. Since it is close to tax season, this is a public service announcement explaining the silliness of hoping for a larger refund, or even worse, planning for one. A tax return from the government is a refund of money you have rightfully earned yet overpaid in taxes throughout the year. This is not some gift that the government is giving out of the generosity of their heart, but returning money you are rightfully due at a later date. This means from the time the money was taken out of your paycheck to the time you finally process your refund, the government has access to that money interest-free! But that is okay since we all know how effective our government is at spending money wisely and efficiently *dripping with sarcasm*. Huge tax refunds are a pleasant surprise, but they are signaling a larger problem.

In 2015, the average tax return was $3,1201! That is a huge number. Think about what you would get if you received the following interest on that.

1% = $31

3% = $93

5% = $155

10% = $310

I wouldn’t mind the extra money in my pocket to buy whatever I please at a time when I might need it throughout the year. This interest benefit is without even factoring in how people spend a “windfall” like a tax refund vs. how they spend their common paychecks. When you receive a huge refund it makes you believe this is extra money and you should spend it on a new car, vacation, or other big ticket item that you might not justify throughout the year.

At this point, I hope it is apparent that huge tax refunds are not something to strive for, and if you are going to give away free money, then please let me know where to sign up. Now that I have expressed my disbelief and everyone thinks, “Okay, Matt, we get it”, I will actually try to assist in lowering your tax refund. Please know I am not saying you want to owe money during tax season – that is tough to budget for, and there are even possible penalties (see the government is not dumb either) if you owe too much. What I am recommending is that you work towards a refund of a couple hundred dollars, maybe a little more, as a buffer. The lowest you can get to 0 without going under will win you a large teddy bear (disclaimer: no it won’t unless you are buying it with your brand new interest!). So how do you lower how much taxes you pay if you received a huge refund?

First, look at what you received last year and see if anything major changed in salary, marriage status, dependents, etc. If these have changed very little then you have a strong estimate of what you will owe and can compare against how much taxes are being removed from your paycheck. One thing I like to do is estimate my withholdings throughout the year using the IRS calculator https://apps.irs.gov/app/withholdingcalculator/. I try to check in the middle of the year to see if I am paying too much or too little. If I am paying too much, then I change the allowances on my W4 and pay less in taxes. If I am paying too little, then I lower the allowances. The allowances have rules around them that will need to be reviewed for your specific circumstances but at a minimum you can change between 0 and 1. This adjustment can be done mid-year and is the easiest way to align your taxes paid to what you should be owing. You are welcome.

All of this is not an exact science. I have routinely received higher refunds than I would like, but still much lower than the average, due to getting married mid-year, getting deductions from going back to school, or opening a 529 account. These changes make it harder to estimate but I will continue to work towards zero. Let’s all agree that the government doesn’t deserve any more of our hard-earned money and end the silliness of celebrating large tax refunds.

 

  1. https://www.irs.gov/uac/Newsroom/Tax-Refunds-Reach-Almost-$125-Billion-Mark-IRS.gov-Available-for-Tax-Help

One Step At A Time

Posted on by Matthew

How many people sit down and become an expert the same day? Whether you want to learn to play an instrument, speak a foreign language, play a new sport, or develop a new skill, it’s impossible to become an expert without putting in the time…or else I’d be playing on the PGA Tour? Sadly, the PGA tour has not called for mere mortals like myself.  But, in order to improve, it is not just one large change but a lot of little steps in the process of continuous improvement. Small changes can have large effects over a long period of time. The best is when these changes have such a minimal impact that you don’t even notice the lost time or change until that 15 minutes a day turns into competency in your area of focus. This same principle can be applied to your money. Through small changes, you can make a major impact in the money you spend throughout a week, month, or year.

A lot of us spend money throughout a week without even thinking. Whether it be buying groceries, grabbing a beer, paying the bills, or funding entertainment, we spend money in many different ways. We get in habits and continue to do so because that is what we know and have come to accept. Sometimes we don’t even know how much we are exactly spending and how a little here or there can add up to a lot of money when analyzed yearly. It is one of the important reasons to have a budget and to stop and think about what your habits cost annually. In some instances these habits can be altered or removed in order to save money.

I am not proposing you should cut out things that make you happy, bring joy to your life, or are necessities to live, but sometimes there are opportunities to reduce your spending in areas you don’t really care but are doing because that is what you are used to doing. What I am proposing is to prioritize the important expenses in your life and take a hard look at the areas in which you are less than enthusiastic. As an example in my life, I like being active, playing sports, and running races. I spend more on gym memberships, races, sports leagues, and active entertainment (golfing, hiking, swimming, etc.) than most others would be comfortable doing since I love to eat sweets and would weigh 400 pounds without working out. That is something I like to do and an area I have prioritized. On the flip side, I rarely buy clothes unless I need them and don’t like shopping for more than the time it takes me to walk to the article of clothing I am buying and grab the closest one that fits my need. That is what works for me and each person will be different with their own interests. Over time, I have found areas of saving in my own life and have also observed situations where people spend and do not fully understand the cost. I will share some cost savings that have worked for me and could work for you.

  1. Packing a Lunch– I don’t like eating out every day and try to avoid the afternoon slump, so I pack a light lunch instead with the added benefit of less calories. I calculated $3 for my lunch vs. $10 if I ate out. Yearly Savings: $7×240 working days = $1680

 

  1. Daily Coffee– I enjoy a nice cup of coffee and probably make one 4 times a week but use a Keurig/K-Cup instead of Starbucks or cafeteria coffee. I calculated $0.50 for my coffee vs. $2 for the cafeteria and $4 for Starbucks. Yearly Savings: $1.50×4 days per week x52weeks = $312. If you go to Starbucks every day it would be $3.50x4x52=$728

 

  1. Cable TV– Our household does not have cable TV and instead uses an antennae along with Netflix and Amazon Prime. I thought this would be hard, but it is much easier than expected, and I have enjoyed the extra time I used to waste watching shows I didn’t care about. Amazon/Netflix costs roughly $20 a month vs. $90 for cable TV. Yearly Savings: $70×12=$840

 

  1. Gym Membership– Why pay for a gym membership if you don’t use it? What if you had a free alternative at work or apartment complex? What type of workouts do you do? Anna and I use our gym membership quite frequently so this is not something applicable to us, but I see a lot of wasted members. Yearly Savings: $40x12months=$480

 

  1. Internet– Here we use Internet but make a yearly call to the provider when our “initial offer” expires and they charge us double what it would cost to switch to a new provider. This saved $25 dollars for us. Yearly Savings: $25×12=$300

 

  1. Dinner– Very similar to lunch, if you eat out instead of making dinner, it can add up quickly. Our strategy is a nice dinner/date night once a week and then try to eat at home the other days. Rough estimate of $5 vs. $15 for eating out. Yearly Savings: $10×7 days/week x52 weeks = $3640

 

  1. Vending Machine Snacks – Instead of buying those delicious Grandma’s Vanilla Cream Cookies for $1.50 and 540 calories out of your work’s vending machine, pack your own snack. For me, it is a Nature Valley Bar for 40 cents. A little less delicious but my belly and wallet appreciate it. Yearly Savings: $1.10×240 working days = $264

These are just a few ideas that work for myself and my wife. Some of you might say “I have to have my Starbucks every day”, others might not be able to live without Keeping up with the Kardashians, and some might use lunches to network and build relationships. The point is to find what you value and see how you can save in other areas. Remember, every little bit counts, and a few dollars a day can make a big difference when saving for that house, car, vacation, or golden retriever puppy to give to your good friend, Matt.

 

Wait, Where Did All My Money Go?

Posted on by Matthew

How many of us have ever wanted to change our weight? Whether it be to lose weight or add healthy weight, most people I know have tried this at some point in their lives. Some people are successful while others crash and burn in a pile of Twinkies and potato chips. What makes a difference? At least for me, creating a diet plan that is manageable and realistic is the very first step. I am always skeptical when I hear someone say they will do the 7-day juice challenge, the egg diet, eat only food that is orange, or whatever else that one person has come up with. The reason why:  it causes such a shock to your body and routine that it becomes exceedingly difficult to follow. If someone can complete the juice-only diet then I greatly admire them, but for me, a diet for that does not include some chocolate/sweets is a diet bound to fail. On the flip side, stuffing my face with only cookie dough and chocolate Easter bunnies means I have no idea how many calories I am bringing in and I can add weight quickly with such a large sweet tooth. So the trick is to balance them out. I want to limit myself and make smart choices but do it in a framework that is not overly restrictive and fits in to my lifestyle. This same philosophy can be used for managing your money.

Using my metaphor above, creating a financial plan that gives a rough estimate with how much money is coming in vs. how much is going out can be extremely helpful. What I am talking about is a budget – *commence shaking from fear of that word*. A lot of people worry and think a budget is a scary tool that will just make your life difficult and deprive you of all that is good in this world, like brownies, but that doesn’t have to be the case. A budget helps you to track where you are spending your money and determine if you are spending more than you are making, called a deficit. That is obviously not a viable long-term plan unless you are in the U.S. government and can just raise the debt load.

For Anna and me to create a budget, we sit down at the beginning of the year and review how much we spent in different categories. These can be any categories you choose but the basic ones level we use are: giving, loans, investments, housing, utilities, food, entertainment, and miscellaneous. We then analyze the previous year’s spending ask Anna why she spent so much on gold grills for her teeth, she tells me to shut my mouth and they look awesome and determine if there were any uncommon situations from last year or for next year, such as planning for a wedding, to make an assumption for the next year. At the end, we review all of our estimates, add them up and then hope that they are less than our incomes. If they are not, we have to make changes in certain discretionary categories, until our budgeted expenses align with our income. Easy enough, right? So now we are done for 2016 and don’t have to worry about buying 20 golden retriever puppies? Not quite.

The goal for Anna and me is to then analyze how much we are spending at least twice a month – once in the middle of the month and again at the very end. This way we can determine if we are way off of our estimates and need to adjust accordingly. One thing we don’t do is allow our budget to consume our lives and make us miserable. We understand that some months we still spend more than our estimate, and others less, while working to balance them out. We try not to worry that we went over budget by 20 dollars because we went on a fun spontaneous trip, we just try to offset that amount in a different category or month. If it becomes a consistent habit and our emergency fund is being used (remember that fun back-up plan?), then we have to re-evaluate our assumptions and habits. For us, a budget is just a tool to have a plan and understand if we are on track.

So if you have never had a budget, where should you start? First, this is a very personal exercise. It really is up to you on where to spend your money and what you enjoy doing. Evaluate the last 3-4 months of spending to create your new assumptions and think about your goals. After that, use whatever tool you prefer – Mint.com, Quicken, Excel, etc. – and update it a few times a month. For us, it only takes the time of two Netflix episodes (1-2 hours) per month, and it is invaluable for us to sit down and talk about our spending. This process does not have to be as scary and painful as others make it out to be.  It is a beneficial tool to identify areas to save money and spend it on the things that really matter to you.

Crazy Cousin Eddie and His Stock Tips

Posted on by Matthew

Psst, hey you. I got this great stock tip for you, and I have a really good feeling about this. It is practically a guarantee. You should put all your money in to the UBC – Unicorn Breeding Corporation. The unicorn markets are about to be HOT! Don’t ask questions, just do it.

Obviously, that opening is sarcasm, and there is no Unicorn Breeding Corporation (seriously, I Googled it…there are some hits on Unicorn Breeding Industries, but I did not want to go down that rabbit hole).  However, this is a trap into which a lot of investors are pulled. Someone else to do the research, or collect the information, and just tell you what stocks to choose regardless of your own personal goals and tolerance for risk. These “tips” can come from me, your crazy cousin Eddie, the dude bagging your groceries at Kroger, the financial experts on TV every day, someone who works at that company (uhhh, that could be illegal insider trading), or anyone else you run in to. If you are planning to choose a portfolio of stocks (and that might not be the right option for you), YOU need to understand the company you are investing in along with how that company makes money. It is your money and your responsibility so blindly relying on someone else to look out for your own financial best interest sounds reckless.  Here is Warren Buffett1 to hammer that point home:

“Never invest in a business you can’t understand.

I think it is pretty obvious that Mr. Buffett is attempting to understand the businesses he is investing in and making sure he can fully comprehend how it operates. Up to this point, we have talked about different investments but not selecting stocks. I think one important distinguishing thought about stocks is that you are buying a part of a company. That means you are an owner in that company, and the personal value you will receive is when the company continues to grow, raises future expectations, and increases the worth of your ownership.

The best recommendations I have read are where investors research and identify businesses they believe in for long term value creation, buy at a price that provides a probability for growth, and take an ownership stake over many years. Over time, a strong business would continue to perform and deliver based on their own competitive advantages. On the opposite end, if you do not understand the business and are just selecting stocks at any price due to information you possibly heard, you are playing into a stock market scenario much like gambling in Vegas. When you are blindly relying on chance, instead of completing the necessary analysis, then you might as well go put your money on black at the roulette table (seriously, don’t do that, that is dumb).

So what is the analysis you should be doing if you want to understand a business and the intrinsic value of a company to make a smart investment?

  • Do you believe in the management team/CEO to lead the company effectively?
  • What competitive advantage does the company have over their peers?
  • Are there substitutes or foreseeable changes to the market?
  • How hard is it for a company to keep that competitive advantage?
  • Does the company generate cash through both good times and bad?
  • Does the company have debt levels that can be easily managed by the cash flow during down times?
  • Has the company generated additional growth on their revenue through re-investments?
  • Can you understand the ways (product/services/investments) the company makes their money?
  • Does this company have any risks/concerns that could dramatically impact their value?
  • Where do you see the company in 5, 10, 20 years from now?
  • Does the current price provide value for growth? Can you determine the value at which you think the stock should be sold?

These are just a few examples of questions to ask before you start going off selecting singular investments for your portfolio. The lesson is that this practice of selecting value investments is not something to take lightly, and you can see it can be time-consuming, but in order to give yourself the best chance of success, the time and effort is required. So if you decide this is not how you want to spend your time what should you do?

Give up and go live in a van down by the river. One of the easiest ways to start is to invest in a low-cost Target Fund. This is a fund that will put you in the right balance of stocks vs. bonds given your age and year you plan to retire. Over time, it will slowly move you to a more conservative portfolio (more bonds, less stocks) and prepare you for success. This is an easy option to consider.

The next option is selecting your own low-cost index fund. This can be the S&P500 index fund or the Russell entire market fund but either one allows you to start investing and receive the market returns. That means if you believe the U.S. economy and its companies will continue to grow, then over time you will receive positive returns. Combining the index fund with a bond fund would provide an easy starting solution.

Finally, you can begin to include low-cost (see a theme?) mutual funds for things such as international markets, medium sized companies, small companies, growth companies, value companies, etc. Once again the key is to understand what you are investing in and how they align with your goals and personality. This one will take some more analysis but requires less time than creating your own portfolio.

Overall, selecting stocks for long-term success can prove very valuable, but the necessary time to understand your investments is important. Nobody cares more about your money then you, so don’t let others make decisions for you. Start simple, and as you learn more, you can consider other alternatives. It seems better than basing your future financial success on the games of chance at Vegas.

 

  1. http://www.forbes.com/sites/agoodman/2013/09/25/the-top-40-buffettisms-inspiration-to-become-a-better-investor/#f21eeaa250d8

The 8th Wonder of the World – Compound Interest

Posted on by Matthew

Unlike the Nigerian Prince offering a million dollars if you just give him your bank account info, investing is not something that makes you rich overnight. Through discipline and time, you can grow your wealth, but the best way to do that is to invest early and often. Hopefully, after my previous post on the importance of investing to combat rising inflation, people are convinced they want to invest. Some might start by putting it on their New Year’s Resolution for next year, or start when they get that next raise, or when Warren Buffet calls you up to tell you the best time to start, or when the next lunar eclipse happens, but why wait? It is important to start now. The reason for this is the combination of extra time and compound interest – two of the most powerful tools for building one’s wealth.

Most people understand how compound interest works at a high level. You invest, hopefully your investment grows, you make more money, and you re-invest the additional money so it can in-turn continue to grow. This means that your money could be making money while you nap, eat, watch that 8th straight Netflix episode, or share a frosty Budweiser with Peyton Manning. Over time, you will be able to make your money work for you and snowball in to future success.

So compound interest is great, right? One thing people have trouble grasping is just how great and powerful compound growth can be. A fun mathematical problem that some of you might have heard is if you put one grain of rice on the first square on a chessboard, doubled it for the second square (2 grains), doubled that on the third square (4 grains), and continued doubling for the whole chessboard (64 squares) how many grains are on the chessboard? I thought a lot, but not 18,446,744,073,709,551,615 pieces of grains. I don’t even know how to say that number, wow! Now we won’t be making that much money, but utilizing a similar compound growth strategy where one gain helps increase the next gain can be advantageous. The important thing to highlight here is the significance of investing early and often. The earlier, and more, you invest the more it will have time to compound on a larger sum. I have included a table below that shows the difference in wealth at age 65 when comparing between different starting years and also investment amounts. The thing to really analyze is how big of a difference it makes waiting 1, 2, and 5 years on the final outcome.

Investment Table 2_14

Now, if you are like some of the population and see all those numbers and think, ‘Nope too many numbers, keep scrolling – this isn’t Math class Matt’, then here is a visual example for you. Let’s say you have a friend named Dwight who is odd, but disciplined, and invests $5000 dollars from the age of 25-35 and then stops. He is the early investor in the blue line. You have another friend, Michael, who is funny but flaky, and he doesn’t start early but attempts to make up for it by investing $5,000 from age 35-65. So Dwight put in $50,000 (10 years x 5,000 each year) of his own money while Michael put in $150,000. It should be easy to say Michael ended up with more at age 65, right? Well look at the graph.

Investment Graph 2_14

Since Dwight invested early and used compounding interest to build his wealth over a longer period of time, he ends up with more money even though he put in 1/3 of the amount (50,000 vs. 150,000). I think this is an eye-opening example for people to think about as they plan their financial future.

At this point most people see the value and the opportunity of investing early and are ready to ask Compound Interest to be their Valentine. Unfortunately, just like that beautiful former boyfriend/girlfriend who turns out to be all types of crazy, there are some watch-outs. First, we used the assumption of 7% growth as a best guess over a long period of time, but investing is not a magic box that just spits out 7% in cash every year. There are major swings in the short-term, and it is up to the investor to stay disciplined and continue to hold their funds long-term. It is over a long period of time that the historical averages would begin to apply (although not a perfect predictor of the future) and the benefits reaped. Second, compound interest is nice when working for you, but it can also work against you in the form of debt interest. When you buy the biggest house you can possibly afford, that brand new car on a loan, credit card bills, or student interest, each one is collecting interest on top of interest you owe when you are only paying the minimum. I hope to go more in-depth about debt interest in the future but compound interest can both help and hurt.

Hopefully this information will encourage everyone to come up with a plan to invest early and often (while minimizing debt). The results of waiting just a few years to initiate investing are shocking and will hopefully dissuade you from letting the different demands on your money prevent you from investing early. Prioritizing investments when you have the opportunity, or working to make more money so you can work towards that opportunity, is important. In my next post, I will talk about where investment should be prioritized and ways you can manage your money successfully to have income to invest.

Do You Want To Be A Millionaire?

Posted on by Matthew

1 Million Dollars*as perfected by Dr. Evil*. For most, 1 million dollars is a sign of extreme wealth and well-being. While being a millionaire is a fun thought, for younger generations it will become almost a necessity in order to fully retire. This can be scary for a lot of people to imagine saving such a large amount, but thankfully, they have an extremely powerful tool at their disposal – investing.

A simple way to think about how much financial value can change over time is by answering the question: If I offered to pay you $1,000 dollars 5 years from now, in exchange for $1,000 dollars today, would you do it? Most people with any financial intuition will say no, either due to the fact that they need the money now and don’t want to give up 5 years of not being able to spend it (called opportunity cost) or they realize that $1,000 dollars today will be able to buy more pizza, beer, and puppies then it will in 5 years due to inflation (or purchasing power). I think this is a pretty easy concept for most people to grasp but what is hard to realize is the huge effect inflation will have over a long period of time.

Let’s use the example of a 25 year old who plans to retire at the age of 65 and would like to live with quality of life expenses of $50,000 in today’s money. Using an extremely conservative average inflation rate of 2.5% (historical average since 1913 has been 3.2%, more recent inflation from 1990 has been below 3%) and a time span of 40 years would mean the same quality of life in 2056 would be roughly $134,000 per year. That means a million dollars would not even cover 8 years’ worth of expenses, and this individual would be out of money before reaching age 73. Some people might argue, “what about social security?”, but do you really want to be relying on our debt-laden government to support your retirement in 40 years? So what is the rational next step? To save more money.

Now saving is great, and is the first necessary step, but if you are saving and putting your money in the Green Lantern’s Rear like Sheldon Cooper (Bazinga!) then it still seems a daunting task. Remember every dollar you save, one year from now will (on average) buy 2.5% less. So even if you planned to live frugally and save 2 million dollars ($745,000 in today’s terms), if you do not invest then you will need to save $50,000 a year for 40 years in order to meet your goal. I don’t know about you, but my wife and I don’t quite have $50,000 dollars in our yearly budget going unused.

So what do these numbers mean? It is not to scare you but highlight the importance of investing in order to meet future needs. It is critical to not only absorb the impact of inflation but hopefully even grow your wealth at a larger rate so you can work on becoming that future multi-millionaire (white cats and mini-mes sold separately). So now that I’ve hopefully peaked your desire to invest, I will talk next about easy ways to get started and how to address common concerns.