Dr. David Ashby, special to magnoliareporter.com
By now, you have probably made your New Year’s resolutions. In addition to the loseweight/ stopsmoking/ exercise/ spendmoretimewithfamily list of choices, financial resolutions are a top priority for many.
My wife and I called one of our kids Christmas to see what the grandkids had gotten. “Aisles 17 thru 24 at Walmart” was the reply! A lot of folks go overboard at Christmas, no doubt. We manage to justify this -- after all, Christmas only comes once a year. But actually, excess spending continues in other ways during the year. At the risk of sounding like the Grinch, I’d like to point out a few examples.
For starters, if you eat out lunch every workday, you might spend an average of $9. That’s $45 a week, or $2,250 per year. It’s fun to eat out but you could probably bring your lunch for $4 or less. How about a compromise: Get with the gang once a week to catch up but bring your lunch the rest of the week. Estimated savings: $1,000 per year.
I mentioned quitting smoking as a popular resolution. We all know folks who were going to quit when they hit $5 per pack. But they were also going to quit when they hit $3 a pack. At $6 a pack and two packs a day, that’s $4,380 per year. I am assuming smokers smoke on holidays and weekends as well. And of course, that doesn’t include the extra medical costs.
Like that new car smell? Have you grown accustomed to trading cars every two or three years and always paying a car note? Why not drive the car an extra two to three years? If the car gets paid off, put those funds into a savings account each month. That way you can pay a big chunk down on the next car purchase. When you trade, buy a slightly used vehicle and save even more. Let somebody else pay for the privilege of driving a new car off the lot. You can buy a can of new car scent and spray it in the vehicle when you want that new car smell! Some of the wealthier people I know buy used vehicles and then drive them ‘til they drop. It’s one of the reasons they’re wealthy.
While vehicles can be a black hole for funds to disappear in, we let small amounts slip through our hands as well. Bottled water and gourmet coffee are now everyday staples. What about tap water and Folgers? We used to get by on those fine. You have added features on your phone or cable bill that you don’t use. But you put off calling or going online to have them removed. We can easily tell ourselves its only $10 or $20 a month. But if you found a $10 bill in the parking lot, you’d feel great and tell the next five people you see about it!
In the above examples, you spend money and have nothing to show for it. Well, what about housing? Homes are an investment, you say. Yes, but a lot of folks just have too much house. Larger, more expensive homes mean larger payments, plus more insurance, taxes, maintenance etc. These costs negate your ability to save for retirement. When you reach retirement, there is a big difference between having $300,000 equity in your home and $300,000 in a retirement account. The retirement account is liquid and generates funds you can use to live on. The house is not readily liquid and generates expenses proportional to the size and value of the home.
If you find your budget stretched a bit tight going into the new year, maybe you can apply one of more of the above suggestions to loosen things up. A little more breathing room would feel good, sort of like finding a $10 bill in the parking lot!
Dr. David Ashby is a Certified Financial Planner and the retired Peoples Bank Professor of Finance at Southern Arkansas University. He holds degrees in accounting and business administration and a doctorate in finance from Louisiana Tech.