Mike Ballew is the founder of Eggstack. He’s a member of the Financial Planning Association, an engineer, and software developer.
Eggstack is an independent financial technology company located in Jacksonville, Florida. Our mission is to help you overcome uncertainty about retirement planning and inspire confidence in your financial future.
Whether consciously or not, we set priorities based on our values. Someone who values family over achievement will assign a low priority to working late. Similarly, our spending habits reflect our values regarding personal finance. Let's look at how to prioritize your budget for success.
First we need to define success. Is it making ends meet? Is it paying bills on time? What about setting some money aside for emergencies and retirement?
Everyone needs an emergency fund to deal with life’s little surprises. Without it, you’ll be asking your family for help or getting out your credit card. Relying on credit for unexpected expenses can snowball into a serious debt problem.
Saving for retirement is even more important. Social Security was never meant to be a retiree’s sole source of income. It takes a considerable amount of cash to bridge the gap between Social Security and the average American lifestyle. Success is making ends meet, paying bills on time, and setting money aside for emergencies and retirement.
Now that we’ve defined success, how is it achieved? It requires some introspection into spending habits. Housing, food, and transportation consume the bulk of our resources. Next is healthcare, entertainment, clothing, gifts, faith-based/charitable giving, and numerous ancillary costs. You might be tempted to focus on the big-ticket items, but it’s the smaller things that more readily effect change.
Do you stop for coffee on your way in to work every morning? What do you typically do for lunch? What about your evenings, how do you spend your time? What do you do when your car gets dirty? If you own a home, do you pay someone to mow your lawn? If something breaks or requires maintenance, do you call somebody to do it?
A recent survey found that one-third of Americans spend more on coffee than they save. Last year Starbucks broke its previous record with revenues topping $26 billion. Did you contribute to that? Coffee doesn’t have to be expensive, you can brew a cup at home for about 20 cents.
Have you ever given any thought to what motivates the typical restaurateur? What do you think they value most, your health or your money? Restaurants make money by loading up your food with salt and grease to make it taste better so you’ll come back for more. Why spend money to go out to lunch when you can bring something from home that’s better for you and costs less?
Do you spend your evenings swilling drinks at the bar? If you’re single, you probably think it’s a good way to meet someone. It's really not. You can have a beer or a glass of wine at home for under a dollar. How does that compare to your average bar tab?
When’s the last time you washed your car? Really washed it, yourself. You’re wasting money every time you pull into a car wash. You can wash your car at home for pennies and it probably won’t take any longer than waiting in line at a car wash.
Homeowners: If you are relatively young and able-bodied, you don’t need to pay someone to mow your lawn. Chances are you could use the exercise anyway. And would it kill you to change the filter in your furnace? You can save hundreds each year by performing your own maintenance on your home and automobile.
"The average American’s emergency fund is a piece of plastic in their wallet and their retirement plan is to die before they get old."
If you struggle with your budget and have little or nothing left over to save for emergencies and retirement, you don’t have a funding issue, you have a spending problem. Every day people waste money on frivolous luxuries, money they could be saving. “It’ll all work out," they tell themselves. Maybe someday when they’re old and destitute they’ll question whether all those lattes were worth it.
The average retirement period in the U.S. is 18 years. The average American earns $80,000 per year and has $130,000 in their 401(k) account. That is not enough to last 18 years.
If you want to get in the ballpark, the math isn’t difficult: The average Social Security retirement benefit is $1,550 per month or $18,600 per year. $80,000 - $18,600 = $61,400 per year needed to supplement Social Security. 18 years x $61,400 = $1,105,200*. Do you have that kind of money in your retirement account?
Have you ever run a projection to see how much you really need in retirement? Not one of those free online calculators that asks for your age and income and savings. Those use outdated rules of thumb that don’t consider any of your specific circumstances. You need to sit down with a financial advisor or use sophisticated computer software that can evaluate every aspect of your situation. Programs like Eggstack analyze your finances and provide vital guidance and insight. It’s the only way to know for sure how much you need to save. When you consider the rising cost of healthcare and housing and taxes, you might be surprised to see how much you really need.