Retire a Millionaire

by Fred Siegmund

I was speaking with a financial advisor but not at his office. It was at a party where there was lots of informal chit-chat over a nip of the grape. One thing he said to me and some others standing close by was meant as humor, a joke. It was “People sometimes ask me, How did you accumulate your first million? I tell them my simple strategy. Don’t buy anything.”

It got a laugh and it was funny the way he told it, his voice and exaggeration. Then he went on to tell about a personal choice he made back in the 1980’s after finishing college. The car he had was a used Chevrolet with no cachet, but it ran well and was reliable. The fancier car he wanted to buy at the time he said was $9,100. Of course he didn’t have the money, but he recalled the deal he got to buy it was $2,000 down and a three year loan at 7 percent for the rest.

He didn’t buy the car but decided to take advantage of pension rules that allow savings to go untaxed in the stock market for decades. He claimed his “not buy a car” investment was worth around $100,000 dollars now.

Not buying a car put him 10 percent of the way to retiring a millionaire, but there are other goods and services that are relatively easy to do without or to substitute something much cheaper. Regular or monthly service charges for cable TV, storage lockers, gym memberships, newspaper, magazine and Internet subscriptions, cleaning services, yard services, and life insurance come to mind quickly.

Decisions not to buy deluxe cars, electronics and appliances over the budget models, or replace them early for the newer models can generate thousands of dollars at retirement. Even essential services like phone, heating and air conditioning allow more saving opportunities to become a millionaire.

How much buying to avoid and things to cut back to reach a million dollars depends on time and interest rates as it does in all financial accumulations. Assuming work starts between the ages of 18 and 22 and continues to the Social Security retirement age makes it reasonable to use forty years of work life to save for retirement. The many stock index funds give a comparable measure of expected returns for a retirement account. The Standard and Poors 500 index earned a 7.2 percent return for the decade ending 2014 assuming dividends were reinvested. For the past twenty-five years the Standard and Poors Index had a 9.4 percent return.

Using an 8 percent return rate and Microsoft Excel spreadsheet functions computes to $284.56 a month of consumer goods and services not purchased will be a million dollars at retirement in 40 years. Lets start by eliminating new cars and then cable television, storage lockers, gym memberships, and newspaper, magazine or Internet subscriptions, all of which have cheap and available substitutes.

In today’s economy a $20,000 new car is common. Put $2,000 down and finance the rest on a 60 month self amortizing loan at 4 percent interest and monthly payments will be $331.50. If a new college graduate invested the $2,000 down payment for 40 years and invested the $331.40 each month for 5 years and then invested that five year total for the next 35 years, the total comes to $428,604.33, assuming the stock market return rates of the past continue in the future.

Few people want to acknowledge the place of a car in their personal finances. Today’s cars can and do go 200 thousand miles. Compare two people who keep a car for 10 years and drive it 10 thousand miles a year. Over forty years the one who buys and drives that car for the last 10 years and the last 100 thousand miles can expect to retire a millionaire on the invested savings.

Many people worry about the age of their car and forget that most of the wearing out and many of the costs of ownership – tires, brakes, oil changes – depend on mileage, not age. Worry that an old car will break down and strand you in the middle of no-where and therefore you need a new one, turns into an expensive worry.

Moving on I found a variety of cable television packages on the Internet that ranged from $44.24 a month up to premium services of $112.94. A typical 5 by 5 storage locker will go for $49 a month. Bigger 10 by 10 lockers go for up to $89 a month. Gym memberships vary but range up to $36 a month. I found magazine, newspaper and Internet subscriptions from $1.00 a month up to $2.95 a month.

Home ownership allows opportunities to choose do it yourself work that renters have to cover in their monthly rent. Still many homeowners hire home cleaning services and yard services. I found a typical home cleaning services at $90 for three hours of cleaning once a month. I found basic yard services at $49 a mow up to $85 for premium services.

For phone service I found phone and Internet service packages for $39 a month instead of unlimited nationwide talk and text cell charges at $59.95 a month, plus $30.00 more for a two gig data package. Many run over the data limits and add more charges. Phone bills now routinely run over a $100 a month for many.

There are people and families without enough discretionary income to buy any of these services. Those who have discretionary income could be millionaires with a little planning. Drop the $44.95 of cable television expense and use an aerial. Drop the $49 storage locker and store your own junk, or get rid of it. Drop the $36 a month gym membership and do your own exercise for free. Give up ten magazine, newspaper and Internet subscriptions and save $10 a month. Drop the maid service and save $90 a month. Get a $39 dollar a month phone and Internet package and save at least $60 on the fancy cell and data service packages. The total monthly savings is $289.95 a month, even without saving on a car.

Will you suffer doing without these services? I can’t answer that for you, but I am gonna be millionaire.

About the author: Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com

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