Three Spending Habits That Could Affect Your Retirement
Motley Fool recently identified three spending mistakes that are common in retirement.
Many retirees have a trend for falling into financial traps that could reduce their retirement income significantly, according to Motley Fool. These traps include buying things just because they’re on sale, not paying attention to the little things, and spending extra money just because they have it. Find out more below.
1. Buying things just because they're on sale
S-A-L-E! Who doesn’t love that word? The psychology of the sale makes it easy to get caught up in it. According to Psychology Today, sales shift our focus toward what we’re saving rather than what we’re spending.
If the item is something you really need and will use, of course it’s logical to take advantage of the discount. But if you’re purchasing it with the hope of using it later, then you’re spending extra money that could add up quickly.
According to a survey by Slickdeals, the average American spends around $450 per month on impulse purchases. That's around $5,400 per year, or $324,000 over the average lifetime (and assuming you become financially independent at age 18). Nearly 2/3 of those who shop impulsively said they do so because they got a good deal on the item, and 40% said they have purchased something on impulse simply because they had a coupon.
According to Motley Fool, if you put that $5,400 per year you may be spending on impulse purchases toward your savings, that money could dramatically affect your retirement. For example, if you save $5,400 per year in a retirement account earning a 7% annual rate of return, then in about 30 years, you'd have saved around $510,000.
2. Not paying attention to the little things
You may justify spending money each month on "little" costs, thinking that $10 here and there won't hurt. But these costs can quickly add up, and before you know it, you're spending hundreds of dollars per month on "little" things.
If you could save an additional $100 per month by cutting out the little things that you don’t really need, then that money could go further than you may think when you invest it in your retirement fund. By saving just $100 per month earning a 7% annual return on your investments, you’d have accumulated around $113,000 in savings over 30 years.
3. Spending extra money just because you have it
It’s tempting to want to treat yourself to a special vacation or the newest technology gear when you get extra money from a tax return or a bonus at work. There may be no harm in occasionally splurging, but be mindful that you’re possibly doing so at the risk of your retirement.
It’s not easy to save for a comfortable retirement regardless of how much money you earn. The more you make, the more you spend, according to Nielson Insights—so making a lot of money doesn’t always equal a secure retirement. But if you're consciously wasting money on things you don't need, these bad habits could end up costing you thousands of dollars and an uncertain financial future. You can read the completeMotley Fool article here.