Monday, November 19, 2018


Grow Your Wealth By Reducing Spend On: Transportation, Housing & Food.

October 18, 2018 by  
Filed under Money, News, Opinion, Weekly Columns

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(ThyBlackMan.com) Regardless if you are a Doctor, Physical Therapist, Landscaper, etc., the average American spends almost 70% of after tax dollars on just three items: Housing, Transportation and Food.

We save on average, four percent. This lack of savings is a recipe for future Titanic size disaster.  You will struggle to help your kids attend college or trade school.  You will possibly be unable to pay for your Housing, Transportation, Food and Health Care, while in retirement for 30 or more years.  We must grow our savings percentage.

INCREASING YOUR SAVINGS BY THE REDUCTION OF HOUSING, TRANSPORTATION AND FOOD COST

The first step in problem solving is to identify the root causes:

REDUCING HOUSING COST:

Americans actually come in second, behind Australia for the largest living spaces.  But we more than double the square footage of the average global home.

I want less space as we live in a four-bedroom home with two adults and an occasional visiting daughter.  At least 50% of my home is unused.  We are planning to downsize.

When you are looking for a home to rent or buy, IGNORE the real estate agent, if she pushes you to a bigger or more expensive house! Do you need a living room?  Do you need that 3rd or 4th bedroom?  How many garages can you use?  Do stainless steel appliances keep your food colder, or cook better?  No – So why spend more for a color that can be found in any morgue?

Another way to control housing cost is to live in a lower cost of living part of the country.   Many states have extremely high real estate and car insurance rates.  I live in a state (Illinois) with a negative population growth rate largely due to having the worse property tax rates in our 50 states!  What state you live in makes a difference to how much money you can contribute to building your wealth. If you can relocate and protect your career(s) consider moving to a more affordable state.

REDUCING TRANSPORTATION COST:

The average American, spends nearly $750 a month on vehicle related expenses!  Why is it necessary to spend $9,000 annually on a car or truck?

Like most people I like new cars, I just refuse to pay for an item that decreases in value seven to eight percent, as soon as I drive off the lot. That means I am paying thousands of my HARD EARNED DOLLARS, for a “New” car smell!   {By the way you can buy the “New car smell in an air freshener.} I believe in buying a reliable used car. I drive a 2002 Mercedes E Class.  I purchased this car in 2005.  And it drives just fine.  My car has been paid for ~13 years.  Average American pays $500 per month in car payments.  So I have saved about $78,000. Which I invested in one or more of my investment accounts.  Assuming I averaged 8% return, that increased my net worth ~$137,364.  More than enough to buy a few “new” car smell – air fresheners!

If you live in the city, do you need a car?  My daughter lives in a major city and does not own a car.  In fact, she sold her car and invested the money.  She relies on public transportation, and avoids car payments, gas, parking (~$200/month), maintenance etc.  She is a good saver/investor; contributing savings to her ROTH IRA and savings account, in addition to her 401-K Plan contributions.

How many cars does a family need?  One of my neighbors has five cars (one car per person). When I was growing up in a family of four, in the rural south (where you walked 50 miles to school in the rain, sleet, wind, alligators), we had two cars.  But today many Americans believe in buying EACH high school kid a car.  Why?  So the kids can be in the cool group of teens who drive themselves to school.  Necessary expense?  Absolutely not!

Another cost reduction-live close to where you work.  The IRS estimates that between maintenance, depreciation, and miscellaneous vehicle expenses, each mile driven indirectly costs $0.55.   How far do you commute daily?

The choices are yours.  You can drive a gorgeous $70,000 car and trade it in every 3-5 years.  Or you can during your working career increase your net worth by hundreds of thousands of $$$$$.  Give it some thought.

REDUCING FOOD COST:

Most folks spend on average 14% of take home pay on food.  Another way to look at this, we are spending 14% to produce biological waste! UGH!

The biggest expenditure in this category is restaurant spending, including our favorite fast food places. Let’s face it; it is easier to go out than prepare meals.  But you will sacrifice both how early you can sing “Take This Job and Shove It!” and your retirement income by doing so.

When I worked in Corporate America- “The Evil Empire”, I made my lunch 95% of the time.  I saved on average $25 per week, for 30 years.  Ok- by now you know I am geek enough to calculate my increase in net worth from this savings.  It comes to about $150,000, increase in my net worth.  And my daughter does the same – she packs her lunch most days.

HOW ELSE CAN WE SAVE?

I try and charge all my expenses on two credit cards (two because I attempt to maximize points based on what I am buying).  I noticed a few months ago I was spending about $100/month at Panera Bread.  Because I like their steel cut oatmeal and un-sweet flavored ice tea.  Solution, I purchased steel cut oatmeal from my grocery store for about $4.00.  This box lasts me about.

Couple more hints on food cost reduction.

  • Most store brands are actually manufactured by major brand companies. Do not turn your nose up at store brands-try them. And keep in mind those Kirkland (Costco) branded products are typically just as good as the branded products.  I use Kirkland, laundry detergent, bacon, and other products and typically save 20% or more versus the branded products.
  • Some grocery stores are more expensive than others. Try the discount stores.
  • If you have kids or like buying in bulk, consider a Costco or Sams Club membership.

Take a look at your food expenditures and reduce it by several percentage points and add that to your savings percentage.

CONCLUSION:

The average savings rate is four percent, which is too low.  But if you cut down on YOUR three biggest expenses, you can bump up your savings rate. Over time, I recommend by reducing expenditures, target minimum of 20% going to savings.  Savings includes your 401-Plan, IRA, Equities, Savings Accounts, etc.

After cutting down your expenses, contribute at least enough to your 401(k) plan to get full employer matching. Your contribution is tax deferred and the employer match is part of your compensation IF you participate.  Employers typically match between 3% and 6% of employees’ salaries.  By not participating in your 401-K plan it is the equivalent of burning three to six percent of your income in the fireplace.  STOP THAT!  If you don’t have an employer 401(k), open an IRA with automatic withholding. You can save up to $5,500 annually and an additional $1,000 when you turn 55.

If you increase your savings from the US average of four percent to 20% or more you will accomplish two things.

  1. Improve your opportunity to retire early.
  2. Increase your chances of NOT running out of money in your retirement and therefore enjoying those golden years.

Staff Writer; Styron Powers

One may visit this brother over at; Powers Investments Management and also connect via LinkedIn; S. Powers.


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