Can’t Save Money? Think Again

Can’t is not a synonym for “won’t”. A recent article in U.S. News & World Report by Robert Berger made some interesting points with the provocative headline “Would You Give Up Cable to Retire Early?”.

The key point in his article was based on the effect of compound interest. He postulated that the average cable bill approximates $80 a month and saving that amount over 50 years would total $48,000, a nice sum but not exactly the road to riches. However, if you took that same $80 monthly expenditure and invested it in a low cost S&P Index fund at 8 percent annually, the balance at the end of 50 years would be $638,000. If the annual return averages 9%, the number grows to nearly $1 million. (The average annual return on the S&P 500 for the period 1926-2013 was 10.1%).

This is not to suggest that you should give up cable. But perhaps some modification in the number of channels, plus some modification in the scope of your cell phone subscription and maybe one or two less premium coffees might not add up to an intolerable reduction in your standard of living.

Can’t is not won’t and compounding is a remarkable route to financial security.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA