But when you consider that Northwestern Mutual’s 2018 Planning & Progress Study showed that 21 percent of Americans had no retirement savings and 40 percent have less than $25,000 socked away, there’s little doubt that wasteful spending ultimately becomes a big deal.
Nearly two-thirds of Americans wish they had spent less in the past to save more for retirement, especially when it comes to short-term pleasures, impulsive wants and anything — from clothing to cars to fancy meals — that feels bling-y.
The problem with that finding is, according to a recent study from Charles Schwab, these 401(k) participants nationwide are only now coming to the realization “waste not, want not” isn’t an adage so much as sound financial advice.
The Schwab study was particularly interesting to me because it was released as my oldest daughter was visiting the Gulf Coast of Florida, where I first worked after graduating from college. She asked if there was any place to go back to, and I sent her to a hole-in-the-wall Mexican restaurant not far from where I earned a meager weekly paycheck from the Bradenton Herald in 1984 and ’85.
I told her that, back in the day, her mother and I had spent way too much money eating at the little Mexican place, even if all we could allowed ourselves for a snack was two bags of chips and some salsa.
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My daughter and her friends loved the old place, but she wondered how her parents could truly have been “wasting money when, like, you could order the whole menu for maybe 12 bucks … and it probably was like eight bucks way back then.”
Furthermore, she wondered if I really missed the money or felt any sting from it — all of these years later.
I said she needed to look at wasteful spending with years of hindsight. Back in those days, if I spent $12 on eating out one day, it meant that 4 percent of my gross pay was going to a meal. If we did something like that a few times a week, it’s no wonder why I was not putting aside 10 percent of my salary into the company’s retirement plan.
Had I been able to set aside 10 percent of my meager salary back then — roughly $1,200 for about nine months spent working at the paper — plus the company match of roughly $600, I would have amassed about $1,800 in a retirement plan. At about 8 percent annualized growth over nearly 35 years, that would be in the neighborhood of $30,000 today.
That’s a retirement’s worth of chips and salsa.
Obviously, I didn’t fritter away my ability to retire; I have a lifetime of retirement savings from decades of working.
But when you consider that Northwestern Mutual’s 2018 Planning & Progress Study showed that 21 percent of Americans had no retirement savings and 40 percent of the populace has less than $25,000 socked away, there’s little doubt that wasteful spending of even small amounts ultimately becomes a big deal.
That $30k number was an eye-opener for my daughter, whose primary employer just offered her a retirement plan with a small match. She was thinking that saving a few dollars each week wouldn’t amount to much for a young, underpaid educator whose best earning days are in front of her.
Now she is thinking about changing her spending habits to accommodate a new savings habit. Indeed, that is precisely what the participants in the Schwab study say they wish they had done.
Respondents had few regrets about spending money on things that contribute to long-term success and happiness, like housing, college tuition for the children, and even weddings. More than half of the participants (55 percent) said they regretted too many meals out, while nearly one-third of respondents regretted the purchase of expensive clothing.
Catherine Golladay, senior vice president, Participant Services and Administration, Schwab Retirement Plan Services, noted that people don’t regret true needs and think they shouldn’t have bought something like, say, the household refrigerator, but the clothing and almost anything that contributed to long-term debt came with at least some regret.
Ironically, perhaps, 401(k) participants say that quality-of-life activities — like dining out with friends — are one of their big financial obstacles. If only they did more home-cooking back in the day, they would face fewer obstacles today, when they feel like their needs are greater than in those bygone years.
Of course, other studies have shown that many savers have a different problem, that they get to the point where they are set for life and have amassed a nest egg that is more than sufficient to handle both their needs and their wants, and yet they can’t bring themselves to use their money.
Many retirement savers have reported this problem to me, an offshoot of a lifetime of saving and deferring gratification that winds up going too long without enjoying the spoils of the savings effort.
In the end, the idea for most people is to have no regrets on either side of the saving-spending dichotomy, to use their money in ways where they are both confident in the future and content with their financial choices.
While spending doesn’t always seem like financial planning, Golladay said it is, and that the study highlights the need for individuals to put real thought into what they do with money, from an early age.
“Whether it is thinking about your spending today or when you get to retirement and are ready to spend it, if you have that plan, you are so much better-positioned,” Golladay said in an interview. “People are thinking about it; they just have to translate it into some positive action.”
Having regrets about spending too much is to be expected; almost everyone has a story about decisions, and money, that wish they could take back.
What few people have regrets about money they didn’t spend, at least until the time — and the purchase — was right.
That’s the take-away from Schwab’s research. The easiest way to avoid the regret is to be a bit more frugal, thereby reducing long-term financial stress and, eventually, building assets that can be spent without regrets and misgivings.