Most retirees probably wish they had saved more money in their younger years, but many others are sitting pretty because they had the foresight to spend wisely way back when.
GOBankingRates spoke with several retirees — including a few who retired early — about the things they’re grateful they had the sense not to waste money on when they had a steady income.
A surprising pattern emerged.
Almost none delighted in having abstained from lattes, take-out and the other small stuff-of-life purchases that so many personal finance gurus caution against. Those who are grateful for the financial caution their former selves displayed tend to focus on spending — and, most importantly, borrowing — for big-ticket items that come with loans, interest payments and years of commitment.
1. New Cars: $5 Million Saved vs. $2 Million Spent on a Lifetime of Payments
Retirees were most likely to cite expensive car payments as the one expenditure they were grateful to have avoided over the years. It’s not hard to understand why once you realize what’s at stake in the dealership financing office.
“If you save $500 a month for 40 years with interest, you will have almost $6 million,” said financial consultant, career and business advisor Paul Walker, author of “A Money Book Anyone Can Read.” “Conversely, if you spend $500 a month on car loans for 40 years, you will have wasted almost $2 million at 8% interest. Pay cash for cars and invest the savings.”
Caroline Bogart founded The Carol Report, a career education research platform she created after a lifetime of working as a programmer and web developer. She now creates free websites for animal rescues.
She secured her retirement savings by buying all her cars after the original owner had already eaten the depreciation.
“Looking back, I’m grateful I didn’t splurge on the latest and greatest cars,” said Bogart. “Instead, I bought reliable, used vehicles and drove them for as long as they would last.”
Marcia Morgan, Ph.D., author of “GO! How to Get Going and Achieve Your Goals and Dreams at Any Age,” is grateful that she didn’t get a car until she could afford one at 21.
“Some friends got cars in high school,” she said. “I’m 69 and have never had a car payment. I’ve had some great, fun cars, but I did research and bought good used cars that always went up in value — not down.”
After college, her first car was a $500 Volvo. She eventually graduated to BMWs, Mercedes, Porsches, etc. — but only used models she could afford to pay for in cash.
Sticking with that strategy, no matter how much you make, is one of the best ways to stave off lifestyle inflation as your earnings increase.
“My husband and I have never owned or leased a new car although we both held six-figure incomes,” said Lisa Young, who, along with her husband Antonio, founded the Change We Seek Foundation after retirement.
Instead, they purchase cars just off lease.
“We learned early on that new cars depreciate by more than 10% once you drive them off the lot and up to 20% in the first year,” said Young. “We are glad we made this decision because we prefer to spend money on travel experiences and giving back to our community.”
Kathleen McDermott, a menopause wellness and life coach who quit her full-time nursing job to found Women and Balance, is grateful for her cautious spending on life’s other big-ticket item — the one you live in.
“I am 58 years old, and my husband is 59, and we just retired,” she said. “We live in the Northeast. We, fortunately, are very comfortable in our retirement because we did not waste our money on buying a large home.”
McDermott also built her nest egg by resisting the urge to reimagine her dream home every few years and tapping her equity or credit cards to bring it to life.
“We didn’t spend money on unnecessary home decor updates,” she said.
Houses and vehicles offer the most dramatic opportunities to spend less and save more. However, you can stave off slow, steady bleeding over time by refusing to participate in competitive consumerism.
“I’m also glad I didn’t fall into the trap of trying to keep up with the Joneses,” said Bogart. “It’s easy to get caught up in the cycle of buying bigger houses or trendier clothes just to match your peers, but those things don’t bring lasting happiness.
“We were always able to travel, lived in a modest home and were able to provide for our children but did not waste our money on keeping up with what other people were doing,” she said. “We saved regularly in a separate money market account to be able to retire at this age.”
Bogart says she “saved a lot by cooking at home and avoiding expensive restaurant meals.” But the real results came not from what she bought but from how she paid for it.
“Most importantly, I resisted the allure of easy credit,” said Bogart. “The interest payments can be a massive drain on your resources. Today, I am debt-free, with a healthy retirement fund and the freedom to enjoy my golden years without financial stress.”
Some borrowing can be advantageous — a loan to open a business or purchase a home you couldn’t otherwise afford, for example — but debt is almost never justified for things you could have lived without or saved to buy outright.
“My advice to the younger generation would be to prioritize needs over wants,” said Bogart. “Buy the things you truly need and delay gratification on the wants. Avoid the temptation of instant credit and the false sense of affluence it might provide. If you can’t afford it now, save for it. Also, invest in experiences rather than material possessions. Travel, learn a new skill or spend time with loved ones. These experiences often bring more happiness and satisfaction than the temporary thrill of a new gadget or fashion item.
“Most importantly, start saving for retirement as early as possible. Even small amounts deposited regularly in a retirement account can grow significantly over the years due to compounding.”
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