The $16,500 Shot Gun

Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

Published by Robert W. Huntley, CFP®, CHFC®, Founder & Wealth Advisor

Let’s do some math.

$1,000 in 2019 can buy me a nice new shotgun.

I still have a Remington, 12-gauge pump shotgun. It’s a 1976, Model 870 and it still works fine, but it’s a pump and I’d rather have a new automatic.

I’m taking up shooting clays as a hobby and really want to upgrade my shotgun. But years of doing what I do for a living has taught me that I’m not just making a $1,000 spending decision.

If I stay with the gun I already have and choose not to spend my money on a new shotgun, what else might I do with my $1,000?

A classic financial decision, but is this a $1,000 decision I’m making? Or is there another way to look at it?

Suppose I decided to save that $1,000 instead of spending it today. I put it into my IRA or 401(k) plan instead.

Some Assumptions:

  • My tax bracket is 25%
  • The investment I put the $1,000 into averages 9% per year for the next 30 years

What could my $1,000 grow to?

First, I get a deduction for the $1,000 contribution. That gives me tax savings of 25% of $1,000 or $250 taxes saved. I take that $250 and add it into the 401(k) plan.

If that $1,250 grows for 30 years and averages 9% it becomes $16,584.60!

So, is my decision to buy that shotgun a $1,000 decision or a $16,500 decision?

Sending money ahead to the old person you’ll be one day.

All of us will be an old person one day unless we ‘relocate’ early.

Social safety nets sound great on paper but really, it’s no one else’s responsibility to take care of me in my old age. That’s my responsibility.

I must prioritize sending money ahead to the old person I’ll be one day. I’m married, and I also want to send money ahead to the old person my wife will be one day. I might even want to send some money ahead to my kids and grandkids to give them a leg up in life.

Spending money today rather than saving and investing it is a 1:50 ratio (short term enjoyment vs. long term security). That’s the simple math of the decision. The lost potential growth of a dollar spend is 40 or 50 times the dollar spend today.

Understanding the lost potential from years of tax-deferred compounded is a key to accumulating wealth.

We are emotional creatures & don’t spend based on logic.

I know, I know, we’re still going to buy that shotgun, take that vacation, or grab the latest mobile phone upgrade. We want what we want.

I don’t think most of us will think about purchases like this. However, it is interesting to remind myself of what I’m really doing when I buy that big screen TV, four-wheeler, shotgun, or whatever else I want to enjoy right now. I am spending today dollars plus what they could grow to 10, 20, or 30 times the amount in the future if I saved and invested it instead.

Let’s get real.

The most practical way to manage this without it driving you crazy and making you miserable is to simply commit to saving a doable, but the aggressive percentage of every dollar you earn for the rest of your life.

I feel confident in saying that anyone who starts saving 10% of their annual income in their 20s may be financially independent by the time they reach their 60s.

There. That’s simple. And it doesn’t require a fancy calculator. Just save. Do it regularly. Invest in quality stocks through either ETF’s or mutual funds and you’ll be ahead of about 3/4 of your peers.

Oh, and one last observation. Today I’m closing in on 60 so I really don’t feel like I have another 30 years to compound my money. So, it gets easier to talk myself into spending it on that shotgun! Not nearly as expensive.

See what I did there? 😉

Share:
facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.
Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

RECENT POSTS

Your Silicon Valley Bank Questions Answered

You likely have heard about the recent Silicon Valley Bank (SVB) collapse and probably have questions. Here, we provide you with unbiased answers to your questions.

Thinking About Retiring Early? 8 Things to Consider First

Tom Fridrich, JD, CLU, ChFC®, Senior Wealth Planner We’ve all asked ourselves whether it’s too early to retire (usually after a particularly challenging commute or dealing with a difficult client).  You may have even gone so far as to take a sneak peek at your account statements …

4 Tips to Take Your 401(k) to the Next Level

Matt Kory, Vice President, Retirement Programs As a retirement income vehicle, the 401(k) is second in popularity only to Social Security – and as CNBC reported in 2019 the number of 401(k) millionaires is at an all-time high. But is a million dollars even enough for your retirement needs? 

Should I Open a Traditional or Roth IRA?

Multiple retirement savings vehicles are available but having options can be overwhelming. Each option comes with different rules leading to a variance of outcomes in the short-term and long-term. It’s not that dissimilar to choosing what to eat.

1 2 3 112 113 114

Get in Touch

In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Schedule a Consultation

TweetsFollow Us