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Almost 50% of Americans cannot come up with $2,000 for an unexpected expense, even if they have 30 days to get the money. That’s pretty scary.
Consider all the different ways you may need to come up with cash quickly: a fender-bender that requires a $1,000 deductible, 20% co-payment for a broken arm, or a large towing expense (as many Hillcrest club-goers recently discovered).
We all know that our Social Security checks will cover a lot less of daily expenses then it does for our grandparents. In fact, many people I talk to don’t expect to get anything from Social Security by the time they retire. However, you will get something and can safely expect to get about one-fourth of your retirement income from Social Security.
That means most retired Americans have to pay for food, healthcare, travel, and all the other retirement expenses from income generated by their own savings. How are people going to pay for 30 years of retirement if almost half of us don’t even have $2,000 saved up?
Well, lucky for you that Big Assets has developed an easy and simple way to save. I call it the PIC Method, which stands for Phone-Internet-Cable. The one simple rule of PIC is that you must save at least what you spend on your phone, Internet and cable bills.
If your budget can’t fit in that amount, then you have to cancel one of these services to lower your mandatory saving requirement. You get to “PIC” which services to keep or cancel.
I know everyone is smart enough to understand this, but let’s use an example anyway. Michael’s PIC services have monthly costs of $110 for his smartphone, $40 for Internet access and $50 for cable. These three services total $200. This means Michael must save $200 per month in a savings account or an employer savings plan.
If he can’t afford to save $200 per month, then Michael has to choose to cancel one of these services. He decides to cancel cable because it is a useless waste of his time. (OK, that’s just my personal opinion.) Now Michael only has to save $150 per month because that is what he pays for his smartphone and Internet access.
Unfortunately, that’s still a little tight for him. So he reduces his smartphone bill $30 by switching from unlimited minutes to 500 minutes. Now Michael only has to save $120 per month, which he is able to do.
Don’t forget that he can begin adding these services back if the rest of his spending budget decreases. If Michael decides he really needs unlimited minutes and cable, then he can do things like decrease how much money is spent on eating out, move to a cheaper apartment, or shop for cheaper auto insurance.
I’ll leave you with the following amount: $163,000. This is how much saving $120 per month turns into after 30 years at an 8% annual rate of return. You can save that much. All you have to do is PIC!
Steve Doster, CFP®, is a Certified Financial Planner offering fee-only, hourly financial advice for do-it-yourself investors. Visit his website or his Facebook page to see his favorite personal finance article of the week.