Frugal Habits to Improve Your Retirement

Developing a frugal lifestyle could help you to retire earlier and with a smaller nest egg.

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Being frugal is not always fun. Why should we watch what we spend each day? It's much more convenient to buy a latte from Starbucks than drink coffee at home. In our consumerism culture, we are geared to spend. Many of us rationalize this by pledging to work harder to earn more money.

For example, let's look at the cable TV bill. If you are paying $100 for cable television, does that cost too much? If you are in your prime earning years, then $100 per month does not sound like a lot to pay for high definition digital TV shows. It only costs about $3 per day for your 50 inch LCD TV to show beautiful hi-def movies. It's easy to earn $3 per day. That's less than half an hour of work even at minimum wage. However, I implore you to think about these recurring costs as if you are already retired.

When you are retired, your income will be fixed. You will have minimal earned income and your savings and pension will pay the bills. Let's see how much savings you need to spend $100 per month to pay the cable bill throughout retirement. If we use the 4 percent withdrawal rate, you will need more than $30,000 in investments so you can draw $100 per month. If that money is stashed in a retirement account, you will also have to pay tax on that passive income. So, $30,000 might not even be enough to cover the cable bill throughout retirement, especially if prices go up.

Do you have $30,000 saved up to pay for your future cable TV? What about other bills? A $5 weekday latte habit will cost another $100 per month. With just 2 bills, you already need a $60,000 nest egg. Check your monthly costs and you will see many more recurring expenses. You will need to build up your nest egg to pay for gasoline, a cell phone plan, pet food, eating out, car repairs, movies, new clothes, and much more.

While being frugal won’t make you rich, it still serves several very useful purposes. It will keep your monthly costs down, and then you can redirect that extra money toward retirement savings. Have you checked your monthly expenses lately? If you spend $3,000 per month, then you will need about $1 million in your retirement account to cover that. Not many people have that much money stashed away. If you are lucky enough to have a pension and Social Security payment, then those income streams will help tremendously. Otherwise, learning to be frugal while you are working will go a long way toward a comfortable retirement.

Joe Udo is planning an exit strategy from his corporate job by reducing expenses and increasing passive income. He blogs about his journey to early retirement at Retire by 40.