Silent Killers of Your Net Worth

budget, cable, cut expenses, debt, early retirement, expenses, financial independence, FIRE, frugal, how we win, income, investing, personal finance, retirement, savings, savings ratio, vehicles

Every personal finance blogger posts about the big items (housing, food, transportation) that can hinder the growth in your net worth. These are repeated so often because they are truly universal. We decided to take a moment and think of the things that aren’t often highlighted, the silent but deadly factors that are wreaking havoc on your net-worth. Taking control of these items can be just as impactful to helping you keep your money and make it work for you.

Car Depreciation

While transportation was noted as a big item above, one of the less obvious costs of car ownership – depreciation – is talked about much less. Depreciation is a factor of: initial purchase cost (factor in fees/taxes/etc.), the number of miles driven, and amount recaptured at the point of sale of the vehicle (again factor in fees/selling expenses/etc.). This is the ultimate reason not to purchase a new vehicle. The average transaction price of a new vehicle in the U.S. in 2015 was $33,560.

Depreciation example: If you drive your vehicle for 5 years, an average 18,000 miles per year, and then sell it with 90K miles on it (this doesn’t include how expensive potential repairs could be!) for $10K. The car depreciated $4,712 per year or $0.26 per mile. Replicating that year-in and year-out, you would need to budget $4,712 per year for your next car purchase; this is of course on top of gas, car maintenance, insurance, registration renewal, etc. While you can’t avoid gas, maintenance, insurance, etc., depreciation is a more controllable expense.

1) Buy used and buy older, letting others depreciate the vehicle in its most expensive stage

2) Decrease your mileage driven (get closer to work, combine trips taken, and question whether there is an alternative method for short trips).

How the Winning Williams mitigate against Depreciation:

We only go grocery shopping once per week and combine that when we go to the library next-door. Not only is more efficient from a cost perspective, but we save time to do things we enjoy with only a little planning ahead, save frustration dealing with traffic and REALLY BAD drivers, technically

Gifts

They say that giving is better than receiving, and certainly, we all feel great when we see someone enjoy and make use of a gift that we have given to them. But when there is a sudden spree of showers and parties with gifts to be given, it can take a hit on your budget. A thoughtful gift doesn’t have to be an expensive gift. Take a moment to tally up what you have spent on every gift you have given in the last 12 months (this includes associated cards and wrapping materials).

The Winning Williams made personalized gifts last year for the holidays. While the package was small and weighed very little, the time and effort and planning that went into the gift was great. We thought of how people might like or love our gift and thought of something that everyone would truly enjoy. Before just handing over money to the office pool or buying anything to just say that you got a gift for someone, stop and take the time to reflect. You may stumble upon a better way to show that person your appreciation and a more cost-effective one as well.

Entertainment

This one is also a commentary on our culture, or lack thereof. How much do you spend each month on entertainment? This includes cable, internet, electricity association with powering your TV and computer, movie rental subscriptions, magazine subscriptions, evenings out on the town, etc. Tally it up, while you are at it add up the time you spend being entertained. Now ask yourself how long you think it would take you to accomplish your goal.

Mrs. Winning Williams published a novel this past month and she had been working on it for 3 years. But the majority of the work on it was completed in the last 8 months- why? Focus. Not being distracted by the things our culture calls “entertainment” allowed her to reach this major milestone. Is a weekend marathon of a TV show worth sacrificing your dreams? Or missing out of the opportunity to have the experiences you want? Are you a zombie to the computer or are you a living person who doesn’t need cheap entertainment to say that you are having a good time.

Not earning interest

If your money is sitting in a standard savings account, it is losing purchasing power each day due to the impact of inflation. The average savings rate is practically 0%. If you utilize an online savings account, maybe you can approach 1% APR. This is detrimental if you have any plans to get ahead and desire an early retirement. Don’t trust the stock and bond markets? In Winning Williams opinion, you have no choice but to put faith into a system that thankfully has worked for decades. Enter at your own risk. If it stops working, well, we all have much bigger problems to worry about!

After saving for your emergency fund (covering 3-6 months of expenses) and other reserves (we probably keep too many reserves, for items such as car repairs and savings, roof/AC reserves, travel, etc. on top of the emergency fund), all other money should be invested at an asset allocation that you feel comfortable with.

For simplicity, let’s say you save $20K per year for 25 years and invest it at 0% return (under your mattress), 3.5% (bond return long-term assumption), and 7.5% (stock return long-term assumption). At 0% you’ll have $500K stuffed under your mattress (or at a bank basically at current rates), which will have much less purchasing power than at today’s dollars; at a 3.5% average return you’ll have $778,997; and at a 7.5% average return you’ll have $1,359,557. The power of compounding and interest more than doubled your wealth compared to the scenario of not investing. Say you want a cool million to retire? Stuff $20K under your mattress for 50 years OR invest it and if you get close to the historical stock market return, work for 22 years.

Now that you have some more information on how to stop these factors from ruining your efforts to save for retirement, let us know what questions you have on how to be debt-free!

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