The story has it that the late Tony Curtis -- an actor and father of Jamie Lee Curtis -- had problems managing his money, so his financial adviser suggested that he keep track of every dime he spent for a thirty-day period. The list at the end of the month read something like this: newspaper 25 cents. Tuna sandwich $2.50, Miscellaneous $3,513.00.
So much for successful budgeting. It's one of the toughest challenges that we face, and arguments about money are supposedly the most common cause of relationship failures.
So I was thrilled last week when talking to a young twenty-something woman who is one of the information technology ("IT") people at a major law firm. She said that she and her fiancé are both contributing the maximum, $17,000, into their respective 401(k) plans. Their favorite Friday night activity is to pour themselves some wine and watch Suze Orman, the financial guru, on TV.
That's not all. This young couple who live in the city sold their car months ago and use "ZIPCAR" for hourly around-town travel. For longer weekend trips, they just rent something for what amounts to less than $40 for two days. For budgeting, they use the envelope approach -- or at least today's on-line version.
"The envelope, please," in its pre-computer age rendition, was an approach to budgeting calling for cash deposits into envelopes that were earmarked for the different spending categories like rent, food, utilities, entertainment, savings, etc. If you reached the beginning of the fourth week of the month and one of the envelopes was empty, it was time to stop spending in that area.
"What about food?" one might ask. Well, my last salaried job, ending in 1971, was as an officer in the U.S. army. When my landlady wound up short of cash toward the end of the month, we had a soybean stew with a ham hock and ketchup at a cost of about a nickel per serving. By the same token, packaged, sugar-laden breakfast cereal costs almost $1 per serving (and is bad for you) compared to old fashioned oatmeal at 5 cents a bowl. Many people have given up cable and just watch TV on their computers. The opportunities to save money are endless, but they require creativity and self-discipline.
Keeping track of money is easier today than ever. Software products like Quicken, Moneywell, and Mint all offer to download income and expenses and make budgeting much easier. In the Tony Curtis days, the only option was to handwrite how money was spent and then enter those expenditures into their categories at the end of the month. Today, you can link your credit card and checking accounts to these money management programs and the categorization of all your expenses takes place automatically in a seamless electronic environment. You can pre-fill the electronic envelopes with the budget amount and see when the cash allocated to each category has been exceeded -- on your iphone, even.
Quicken is designed to work with PC's, but it struggles to accommodate MAC's. My neighbor showed me the extent to which he jumps through hoops to get Quicken to work on his MAC, and, while I have a MAC, I found it easier to just go buy a new PC for the sole purpose of continuing my ten-year affair with Quicken.
Meanwhile, Moneywell.com and Mint.com can offer a blast of planning tools that make managing money a real-time experience. The young IT professional mentioned above uses a combination of both programs and found herself shocked to see how much she was spending on dinners out.
So, it's interesting to speculate what two young people can accomplish by spending thoughtfully and contributing $34,000 per year ($17,000 each) into their respective 401(k) plans. Assuming just a conservative 8 percent average rate of return, the combined nest-egg in just ten years would be over $500,000. Assuming a 34 percent federal and state tax on the last $17,000 of income, their cost of the $34,000 contribution in combined take-home pay would be about $22,400 per year or $224,000 over ten years.While $500,000 for $224,000 invested isn't quite the "something-for-nothing" of winning the lottery, the odds of success here are virtually guaranteed.
Stephen J. Butler is CEO of Pension Dynamics. Contact him at 925-956-0505, ext. 228, or email him at firstname.lastname@example.org.