Brown Bagging Lunch Could Make You a Millionaire

A 25-year-old who eats breakfast at home and bags her lunch can save an extra $10 a day. Invested in a retirement account earning an 8 percent average annual rate of return, those savings could generate more than $1 million by age 67.

This hypothetical example shows how making small changes in behavior may ultimately yield big results, according to Elaine Sarsynski, executive vice president of MassMutual Retirement Services. It’s especially instructive when it comes to retirement savings, she says, as many Americans maintain they don’t have the money to contribute to their employer’s retirement plan such as a 401(k), 403(b) or 457.

“Many of us never think twice about how much we really spend on expenses such as dining out, the interest we pay on credit cards, or even cable channels that we no longer watch,” Sarsynski says. “If you track your expenses and think about what you really need, many of us can find money to save and invest.”

Farnoosh Torabi, best-selling author and financial planning coach, agrees with Sarsynski’s assessment and recommends several personal and household expenses to examine for potential savings:

* Reign in big expenses. If your monthly rent or mortgage is eating up more than 25 percent of your take-home pay, look at ways to reduce this big expense. If you have a mortgage, refinancing might be an option. Renters can sometimes renegotiate a lower rent as good tenants are hard to find.

* Trim smaller costs. Brown bagging is one way to save. Track all your expenses to determine where else you might cut back. It’s amazing how extra expenses such as $3 lattes and $10 iTunes down-loads can add up.

* Stick to cash. Using cash instead of credit can save you up to 20 percent. Not only do you incur fewer interest charges, you may ultimately defer some expenses until you have the cash.

* Attack high-interest debt. Credit cards typically represent the most expensive debt so pay off this debt as soon as possible. When you’re debt free, continue paying the same monthly amount to your retirement plan instead.

* Get professional tax help. If you’re middle-aged or older, rely on a certified public accountant to make sure you’re taking advantage of all of the various tax credits and deductions that come from having children, owning a home or contributing to IRA. Put your tax savings or rebate in your retirement account.

* Dump unnecessary baggage. As we get older, we tend to accumulate more things than we need or can reasonably use. Consider saving by downsizing to a smaller home, selling an extra car you no longer use, and clearing out your basement, garage or attic by selling unneeded household items in a tag sale.

* Cut the cable. Re-examine your roster of cable TV channels; you may find you are paying premium prices for channels you rarely watch.

* Spend time rather than money. It’s always tempting to spoil grandkids, nieces and nephews with gifts. You can save money by cutting back on the presents and giving the kids what they really want: your time and attention.

“We all spend more money than we realize on things that don’t necessarily contribute to our happiness or quality of life,” Torabi says. “By taking a hard look at our spending, most of us can find money to contribute to our retirement plan and, ultimately, improve our quality of life when we are no longer working.”

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