The Ballad of Joe and Mike: How Expenses Hold You Back

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Joe earns $40,000 a year at his job as a software developer. He has a 1,200 square foot home and a new car to drive to work. His expenses total up to $38,000 per year – the other $2,000 go into retirement.

Mike earns $40,000 a year at his job as a software developer. He has a 1,000 square foot home and drives a seven year old used car to work. However, his expenses total up to $28,000 per year. He puts $2,000 a year into retirement and puts the other $10,000 a year into a stock market investment that earns 7% annually on average.

After ten years, Joe has $28,600 in retirement savings, as does Mike (we’re not including employer matching here, of course). However, Joe has nothing in other investments. Mike has $143,000 in the bank.

After twenty years, Joe has $84,861 in retirement savings, as does Mike. However, Joe still has nothing in other investments. Mike has $424,303 in the bank.

At this point, Mike can write a check for his dream home or open the business he’s always dreamed of. He might also just quit his job and spend the rest of his time writing the great novel he’s always wanted to write while doing simple jobs. Joe doesn’t have that choice.

The only difference between Joe and Mike is expenses.

Joe saddled himself with a higher monthly mortgage payment for his primary residence. He also kept driving new cars. He also spent a little more on frivolous things than Mike did.

Mike still had plenty of expenses, but he was happy with a bit smaller house and a used car.

Joe ate take-out quite a few evenings, while Mike rocked the crock pot. They both had tasty tacos for supper, but Mike’s tacos cost a few bucks less.

Joe often went to the first-run theatre to see new movies, while Mike waited a few weeks and saw them at the dollar theatre. They both enjoyed the same movie, but Mike’s movie cost several dollars less.

Joe always owned the latest and greatest cell phone. Mike had a pretty good one, too, but it was usually one that was the best free smart phone at the cell phone dealership. Both of them could check scores and look up stuff on their phone, but Mike paid a few hundred less.

Joe let the car dealership air up his tires when he went in for an oil change. Mike aired up his tires for free once a month at the gas station and changed his own oil sometimes (but he let the repair shop do it sometimes, too). Mike spent a few minutes once a month on airing up his tires and his reward for that was a few miles more per gallon from his car, meaning he didn’t fuel up as often.

After twenty years of this, Mike has almost half a million in the bank. Joe has nothing.

The difference? All of those expenses, big and small. Control those and you’re giving yourself an enormous financial boost for your future.

I want to be like Mike.

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