How to save (potentially) thousands more for retirement in one easy step

Keep your investment fees (otherwise known as the expense ratio) low–this means on everything you have invested: your IRA/401k/403b/457b/taxable investments. This interactive infographic from PBS’s Frontline explains what fees are and why you should keep them as low as you can. If that doesn’t light a fire under your butt and get you looking at what fees/expense ratio you are paying, I don’t know what will.

So, what’s a “low” fee? If you are looking at your employer’s list of 401k investment options, you should be able to compare their expense ratios as well their rates of return. But for a comparison, Mr. Money Mustache likes the Vanguard VTSMX index which has an expense ratio of 0.17%. I have a Fidelity IRA in FUSEX, which has an expense ratio of 0.10%. And my 457b with my employer is in VIIIX, which has an expense ratio of 0.025%.

You might also notice the examples I’ve given are all index funds. That’s because actively managed funds generally have higher fees than a straightforward index fund which simply tracks the S&P 500. You can find a million other articles about index funds, or you can read one book: John Bogle’s Little Book of Common Sense Investing (preferably free from your local library). I read most of it in a weekend, and then immediately switched a bunch of our mutual funds to index funds. Fun stuff.

Marketing and the things you already own

Objectified_coverThe documentary film ‘Objectified‘ is a favorite of mine. It discusses the design of objects and our relationships with those objects. I often think of a quote from that film when I am walking down the aisles at Target or through the mall. It’s a quote about the things we already own, and to me, it’s a very powerful thought.

Rob Walker, New York Times columnist, speaking in ‘Objectified’:

If I had a billion dollars to fund a marketing campaign, I would launch a campaign on behalf of things you already own. Why not enjoy them today? Because we all have so many things that are just around – they’re in the closet, they’re in the attic, whatever… that we don’t even think about anymore because there isn’t enough room left in our brains because we are so busy processing all the exciting new developments.

At the end of the day, when you’re looking around at the objects in your house and you’re deciding what here really has value to me… they’re going to be the things that have the most meaning in your life.

The hurricane is coming. You have 20 minutes to get your stuff and go. You’re not going to be saying, ‘Well, that got an amazing write-up in this design blog.’ You are going to pick the most meaningful objects to you. Because those are the true objects that truly reflect the true story of who you are and what your personal narrative is, and the story that you are telling yourself (and no one else) because that is the only audience that matters….”

This idea really re-framed buying for me on many levels. Rampant consumerism is one thing, but even just buying that one extra “fun thing” on a trip to Target adds up to a whole lot of extra unnecessary stuff over time. And almost none of it adds anything to my overall happiness, nor is most of it stuff I’d grab if my home were engulfed in flames. This thought also helps me to de-clutter. How much do I really care about this object? Instead of looking at things and thinking they will make me happier, I look at what makes me happy and try to feed those passions instead. I recognize when I’m being marketed to; it takes some self awareness and self control, but once mastered, it’s a very powerful tool in helping to amass savings instead of collecting stuff.