Gregory Stahl CFP®, SVP, Wealth Advisor, BT Wealth Advisors
I hate to tell you, but your overpriced coffee habit is costing you a small fortune. I get it. You enjoy your morning coffee. I don’t want to take that away from you. But I am hoping I can at least help you cut back on the guilty pleasure that could be impacting your retirement.
Honestly, you can run these numbers for any pricey and unnecessary purchases you frequent, including cigarettes, a microbrew, cable TV—anything really. The point is to illustrate how reallocating unnecessary purchases to retirement savings over time can make a significant impact on your bottom line. I want you to take away the big picture effect. It’s possible you will decide your latte habit is worth it in the long-term. However, before you make that decision, hear me out.
Here’s a real-world scenario to think about. Say you’re a 25-year-old working professional that also happens to have a pretty significant commitment to overpriced coffee. You hit up the coffee shop every morning on the way to work and you almost always go with your usual—a Grande Cinnamon Dolce Latte. In my market, that latte costs $5.09 (plus tax), which equates to $25.45 five times weekly or $1,323.40 annually. That might not sound like an amount that can make or break you financially in the grand scheme of things. However, you have to think of the impact that can make over time and the “snowball effect” that can quickly improve the state of your retirement savings—that is, if you ditch the overpriced coffee and start funneling those funds into your retirement savings.
Building on our scenario in the paragraph above, let’s break down the long-term savings together. Let’s assume you, as a 25-year-old working professional, do decide to skip the lattes and you start making your morning brew at home. Instead, you invest that $1,323.40 that you were spending on lattes annually in your retirement account over a 40=-year period—assuming that you retire at 65—would bring you to a total of $52,936. Now, if we assume you are investing at a 7.2 percent rate of return, you could make out with a whopping additional $278,205.04 in your retirement account—that’s on top of whatever you were saving before. And to bring it further, your total on investment earnings over that 40-year period would amount to an additional $225,269.04. Do I have your attention now?
Allow me to continue this scenario a little longer. I want to assume that you are still investing at that 7.2 percent rate of return. Assuming you are in retirement for 25 years, from age 65 to 90, the money you saved by skipping the lattes prior to retirement would allow you to pay yourself an additional $24,304.61 annually. To bring it all together, those funds you’ve saved compounded over 25 years of retirement ($24,304.61×25) equals a whopping $607,615.26 total. All savings that occurred because you decided to make a simple change. Remember that next time you’re in the drive thru line awaiting your morning fix of caffeine.
If you’re interested in running through additional scenarios like these, or if you’re looking for a wealth advisor, please feel free to reach out to me directly at gstahl@btwealthadvisors.com.
Note: This illustration is hypothetical and does not represent the return on any particular investment. All investing is subject to risk, including the possible loss of the money you invest.
This article originally appeared on The Bank of Tampa’s website. To read more about The Bank of Tampa, visit: thebankoftampa.com/news
Disclosures
Investment services provided by BT Wealth Advisors are not FDIC insured, not deposits or other obligations of the Bank, and may lose value.
Securities and advisory services offered through LPL Financial, a registered investment advisor, member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. The Bank of Tampa and BT Wealth Advisors are not registered broker/dealers and are not affiliated with LPL Financial.