I would like to thank Chris Salzer for this WONDERFUL blog post idea.
From Facebook:
“How much money would I have for retirement if I didn’t spend $5 a day at starbucks for my entire working career?…”
GREAT Question! Love it!
Ok coffee fend (I’m guilty too at times, not going to lie), your financial savvy friend points out you can save A LOT of money if you “spend” that money on your savings account instead of the Starbucks coffee so often. Well I’m glad that’s got you thinking about what that number could be.
The answer could be A LOT of money if you consider a few things:
1) You’re spending $5 EVERY day of the year on Starbucks or local coffee shop, etc. 365 days a year. So you put a $5 bill in a jar in your bedroom for 365 days a year then deposit into a savings/investment account.
2) Your working career lasts 30 years (at least)
3) Your savings/investment account is a high interest account, we are assuming at least 4%.
4) Calculation is based upon compounding annual interest rate.
5) This is JUST AN EXAMPLE as interest rates change often so actual numbers may vary depending on reality. This is for ILLUSTRATION purposes only to understand the concept. Every investment has its own risk, so please chat with a professional before considering where to put your money. Thanks.
(I used this handy dandy excel calculator so that you can check my work and play with it yourself if you would like)
$5/day for 30 years (I’m not including leap years for simplification purposes here):
Overall investment ($5 x 365 days x 30 years) + your initial yearly deposit of $1825 = $56575
Compounding 4% interest over those 30 years the balance could be = $108,274
What’s even BETTER is instead of waiting to deposit the money once a year is to do it on a monthly basis. The first year you save $1825 in a money jar in your room to help get you in the right habit of saving and open a savings account. Now you put $152 into your account every month for 30 years. You invested the same amount of money for the same period of time, but instead of $108,274.21 you’ve got $111,542.64. An Extra $3268 just for depositing it monthly instead of annually.
Now that I KNOW you’ve glazed over the past few paragraphs let’s simplify this so it’s easy to look at:
| Deposit Annually | Deposit Monthly | Total Invested | 4% APR Annual Deposits 30Year Total | 4% APR Monthly Deposits 30Year Total | Annual VS Monthly Deposits Difference |
|
$1,825.00 |
$152.00 |
$56,545.00 |
$108,274.00 |
$111,542.00 |
$3,268.00 |
|
$3,650.00 |
$304.00 |
$113,090.00 |
$216,548.00 |
$223,085.00 |
$6,537.00 |
The HARD part of this will be reality. It’s hard to say no to tasty temptations and decide to save, but no worries. It CAN be done! Maybe it’ll be babysteps at first. Cutting down to every other day, then once a week, then once a month, then not really needing it all.
What do you think? Do you think you can save $5/day for 30 years? I KNOW you can.
Until next time!
Financial Landscaper
