Millennial Money Tips - #5 The Little Things Add Up
There is a Fortune to be found in the seemingly harmless little things that you purchase on a daily basis.
Studies show that the #1 reason why Millennials are not saving or investing is due to having a lack of available money. Interestingly enough, if you walk into any Starbucks cafe during the day you will find a line-up of eager Millennials (as well as other generations) willing to throw down $5.00 or more on a beverage. I have nothing against Starbucks, or drinking coffee, however these seemingly harmless and little purchases deplete our bank accounts without us even realizing it.
To demonstrate I will use my friend Sarah as an example - Sarah buys herself a Venti Latte ($5.40) every morning on her way to work, and again on weekends. Sarah also purchases a case of 20 water bottles at Walmart ($4.57/case), which usually lasts her one week. Spending $5.40/day on coffee, and $0.66/day on water doesn't really seem like much right? That is until you add it all up...
So let's look at what Sarah is giving up to sustain her one-a-day coffee habit over the next 40 years. By spending $5.40/day on coffee, Sarah spends $1,971 a year, $19,710 in 10 years, and $78,840 by retirement. It gets worse! Had Sarah invested that money into a portfolio that would earn her 5% interest, Sarah would have $2,064 in the first year, $29,332 after 10 years, and an unbelievable $264,619 after 40 years.
Not only is Sarah's one-a-day latte costing her $78,840 over 40 years, she is also losing out on the opportunity to make $183,706 in interest earned, for a total loss of $264,619 by retirement.
Now let's see what a small $0.66 a day water bottle purchase adds up to over the years. Spending $0.66 a day instead of investing it into a portfolio making 5% interest would result in a loss of $273 after one year, $3,878 in 10 years, and $34,900 after 40 years. Sarah's spending on water is costing her the opportunity to make an $24,240 in interest earned, which would have given her $34,900 by the age of retirement.
If we combine both coffee and water spending, Sarah's two small habits are costing her $300,142 over the course of 40 years, and a lost opportunity to earn $208,466 in potential interest.
Who would have thought that a beverage(or two) a day could wipe your fortune away?
Some of you may be thinking, "OMG I can't give up my coffee habit completely?! "
Easy Tiger, I'm not suggesting that you quit buying your latte or whatever it is you buy. My point is to get you thinking about where your money is actually going, and to consider what those little things are costing you in the long run.
So the next time you say to yourself "I can't afford to save, invest, or take a vacation", you can consider what it is that you are spending that money on, and make a conscious decision of whether or not that latte is really worth it.
You may be surprised to find out that you actually have a lot more money, if only you make the decision not to spend it.
Charles A. Jaffe had it right when he said that it's not your salary (or income) that makes you rich, it's your spending habits.
And THE BEST way to track your spending habits is to have a functional monthly budget. For those of you who missed it, you can read about budgeting here. You can also download the Free Budget that I've put together for you.
I believe that there is no reason why a hard working individual should have to go through life living paycheque to paycheque with nothing left over for themselves at the end of the week, year, or lifetime. It is my sincere hope that you will discover all the ways that you can create more wealth for yourself, and more importantly find ways to hold onto that money so that you can use it to bless your life, or the lives of others.
As always, may you have a prosperous journey. Tara