Hidden cost of everyday luxuries could significantly impact your finances
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The age-old wisdom passed down from generation to generation often includes financial advice, such as cutting out small daily expenses to save for the future.
It's a concept that's been around for as long as the piggy bank.
But how much truth is there to the idea that skipping your daily coffee could significantly boost your retirement savings?
Ben Nash, founder of Pivot Wealth, has revealed a concept that might change how you think about your daily spending habits.
Nash pointed out that the $5 you spend on your morning caffeine fix is more than just $5 gone from your wallet.
When you consider the potential growth of that money if invested wisely, the cost is much higher.
'You're getting scammed in your 20s because of the compounding cost of time and money,' Nash explained.
But this isn't just advice for the young. Understanding the power of compounding interest is crucial, no matter your age.
Compounding interest is the interest on a loan or deposit calculated based on the initial principal and the accumulated interest from previous periods.
Think of it as 'interest on interest'. It can cause wealth to grow exponentially over time, and the earlier you start, the more significant the benefits.
For example, spending $1 at age 20 could cost you $88 by the time you reach 65, assuming a 10 per cent market rate of return.
That $5 coffee? It could translate to $440 by retirement age.
And if you're indulging in a daily coffee, that's $1,825 a year, which, given the right investment strategy, could grow to a staggering $160,600 by the time you retire.
But it's not just coffee. Nash's insights extend to other areas of discretionary spending.
If invested, a $25 lunch could grow to $2,200 by age 65, while a $150 pair of Nike Air Jordans could become $13,200.
Even more dramatically, a $3,000 holiday to Bali could turn into $264,000.
These figures are certainly eye-opening, but they also raise an important question: is it worth forgoing life's little pleasures for a larger retirement fund?
Personal finance expert Sarah Megginson suggests that for many, daily luxuries like coffee are invaluable for getting through the day.
Spending $5 a day on coffee may seem harmless, but it can add up over time.
For example, investing in daily coffee for a year could amount to more than $160,000 by retirement.
While this sounds tempting, personal finance expert Sarah Megginson reminds us that small luxuries like coffee are often necessary treats that help us get through the day.
She acknowledged that cutting back on everyday indulgences can be difficult but encourages people to evaluate how much they want to spend on such habits.
Megginson suggested setting aside time each month to review your finances—whether over a cup of tea or a glass of wine—to ensure you’re consciously managing your spending.
The goal is to make smarter choices about where your money goes without feeling deprived of life's small pleasures.
Have you found ways to balance enjoying life's little pleasures while saving for the future? What investment strategies have worked for you? Share your stories and tips in the comments below.
It's a concept that's been around for as long as the piggy bank.
But how much truth is there to the idea that skipping your daily coffee could significantly boost your retirement savings?
Ben Nash, founder of Pivot Wealth, has revealed a concept that might change how you think about your daily spending habits.
Nash pointed out that the $5 you spend on your morning caffeine fix is more than just $5 gone from your wallet.
Ben Nash showed how small daily expenses, like coffee, can increase with compound interest over time. Credit: @bentalksmoney / TikTok
When you consider the potential growth of that money if invested wisely, the cost is much higher.
'You're getting scammed in your 20s because of the compounding cost of time and money,' Nash explained.
But this isn't just advice for the young. Understanding the power of compounding interest is crucial, no matter your age.
Compounding interest is the interest on a loan or deposit calculated based on the initial principal and the accumulated interest from previous periods.
Think of it as 'interest on interest'. It can cause wealth to grow exponentially over time, and the earlier you start, the more significant the benefits.
For example, spending $1 at age 20 could cost you $88 by the time you reach 65, assuming a 10 per cent market rate of return.
That $5 coffee? It could translate to $440 by retirement age.
And if you're indulging in a daily coffee, that's $1,825 a year, which, given the right investment strategy, could grow to a staggering $160,600 by the time you retire.
But it's not just coffee. Nash's insights extend to other areas of discretionary spending.
If invested, a $25 lunch could grow to $2,200 by age 65, while a $150 pair of Nike Air Jordans could become $13,200.
Even more dramatically, a $3,000 holiday to Bali could turn into $264,000.
These figures are certainly eye-opening, but they also raise an important question: is it worth forgoing life's little pleasures for a larger retirement fund?
Personal finance expert Sarah Megginson suggests that for many, daily luxuries like coffee are invaluable for getting through the day.
Spending $5 a day on coffee may seem harmless, but it can add up over time.
For example, investing in daily coffee for a year could amount to more than $160,000 by retirement.
While this sounds tempting, personal finance expert Sarah Megginson reminds us that small luxuries like coffee are often necessary treats that help us get through the day.
She acknowledged that cutting back on everyday indulgences can be difficult but encourages people to evaluate how much they want to spend on such habits.
Megginson suggested setting aside time each month to review your finances—whether over a cup of tea or a glass of wine—to ensure you’re consciously managing your spending.
The goal is to make smarter choices about where your money goes without feeling deprived of life's small pleasures.
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