Budget Breakers: The Opportunity Cost of Extra Spending
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What would your retirement income look like if you brewed your coffee at home instead of going to Starbucks or drove a sedan instead of an SUV? When you replace small spending habits over a 30 year period and earn investment returns on the savings, the difference can be tens and even hundreds of thousands of dollars.
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Budget Breakers: The Opportunity Cost of Extra Spending
- 1. Budget Breakers: The Opportunity Cost of Extra Spending
- 2. Future Value 2 1. monthly saving 2. compounding interest 3. future value “Great oaks from little acorns grow.” –Proverb
- 3. Let’s assume you could earn a 4% return investing instead of spending $1 per month invested at a conservative compound annual return of 4% over 30 years = $673 Using the 4% rule, that is $27 per year in retirement income. 3
- 4. Where are the cracks in your monthly budget? ▫ Bad habits ▫ Simple spending choices ▫ Add-ons and extras ▫ Unnecessary luxuries 4
- 5. $180 Annual cost of a $15/month subscription (e.g. TV, newspaper) $404 Annual retirement income sacrificed $10,095 Future value if that money were invested at 4% 5
- 6. $192 Annual cost of playing the MegaMillions jackpot twice per week $431 Annual retirement income sacrificed $10,768 Future value if that money were invested at 4% 6
- 7. $192 Annual cost of ordering a fountain drink once per week $431 Annual retirement income sacrificed $10,768 Future value if that money were invested at 4% 7
- 8. $360 Annual cost of drinking a soda pop every day $808 Annual retirement income sacrificed $20,191 Future value if that money were invested at 4% 8
- 9. $720 Annual cost of drinking a case of beer each week $1,615 Annual retirement income sacrificed $40,381 Future value if that money were invested at 4% 9
- 10. $768 Annual cost of drinking Starbucks daily instead of home brewed coffee $1,723 Annual retirement income sacrificed $43,073 Future value if that money were invested at 4% 10
- 11. $1,200 Annual cost of dining out ($25) once per week $2,692 Annual retirement income sacrificed $67,302 Future value if that money were invested at 4% 11
- 12. $2,400 Annual cost of going out to bars/clubs ($50) once per week $5,384 Annual retirement income sacrificed $134,604 Future value if that money were invested at 4% 12
- 13. $2,520 Annual cost of buying a pack of cigarettes per day $5,653 Annual retirement income sacrificed $141,334 Future value if that money were invested at 4% 13
- 14. $4,596 Annual cost of driving an SUV instead of a sedan $10,311 Annual retirement income sacrificed $257,766 Future value if that money were invested at 4% 14
- 15. 15 $736,958 The future value of eliminating all of the above bad habits, conveniences, and luxuries from your monthly budget. That is $29,478 in annual retirement income.
- 16. References Laasby, G. (2014). Daily Starbucks coffee costs $10,000 compared to home brewing, consumer finds. Milwaukee Journal Sentinel. Retrieved from http://archive.jsonline.com/newswatch/249776901.html Macesich, M. (2014). Small sedan or SUV, the full cost of driving isn’t always obvious. Santander Consumer USA. Retrieved from https://santanderconsumerusa.com/blog/small- sedan-suv-full-cost-driving-isnt-always-obvious 16