I would be $22,977 richer today, if I could go back in time and change this common financial mistake. It seemed harmless at the time, but came back as a looming shadow over my retirement savings.
So, what happened to all that money? I ate it.
Over the course of 8 years, I bought lunch at the cafeteria about 4 times per week. My math shows that I spent $13,312 more than if I had packed my own food during those 8 years. But, that’s not all I missed out on.
If I had put that money into an index fund, it would have grown 12% per year (according to what the market did during those 8 years). That’s $22,977 today. Ten years from now, that money could grow to $41,359 (at a conservative 8% return.)
There it is, plain as day. The math doesn’t lie, people! Those seemingly insignificant expenses really do cost you. Here are some other examples of “small” expenses that will hurt your retirement savings if they become habitual:
- The venti extra shot, extra hot, two pumps of caramel latte. I’m talking to you, Starbucks addicts! I was a barista once, and I know you well. The daily customer, whose coffee I would start making as soon as I saw your car in the parking lot. It’s not a good thing when your local barista asks, “The usual?” This just means you’re spending too much on coffee and slowly whittling away your retirement savings. Invest the $3.50 you’re spending on coffee four times a week. In 10 years, with a conservative rate of return of 8%, you could have $10,513.
- The impulse buy. Businesses prey on impulse buyers with savvy marketing tactics to convince us that we “need” their products . It’s how our economy works and has worked for a long time. Be aware of it, and consider purchases more carefully. Don’t spend your retirement savings on random stuff you never needed. If invested, that $80 of impulse buys per month could add up to $15,019 in retirement savings over 10 years.
- Subscriptions/memberships. Here is another marketing strategy for businesses to make money off of you. And that’s O.K. as long as the products/services you subscribe to add value to your life. But, watch out. Many people subscribe and forget, allowing monthly charges to add up without realizing they’re still paying. Have you heard of passive income? Well, this is what passive spending looks like. Make sure to keep track of those pesky subscriptions, otherwise your accounts could be leaking cash.
- Eating out. In the beginning, I explained how I fell into this trap. The choice to cook most of your own meals is the healthiest decision you can make for your bank account (and your body.) If you eat out a lot, this is where you can save a ton of money. Put that cash into investments, not your belly! In 2017 the average US household spent $3,365 eating out according to the consumer expenditures report. In 10 years, those savings could be $52,647 in your index funds.
These are just a few examples of ways people “nickel and dime” themselves out of an early retirement. Whatever your vice is, it’s good to recognize its true cost. I don’t wallow in my guilt over not packing a lunch over those 8 years, and you shouldn’t wallow in your financial mistakes either. Learn from them, be aware of them, and go forth and spend more wisely for retirement’s sake.
If you are curious how big of a bite your coffee (or other) habit has taken out of your retirement, check out Dave Ramsey’s investment calculator and plug in what you spend per month to see what it’s costing your retirement. Hopefully, that will motivate you to reign in the spending. It helped me.
This way of thinking has made me very aware of my spending. Those small, habitual purchases aren’t insignificant. I literally ate away $41,359 from my retirement savings because I was too lazy to pack a lunch. How much have you missed out on?