According to a survey conducted by Acorns, one out of every three Americans surveyed (ages 18 to 44) spent more money on coffee last year than they invested into their retirement fund.
How do we go so wrong?
The reality is that so many of us are enjoying our hard-earned money in the here and now while planning on saving later. The problem is that later is always… well, later.
Perhaps coffee alone is not killing your retirement, but the combination of the many quick luxuries we are presented with day-in and day-out can do a real number on our retirement savings.
For some of you, it may be ordering errands via Favor or frequently eating Instagram-worthy cuisine at local hotspots that is leaching potential retirement savings from the monthly budget.
The bottom line is that these little luxuries often cause us to miss out on crucial compounding interest for the future.
For the sake of simplicity let’s look at our coffee habit alone. A survey by Accounting Principals showed the young professionals (ages 18 – 34) spend $24.74/week on coffee.
Let’s imagine for a moment that you had an investment habit instead of a coffee one. For this example, we will round up to a safe $30 a week (to account for the occasional bagel or cake pop added onto the order). We would get a total of $1,560 spent on our habit each year.
If each year from age 20 to age 60, you invested that $1,560 with an average 6% rate of return, you would have $241,428 of cold, hard cash.
Alternatively, you could go ahead and opt for the coffee and cake pops and end up with only a faint memory of that original $62,400 that you spent on fleeting luxuries.
While $241,428 may not be enough of a nest egg for most retirees to live on comfortably, it’s nothing to sneeze at either. Considering that 43% of Americans aged 50 – 64 expect to rely on only Social Security income to make ends meet in retirement, we can say that over $241K is way more than $0 and certainly a great start to an early retirement, if that’s your goal.
Once you start seeing the small stuff add up, you get a little boost to make what is small now, more meaningful later.
Surely reading the statistics here is not the first time you have been inclined to invest into your retirement. Most of us know we should be investing; we just don’t think about our retirement in the form of our daily routines (aka our venti cup o’ joe).
As the idea of early retirement grows more appealing to younger generations, so does the gap between saving and spending. According to a report by the National Institute on Retirement Security, 66% of Americans under the age of 37, have nothing saved for retirement.
There is a myriad of reasons as to why you can’t save right now, but if you give it some thought, there is likely at least one thing in your daily/weekly routine that you can give up today to grow your nest egg for tomorrow.
You likely don’t need a step-by-step instructional on how to make coffee at home. Instead what we all could use is some motivation to ditch the $6 cappuccinos.
The best thing you can do is to find balance and to do this you must first understand where your money is going every day.
Grab a notebook and spend one week tracking every penny you spend while going about your normal routine. Then spend the next week eliminating nearly everything you would normally spend on. Lastly, get down to the nitty gritty and decide what your must-have weekly expenses are and what your new weekly retirement contribution will be.
The thought of saving for retirement can be daunting if you have yet to begin saving. Rather than being overwhelmed by the long-term, think of your retirement as a series of many short-term plans. What you can save today is all that you can control. As you make wise financial decisions each day, your short-term plans will turn into long-term successes.
By time you retire, you can have money and drink your coffee too.