It all starts with a cup of coffee.
At least that’s how I start my day, boiling the kettle then pouring out a coffee before coming through to my office to work.
But for most people with a commute, it’s much more common to quickly run into Starbucks and grab a coffee. Who doesn’t love a crisp handmade delicious coffee as a pick me up before another day of slogging through the office?
Besides, it’s only £3, right?
What could a saving of £3 a day actual achieve?
Well, you’d be surprised.
Really surprised in fact.
Let’s say that you save £3 a day every day of the year, now before you complain I know you don’t get a coffee on the way to work at weekends. But what about the days where you’re feeling tired and get an extra coffee at lunch? Or maybe a cake as well? It’s not a stretch to say that you could save £3 a day, every day.
Now if you started at age 19 and saved £3 a day until you were 65 by putting money in a jar you’d have £50,375 at the end. A respectable amount but nothing to write home about for 46 years of saving.
But what if we take compound interest into account and instead of putting the money in a jar invested the money we saved every year into a nice global stocks and shares account for an average return of 10%?
Well at age 65 you would have a whopping £1,041,054!!
That’s an insane difference!
You’re actually making more in yearly interest than the entire amount you saved in that time if you didn’t invest it.
I worked it out in a spreadsheet (because I love a good spreadsheet) which I’ve copied in below so you can see the growth yourself. Even copy it into your own spread and put your age at the top so you can see where you are.
|Age||Total Cash Dollah (£)||Amount Saved Per Year Every Year||Interest|
Then from the age of 65 to 70, you’ve gained half a million pound.
Now, this doesn’t take into account inflation which of course eats away at the return but I just wanted to show the power of compound interest and why it needs to be taken seriously. Because if a coffee a day can make you a millionaire imagine how fast you’ll get there if you start spending less in other areas of your life too?
If looking to the age of 65 is too much then why not look shorter term. Even from the age of 19 to 29 that coffee a day, three measly pounds, is the equivalent of £22,000. Think of all the freedom you could buy yourself for £22,000.
And that’s all from having an instant coffee in a reusable cup and taking it to work instead of buying one on the way in. Such a small insignificant change, because you’re still getting a coffee, if you’re organised you can even get a coffee machine at home and make yourself a delicious late before work to take with you. Because it could cost you £200 for the machine but it’s going to save you 100x that in a decade and bring you one step closer to retiring early.
I don’t think anyone has grown old filled with regrets wishing they’d spent more time leaving the house early and queuing in coffee shops to get a cup full of hot bean water topped up with sugar before going to work.
Much more likely is regrets of too much time spent working and not with family and friends or enjoying the things you like to do which is exactly what you can work towards if you start saving and investing.