How Much Is this $hit Costing Me: Part 1

What’s the full financial impact of your coffee habit? This is the explainer for Part 1 of our video series: “How Much is this $hit Costing Me?”

Let’s say you’re a fresh college grad with a mild macchiato addiction. Of course this could alternately be replaced by a weakness for lattes, mochas  or any of a number of delicious coffee concoctions. We’ll assume the habit remains more-or-less consistent over the course of your life.

Now, to the numbers…

Three macchiatos per week, that’s $15. Over the course of one’s life (3,536 weeks * $15), that’s $53,040. Assuming 3% inflation, you’re looking at $115,054. Ouch.

costs

By brewing at home, however, and purchasing one macchiato per week  you could save about $500/yr. What if that $500 was invested in a moderate risk, tax-deferred account? Let’s use OnTrajectory to see the full financial impact.

OnTrajectory takes your unique mix of Income, Expenses, Investments and maps a path into your financial future each are discussed below.

macchiatt_income

Income:  It looks like our college grad landed a pretty decent job – probably an entry-level computer programmer or something sexy like that. This example assumes an average 5% raise per year until the age of 40 (as shown in the ‘Growth Override’ column). Thereafter, the salary merely keeps up with inflation.

macchiatt_expense

Expenses: This example includes “grouped” expenses (indicated by the orange ‘G’) defined in three unique age ranges: 22-29 includes rent, 30-67 includes the purchase of a home, and 68-90 shows basic expenses dropping during retirement years.

In addition, we see a boat purchase at 45, and a semi-extravagant vacation later in life. Finally, we see the coffee expense broken out separately at $780/year.

macchiatt_accounts

Accounts & Taxes: Not much to see here, just a Deposit Account with effective tax-rates based on income level. There doesn’t seem to be any tax-deferred/retirement account or any other types of investments defined.

Subsequently, the financial Trajectory looks like this (in tomorrow’s dollars):

before

We can clearly see various rates of saving based on income and expenses. The steep increase at 60 is a result of the mortgage being paid-off  but as you can see it wasn’t quite enough, and this individual runs out of cash at the age of 88 and is $139,713 in hole by age 90.

Let’s reduce the coffee expense to $280/year and invest the savings into an account with an average rate of return of 5.04% How did we come up with 5.04%? We took a handful of highly-rated moderate-risk mutual funds (entirely at random) and averaged their 20-year returns. It may not be scientific, but it’s fairly reflective of how a lot of folks invest.

Here’s the result:

after

Notice that not only do you stay financially afloat throughout life, there’s  a tidy $320k surplus at the end (again, in tomorrow’s dollars).

math

It’s MATH, and it’s power stuff. The truth is, small lifestyle changes CAN have half-million dollar impacts over the course of one’s life. OnTrajectory helps you identify and visualize those impacts. So don’t wait any longer, get OnTrajectory today.

 


 

DISCLAIMER: Please be aware that no information contained in this communication should not be considered investing advice. All financial information is solely for educational purposes. Please see your own professional for personal investment advice.

 

Leave a Reply

Your email address will not be published. Required fields are marked *