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The Price of Your Vice

By: Investor Solutions

By: Investor Solutions

We all have one, that one thing that we love to spend money on. Some would call it a vice. To us, it’s sheer delight. Whether it’s your a.m. java jolt, a daily pack of cigarettes or a couple of drinks at happy hour, you’ll probably be amazed how much you’ll spend during the course of your life on this guilty pleasure.

Now I consider myself a frugal individual. So you won’t be surprised to learn that I am always looking for ways to cut costs in order to increase my retirement savings. And even though the aforementioned activities are not ones from which I personally derive pleasure, I too have my own vice. Shopping. Clothes shopping to be precise. And so I got to thinking, if I bought less clothes, which I don’t really need anyway, how would that affect my financial future?

The following chart shows us how much an individual spends annually on these forms of instant gratification:

Cigarettes A.M. Java Jolt Happy Hour Drinks
Amount 1 pack per day 1 tall per day 4 drinks per week
Daily Cost $2.89 $3.63 $32.00
Annual Cost $1,055 $1,325 $1,664

Now you may think that these amounts aren’t all that much. Perhaps. But over thirty years, they add up to the following:

Cigarettes A.M. Java Jolt Happy Hour Drinks
Annual Amount $1,055 $1,325 $1,664
Amount over 30 yrs $31,650 $39,750 $49,920

Are you starting to think you should tone down on your guilty pleasures? Even these amounts may not seem so significant to you. However, when you introduce the compounding of interest, the story dramatically changes.

Imagine then that instead of spending your money on these habits, you invested the annual cost in a well diversified portfolio of index funds and exchange traded funds. Furthermore, assume that these investments will grow at a fairly modest 8% over the course of the following thirty years. At that point in time, and thanks to the effects of compounding, you would have amassed the following:

Cigarettes A.M. Java Jolt Happy Hour Drinks
Annual Amount $1,055 $1,325 $1,664
Expected Return 8% 8% 8%
Furture Return $132,152 $165,991 $208,379

These are staggering numbers. This additional wealth could possibly allow you to retire earlier or more comfortably rather than worrying about having to supplement your income. Additionally, it may also help you retire healthier to enjoy other hobbies that also bring you joy and fulfillment.

I am not suggesting that you give up the things that make you happy. I am merely suggesting that you evaluate your personal and financial situation to carve out behaviors that bring immediate, albeit, mediocre gratification for ones that will bring complete future fulfillment.

Now I’m sure you’re wondering what the figures were for my little vice, shopping. Well, I ran those numbers and fell somewhere between the daily pack of cigarettes and the morning java jolt. And as a result, I decided that although one must dress the part, I could probably do so with the clothes I already have and a few treats now and then. Let’s just say that I decided that clothes don’t always make the woman (happy).