If you had to choose between having your daily coffee or up to NZ$100,000 cash – what would it be?
Let’s break it down
We tend to forget that $5 a day quickly becomes $35 a week if you buy a takeout coffee every day. That can add up to $1,820 a year. That could be a trip to a tropical island for two.
Or, you could deposit that year’s money into the bank at 2 per cent interest, and keep adding your coffee money every day. After five years, your coffee money might have grown to $12,000. You could go to Europe with that.
That’s because the interest, or money you earn on your coffee money, is added in. Then you earn interest on that combined amount too. And inflation is probably going to make your coffee more expensive every year, so the money you put in will be growing by that amount, let’s say 2 per cent a year.
Instead of spending all that coffee money, you could keep adding in the cost of a coffee a day and after 10 years you could have $24,000.
Or, you could keep adding in your coffee money and after 20 years, you could have $56,000.
Turbo-charge your savings by investing
Invest that money in a managed fund and you may get even better returns, depending on the market conditions. Just check how much you’re paying in fees on your investment.
Of course, we can’t predict the future returns, but some of the top performers in the market have well exceeded 8 per cent per year. Using this figure, if that continued, you could be looking at $33,000 at 10 years, or $108,000 at 20 years.
Of course, you’ll be taking on some risk to get that return and your investment could go down as well as up. However, the principle of investing is for money to generally grow over time.
When you realise how much extra money you could have sitting in your bank account, you’ve really got to ask yourself: is that daily coffee really worth it?
Note: The numbers in this story were worked out on Calculatorsite.com’s Compound Interest Calculator, assuming 2% inflation a year.
Published 13 June 2019
This article is general in nature only and has not taken into account any particular person's objectives or circumstances. Before investing in any fund, we recommend you speak with a financial adviser. Past performance is not a guarantee of future returns. Returns can be negative as well as positive, and returns over different periods may apply. All content is correct at time of publication date.