Budgeting 101: Skip the Expensive Coffee

Stop buying overpriced coffee and start investing

Have you ever considered how much money you spend on coffee a week? What if you started making coffee from home, how much money could you make by investing it? The answer is simple: through market returns and compound interest you could potentially turn just $4 a day into thousands.

The power of compounding returns

Let’s say the average cup of coffee costs $4. If you skip the coffee shop Monday-Friday, you’d end up saving $80 per month, or $960 over the course of an entire year. Now think about what $960 could turn into by using compound interest.

Compound interest can be thought of as earning money on your money. It is the interest, dividends, and gains earned on your initial investment amount, plus the accumulated returns from prior periods. The average rate of return of the S&P 500, which is a popular benchmark for U.S. stock market performance, is approximately 10% a year. So assuming you invested an extra $960 in an S&P 500 index and earned the historical average return, what could that look like over time?

The graph below shows how a $4 per day coffee habit could add up to over $15,000 spent on coffee over a 16 year period.

If, however, that same amount of money was invested in the stock market, earning a 10% average rate of return, you would have over $34,000 in savings – more than doubling your money! 

investing chart

The Bottom Line

A simple $4 a day could lead to thousands more saved for retirement or other goals. At the end of 16 years, assuming average stock market returns, you could potentially turn $15,000 of savings into nearly $35,000, or double your investment.

Imagine what could happen if you were to go through your budget and cut other unnecessary expenses!

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Disclaimer1:

1

Taylor Hoffman is an SEC registered investment adviser with its principal place of business in the State of Virginia. Any references to the terms “registered investment adviser” or “registered,” do not imply that Taylor Hoffman or any person associated with Taylor Hoffman have achieved a certain level of skill or training. Taylor Hoffman may only transact business in those states in which it is registered /notice filed, or qualifies for an exemption or exclusion from registration /notice filing requirements. For information pertaining to the registration status of Taylor Hoffman or for additional information about Taylor Hoffman, including fees and services, please visit www.adviserinfo.sec.gov.

The information contained herein is provided for informational purposes only and should not be construed as the provision of personalized investment advice, or an offer to sell or the solicitation of any offer to buy any securities. Rather, the contents including, without limitation, any forecasts and projections, simply reflect the opinions and views of the author. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change without notice. There is no guarantee that the views and opinions expressed herein will come to pass.

This document contains information derived from third party sources. Although we believe these third party sources to be reliable, Taylor Hoffman makes no representations as to the accuracy or completeness of any information derived from such third-party sources and takes no responsibility therefore.

The S&P 500 is a market capitalization weighted index of 500 leading U.S. companies and one of the most common benchmarks for the broader U.S. equity markets.

The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The Nasdaq Stock Market. Launched in 1971, the NASDAQ Composite Index is a broad based Index. Today, the Index includes over 3,000 securities, more than most other stock market indices. The NASDAQ Composite is calculated under a market capitalization weighted methodology index. To be eligible for inclusion in the Composite the security’s U.S. listing must be exclusively on the Nasdaq Stock Market (unless the security was dually listed on another U.S. market prior to January 1, 2004 and has continuously maintained such listing), and have a security type of either: American Depositary Receipts (ADRs); Common Stock; Limited Partnership Interests; Ordinary Shares; Real Estate Investment Trusts (REITs); Shares of Beneficial Interest (SBIs); Tracking Stocks Security types not included in the Index are closed-end funds, convertible debentures, exchange traded funds, preferred stocks, rights, warrants, units and other derivative securities.

If at any time a component security no longer meets the above eligibility criteria, the security is removed from the Composite Index.

The Stoxx Europe 600 is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 Index represents large, mid and small capitalization companies across 17 countries of the European region: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

The Shanghai Composite Index is a market capitalization weighted index made up of all the A-share and B-shares that trade on the Shanghai Stock Exchange.

Past performance is not an indication or guarantee of future results. Investing in securities involves risks, including the potential loss of all amounts invested.

Taylor Hoffman makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any of the research contained herein or with regard to the results to be obtained from its use. In no event will Taylor Hoffman or any party associated with Taylor Hoffman be liable for any direct or indirect trading losses caused by any information contained in this report. Readers must conduct their own independent analysis of the information contained herein before making any investment decisions.

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