Coffee, Beer, and Your 401k — An Unexpectedly Rewarding Lesson for Millennials
By Joe D. Euphrat and Kia Fariba
As humans beings, we are creatures of habit. We often find ourselves in cycles of “ritual” — whether it’s making your bed in the morning, working out at a specific time, going to your favorite bar on Fridays, or walking into your local coffee shop and asking for, “the 16-ounce coffee, dark roast.” While some habits come as easily as afterthoughts, one that certainly doesn’t is investing for retirement. We know what you’re thinking…I don’t want to read another article about investing, 401k plans, why they’re important, yada yada — just wait! Before you hit BACK, try a quick memory exercise for us. Think back to when you tried your first sip of coffee, or took your first swig of beer…Remember your reaction? We remember ours:
“EWWW, how do you drink that? I will never drink that when I’m older!!”
Oh boy were we wrong. Now, it’s darn near impossible to start a morning without a cup of coffee, or watch a Friday night game without tipping back a casual brew (or three). Our transient, short-term desires trigger the decisions we make, like indulging in a cold beer or cup of coffee. Over time, as we commit these actions on a continual basis, our longer-term habits are formed. So if most of us desire financial security in our later years, shouldn’t we make investing a now-kind-of-habit!?
Investing for retirement is a gift you give your future self, and it keeps on giving. The sooner you start, the more life-altering the benefits will be…plus interest. And here’s the kicker, building this habit is much easier than you think! (Curious how much to be saving/investing? See: How to Start Managing Your Finances Like an Adult).
The Experiment: 3 Habits & The Investment Potential
Asking someone to simply ‘imagine’ the potential benefits of investing — especially over a longer period of time — is like asking them to sing their favorite song backwards. So, we’re going to help you (actually) visualize what investing could mean to you ($$$) by comparing real-life money habits to what their investment values might be over time. These three habits are:
- Daily Cup of Coffee — Buying a $2.70 cup/day vs. Investing $2.70/day
- Weekend Beers — Buying 5 beers a weekend ($6 each) vs. Investing
- Your 401k — Making max. yearly contributions starting at age 22, 32, 42
Experiment Notes
Scrap whatever comes to mind when you think about investing, even risk. Seriously. Retirement-geared investing isn’t (and shouldn’t) be anything like the stunts you see Leo DiCaprio pulling with penny stocks in Wolf of Wall Street. When we use the term investing, we’re talking about investing in a less aggressive, lower-risk, well-diversified, generally dependable portfolio.
- Habits span over a period of 30 years. 30 years can seem like an overwhelmingly far way away. But, realizing Year 2000 was 17 years ago…the year X-Men was released…well then, 30 years really isn’t that far off.
- (Habits 1 & 2) Your portfolio is compounded annually. We assume 8.70% annual return — Vanguard Historical Risk/Return (1926–2015)
Habit 1: Your Daily Coffee Fix
What if you turned your coffee habit into an investment habit?
Experiment 1 : Spending $2.70 daily on cups of coffee vs. Making $2.70 daily investments
The Results:
- Coffees bought over 30 years = 10,950
- Coffees you could purchase after 30 years of investing = 46,201
THAT’S A LOT OF COFFEE!
All you religious coffee drinkers out there, you could be spending well over $1000/year on coffee. The money you spend buying items like coffee can really add up. So too is the case with investing, except your capital doesn’t just add, it multiplies.
That’s great guys, but I need my coffee! What should I do? We understand that coffee is is an integral part of our daily lives, so here are some suggestions on how to get that $2.70 invested daily:
- Home-brew your coffee! Even if you’re buying high-end grounds, Lifehacker estimates the savings at $1/cup, well worthwhile.
- If you consume more than one cup daily, consider cutting yourself off at your first. Use the savings from Cup #2 to invest.
- Coffee can range impressively in price — from $2 to $5. Don’t purchase the $5 cup because, really, any type will get the job done.
(Bonus) Habit Hack: Try eating apples instead! The natural sugar of an apple will wake you up like the caffeine of a cup of coffee. Plus it is healthy!
Habit 2: Weekend Beers
How much is your “beer money” actually worth?
Experiment 2: Buying 5 Beers a weekend (at $6 each) vs. Investing $30 a weekend
The Results:
- Beers bought over 30 years = 14,130
- Beers you could buy at the end of 30 years of investing = 39,600
CALORIE OVERLOAD!!
Who would’ve thunk all those bar-bought beers could add up to so much? Time to call up that one friend who’s always asking you to buy them a beer but keeps on “forgetting” to repay the favor.
These $30 weekends could be going to your portfolio instead of your hangover! Whether you’re spending this potential capital on brews at the bar, Redbull vodkas at the club, or any other type of adult beverage at your local watering hole, here are some (seriously) pro tips from Kia & Joe to help you turn 1 weekend brew into 4 retirement ales:
- Pregame — (If you’re not driving). Drink a beer or two before going out.
- Have your friends over! Enjoy some store-bought beers with your pals in the comfort of your own home. Milder pricing, same taste.
- Take a weekend off. While forgoing the chance to blow-off the built-up steam from your 9–5 may sound sacrilegious…your body will thank you.
Habit 3: Squaring Away Your 401k
Let’s suppose you plan on retiring by 52. What are the accumulated benefits investing in your 401k if you started at 22? 32?…even 42?
Experiment 3: Make maximum yearly contributions to your 401k beginning either at the age of 22, 32, or 42— You will only work for 30 years.
- You start full-time employment at age 22; Retire at age 52.
- Maximum 401k yearly contribution = $18,000; Starts at designated ages
- Assumed rate of return = 6.5% (Average range from 5-8% — Investopedia)
Compound interest is the eight wonder of the world. He who understands it, earns it … he who doesn’t … pays it” — Albert Einstein
Moral of the Story
Habits are unavoidable parts of everyday life; however, the quintessential habit that’s often not is investing savings for retirement. Remember, the biggest investment you can make in your life is in your future!
“Plan for the future because that’s where you are going to spend the rest of your life” — Mark Twain
Aside from your 401k habits, we’ve used only two examples of everyday spending habits — perhaps even a little too case-specific to ourselves — coffee and beer. If you don’t partake in either one of these, or can’t see yourself cutting down on either of them, there are plenty more habits out there! We encourage you to focus on optimizing your various spending habits, freeing up would-be expenses as cash that could be used as investment capital. Moral of the story…A beer saved is multiple beers earned! (The only thing better than a beer is another one.)
Burning Questions, Comments, or Concerns? Reach Out to Us!
Joe D. Euphrat | Grow Capital Management | joe@growcapital.us
Kia Fariba | Grow Invest | kia@growinvest.us
Want to make your investment habits sustainable?
Start making investments in sustainable companies — with ease — by downloading Grow Invest for iOS or Android (beta), or by visiting Grow’s website. We offer sustainable 401k rollover plans as well!
