Tag: Time Value of Money
According to Accounting Principles, working Americans spend $20 per week on coffee. I was astonished when I saw this number. I love a good cup of coffee and drink two cups everyday. However, I don’t spend $5 on it on a daily basis during the work week.
Yeah, you earn your living, love your coffee, and it may look trivial to you and you might say – “What’s the big deal? I can afford it.” I understand. If you are disciplined and are fiscally responsible with your personal finance and have your house in order, then ignore this and go enjoy your cup of coffee.
If not, continue reading on. Here is a perspective I would like to offer. To keep things simple, I am going to show you how much the $20 per week on coffee will cost you over a 15 year period. Coffee Spending per year = $1000 ($20 * 52 weeks = $1040; rounded down to $1000 for keeping the math simple). Coffee Spending per month = $1000/12 = $83 per month
Let ‘s just say that you invested the same money on market tracking S&P 500 index fund like (SPY) and it grows at an extremely conservative rate of 5% per year compounded on a monthly basis.
Now, remember the Time Value of Money lesson. Let us apply it here. Open your Excel, enter the following into a cell “=FV(0.05/12,12*15, -83)“.
Future Value (FV) = $22,185 (if the investment of $83 per month is growing at the rate of 5%)
Future Value (FV) = $28,721 (if the investment of $83 per month is growing at the rate of 8%)
Now with that kind of money, you could pay for your kid’s wedding or for a full year of their college tuition. Cutting down your daily trips to the coffee shop and investing it is something you might want to consider.
I say, brew your own coffee!