People often say that a cup of coffee costs only £3 and that’s nothing. Well, £0 is nothing, so let’s assume that £3 isn’t a massive amount of money
If you buy one cup of coffee every day (including the weekends), you will end up spending £21 a week, which equals £1,095 a year, and that’s just for coffee.
If you skip that coffee only every other day and keep investing what you saved, so £548 every year for ten years in, say, Index Funds with a moderate 6% return, you will end up with £8,204
If you take that £548 and keep investing in the same Index Funds for 40 years (once again, average return of 6%), you will end up with £90,446 (of which only £22,500 are your contributions, the rest is what your money earns (!!!)).
It doesn’t look like nothing now, does it? And this is just from skipping a takeaway coffee every other day.
Similarly, if you are a frequent buyer of lunch deals, which vary from £3 to £4, you might end up spending £540 a year on those deals alone (say 45 weeks x £12 a week if you only buy your lunch three times a week) or £900, if you buy your lunch daily for £4 a day.
Even if you decide not to invest that money, only keep it in your savings account (meagre 1% return), after ten years, you will have £6,246, and after 40 years, you will have £27,202, which you can put towards your mortgage or towards your retirement investments and savings (alternative £10,410 and £45,337).
Currently, the British state pension is £175,20 a week. So, if you had £24,960 put aside for your retirement, that money would last you for 142,5 weeks, almost 3 years’ worth, according to the British government.
I know I do not include inflation in this calculation, which indeed will eat up some of your earnings. Still, I just want to show you how small numbers, small, insignificant spending, can make a significant difference on the road to financial independence.
Look from another perspective. Take someone who earns £10,75 an hour (London Minimum Wage) and getting to and from work costs them £9 a day, plus they spend £6 a day on lunch and takeaway coffee.
Let’s assume they’re paid for the full 8 hours, not 7 (some companies don’t pay for the lunch break), at £10.75 an hour, so they earn £86 a day and £430 a week. If they spend £15 a day on travel and food at work, they are left with £71 in earnings. That’s before taxes and National Insurance are deducted.
Each week, £75 would be spent on travel and lunch. In this scenario, the weekly earnings are reduced to £355 before any deductions. That person will have to work one day a week just to cover daily travel and lunch expenses.
If that person took lunch to work and cycled to work or found work that didn’t require commuting far from where they live, they would end up saving £3,375 on travelling, lunch and coffee alone (again, let’s count 45 weeks in, the rest would be annual leave, holidays and such).
What I’m trying to say is that you should never think about those small sums as ONLY a pound or ONLY five pounds. Those small sums can be your ticket to financial independence or financial stability. At the end of the year, all those “small changes” add up.
Try experimenting by taking your lunch to work for a month, or by walking or cycling to work if you can. Once you see your stash, made out of small numbers, growing, you will never look at “small” prices the same way.
Having savings, and so-called ‘f… you’ money, gives you the freedom to walk away from a job you don’t like, change career, or simply take a break and enjoy life. If you spend all the money you earn, if anything changes in your life, such as losing your job or getting sick, your entire life collapses. Searching for a job while feeling desperate can lead to unfavourable decisions.
Hardworking people can become wealthy not because they were given a colossal inheritance, but because they knew how to make their money work for them safely and productively. The correlation between your ability to save and financial independence is staggering.
If you don’t track your spending, you may never be able to save much. Your life will be lived in the shadow of fear of losing your carefully constructed lifestyle, which doesn’t allow real freedom of choice.
COVID-19 has unveiled how little we need to survive and what is essential for most of us. It also revealed how many people live in financial insecurity that can crumble within a month (those stories are heartbreaking and life-changing).
Just imagine being able to enjoy all that is essential, things that are important for you, with a little stash you managed to save up by not spending money on daily coffee or lunch. Then, no pandemic or financial crash can break your financial security and independence.
PS. I’m #MadeByDyslexia – expect big thinking & small typos.
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