This is the time of year when many people are resolving to quit bad habits with the hopes of transforming their lives for the better. According to a survey by Nielsen, most New Year’s resolutions revolve around one of two themes: fitness and money.
Striving for better health and money management are pretty virtuous goals, but what most people don’t know is that there’s an opportunity cost to keeping bad habits around. This makes it even more important to make sure these resolutions stick. Seemingly harmless, unconscious behaviors can impact your ability to save and build wealth over the long run.
Once you put a dollar amount to how much bad habits set you back, it makes it all the more worth it to make changes and stick to them. Additionally, we often neglect the “time value of money,” and the true opportunity cost of a bad habit can be much higher than we think.
For example, a $4 daily latte isn’t just $28 a week or $112 a month. If that $112 is invested each month at a 5% return for 10 years, it grows to $17,749.92. Now that’s an expensive fancy drink!
Take a look at a few more potentially bad habits and the opportunity cost of forgoing 10 years of monthly investing at a 5% rate of return:
The Lunch/Latte Factor: $32,647.18
Teresa Mears of Living on the Cheap once spent upward of $55 per week, or $220 per month, on coffee, tea, snacks and restaurant lunches. Soon, she began to make her own hot drinks and pack her own lunch. Saving $220 or more per month might not sound major, but it could result in a nest egg of $32,647.18 over 10 years!
Nicotine Fix: $47,544.42
Angela, founder of the Work at Home Wife, admits that both she and her husband smoked a pack of cigarettes each day. This added up to $75 per week, or $300 per month. The couple just celebrated their five-year anniversary of being cigarette-free. Angela estimates that she’s already saved $18,000 by kicking this bad habit. Plug that in an investment calculator, and you’ll find that investing $300 per month for 10 years could yield $47,544.42.
Getting Pumped Up: $9,508.88
Gym memberships can cost anywhere from $10 to $200 per month, with the average being around $60 per month. Public radio station NPR profiled a popular gym in New York, which reported that almost half of its members never even show up to work out! If you decide to skip the gym (which you might not even use anyway), you could invest that $60 each month. At a 5% rate of return for 10 years, that amount could yield $9,508.88.
Impulse Buys: $39,620.38
Perhaps one of the most detrimental habits of all is buying things without a plan. This is known as buying something on impulse. Jeff Rose, certified financial planner and founder of Good Financial Cents, says that he had a habit of buying things on impulse, sometimes even banking on money he hadn’t yet earned. In order to curb impulse spending, he and his wife decided to set a limit on the amount of money they could spend without discussing it with one another first: $250. After 10 years, skipping that $250 a month entirely could grow to $39,620.38
Doing this type of math will definitely help you weigh the impact of frivolous spending connected with potentially bad habits. If you are looking to improve your financial outlook, adjusting expensive habits like the ones mentioned could be a great start.
What do you plan on doing to improve your financial outlook for the year ahead?
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