Have you ever celebrated National 401(K) Day? It’s always the Friday after Labor Day. While only 34.6% of working-age people had 401(K) accounts as of 2020, it’s worth looking into and understanding how you can make your money work.
A 401(K) retirement savings plan pulls income directly from your paycheck into an investment account. Many employers match part or all of your contribution, which can help your money grow exponentially.
You might think every day is National Coffee Day, but the official holiday in the United States and Canada is September 29th. With those two holidays in the same month, you might wonder how much of a difference your coffee cost could make if you instead invested it in your 401(K).
The Cost of Coffee
Many people argue that the cost of coffee isn’t as important as how it makes you feel. A daily routine that includes coffee can help you wake up and feel prepared for the day. However, the coffee cost can add up quickly.
Buying from a coffee shop is very typical, with costs ranging from $3 to $9 depending on the drink you get, where you buy it, and where you live. Black coffee from a coffee shop may not break the bank right now, but a venti cappuccino with syrups and extra shots can add up.
To keep the math simple, let’s say your coffee costs $3 a day, and you go every weekday before work. Your monthly expenses would be $90 on coffee alone. Annually, that amount increases to $1,080.
Investment Opportunities
You can invest that money in a retirement account, either a 401(K) or an Individual Retirement Account (IRA). When you do that, you’re not only saving $1,080 a year but also earning money due to the compounding interest. Depending on the specifics of your account, you could make as much as 8% returns on your investment.
Let’s simplify the example and use a 7% interest return on your retirement investment account. Instead of spending money on coffee each day, you invest $1,080 annually in your retirement account for 30 years.
Retirement Impact
Assuming you don’t need to withdraw your retirement money, which will not only diminish your total but may also incur fees, and you don’t invest anything beyond your coffee funds, your account could hold $89,000 after 30 years. That’s a significant nest egg of money you made simply by skipping your daily coffee shop order!
Keep in mind that this calculation is very generalized, with average amounts for the daily coffee and interest rates. It also doesn’t include taxes, inflation, or the potential for investment losses. Hopefully, the combination of National 401(K) Day and National Coffee Day inspires you to take a closer look at your expenses!
There’s no need to eliminate caffeine from your diet just to save for retirement! You should love your life as you live it, and let’s be honest—sometimes it’s impossible to get through the day without a delicious coffee drink. But if you cut out your daily habit and make it weekly, it will pay off in the long run.
Remember—you can brew coffee at home! In that case, you’re only spending money on quality beans and water to make each pot. You get the added benefits of trying different beans and determining what tastes you like because you have full control over each brew. If that seems like too much effort, consider streamlining your expenses in an easier way, like via a mobile app.
