Spend first or Save first ?

The Impact of Daily Habits on Wealth

A simple infographic can make a deep impact on our daily habits. Let’s consider two people: one buys a Starbucks coffee every day, and the other buys Starbucks stock every day.

Person A spends $4 a day on coffee, which totals $80 a month and $960 a year. Over 20 years, this amounts to $19,200 spent on coffee. While they enjoy the daily caffeine boost, the money is simply spent.

Person B, on the other hand, invests the same amount of money in Starbucks stock every day. Over the same 20 years, they also invest $19,200. However, with a 19% compound annual growth rate (CAGR) on the stock, this investment grows significantly. After 20 years, Person B has $161,000 and earns $200 per month in dividends. This shows the potential of consistent investing and the power of compounding.

There is no right or wrong approach between spending and investing; it depends on each person’s preferences and life choices. It’s about finding a balance. For instance, one could choose to have coffee only twice a week and invest the money saved on the other days. This balance allows enjoying life while also building wealth over time.

The Middle Path

Life isn’t always about binary choices. Instead of thinking in terms of all or nothing, finding a middle path can be more satisfying. You don’t have to forgo all pleasures for the sake of investment. For example, deciding to save on some discretionary expenses like daily coffee or a new car can still allow for meaningful and enjoyable experiences without compromising future financial security.

Prioritizing Savings and Investments

A practical approach to managing finances involves prioritizing savings first. Setting aside a certain percentage of your income for savings and investments is crucial. This could be 20%, 40%, or even 50% of your take-home pay. Once you’ve set aside your savings, you can then distribute the remaining money for your expenses. This ensures that your financial future is secure while still enjoying the present.

Finding Your Sweet Spot

The key is to find a sweet spot between saving and spending. It’s important to enjoy life and treat yourself occasionally, but also to be mindful of your financial goals. By prioritizing savings and making thoughtful decisions about spending, you can achieve a balance that works for you. Everyone’s sweet spot is different, and it’s important to find what suits your lifestyle and financial objectives.

Check out the detailed video on the WeekendInvesting App