These are things that I don’t spend money on.
I understand why people like cigarettes. The little nicotine buzz can be delicious.
Unfortunately, the delicious buzz needs to be repeated again and again and again. Cigarettes are full of an addicting combination of ingredients all vying for your undying loyalty while slowly destroying your body. Not to mention the distinct, ugly smell that lingers on clothes and pets and the elevator long after the interaction ends. Most egregious of all (well, to me since I am a personal finance geek and not a doctor or a veterinarian), this habit can drain hundreds of thousands of dollars from your net worth.
Agatha and her twin brother Boris live in W. Virginia. Agatha smokes a pack a day for 40 years. Boris takes every cent that Agatha spends on cigarettes and invests in a fund netting him 6% per year in interest. Cigarettes are an easy commodity to tax for politicians, so the price has crept up over Agatha’s smoking career, an average of 6% per year.
Agatha took $45,000 and bought a lifetime of nicotine buzzes.
Boris opted for $107,000.
Keep in mind that these figures only account for the actual cost of the cigarettes and the inherent opportunity cost. Slightly more nebulous figures to consider include: higher medical costs, insurance premiums (health and life), dental expenses, the decrease in resale value from the stink on possessions (home, car, etc.) and the years off life expectancy.
Or soda. Or coke. Or whatever the slang for your carbonated, sugary beverage of choice is in your region. Caffeine and I do not get along, so this is an easy commodity to avoid for me. I understand the appeal though. Sugary sweetness and addictive caffeine entices most people.
Unfortunately, soda plays a major role in the obesity epidemic and every dentist I know rants about the effects on teeth. Again, great reasons to avoid pop, but if Coke defied inflation and sold for $0.05/bottle as it did for 70 years, I would despise this commodity less.
The current price of a can of cola varies widely depending on the place of purchase. A bulk purchase of an off brand can be as low as a quarter per can, whereas buying the beverage at a sports stadium can run over $5.
Agatha like Dr. Pepper and spends an average of $2/day in the first year she discovers it. Through inflation and increased consumption, the amount she spends creeps up an average of 3% per year. Boris takes the money Agatha spends on pop and invests it in a fund earning him 6% per year.
Agatha spends $55,000 on a lifetime of empty calories.
Boris takes that $55,000 and turns it into more than $180,000.
Interest on depreciating assets
Interest is a terrifying concept if you’re on the wrong side of the equation (but thrilling if you’re on the right side). Occasionally a loan is a necessary evil to take on. Maybe you need the money to finance your business expansion or a future career. Borrowing money to expand your future possibilities I can understand.
Paying interest for depreciating assets, however, ranks as the stupidest, most idiotic, very bad, no good, terrible, stinking, horrible, lurid move you can make to your net worth (to put it mildly). Yet this move is so mind-boggling common!
Most people (including me) work for someone. We trade our brain juice and our time and in exchange we receive a specific amount of money. Your money can do so much more for you than line the balance sheets of banks and credit card companies. Money has amazing superpowers – use it wisely. Change your spending habits.