Many are also prioritizing travel and gifts over investing
This is a buzz kill.
More than one in three Americans spent more on coffee last year than they invested, according to a survey of 3,000 adults ages 18-44 by money app Acorns — likely because about one in four of us has an $11 or higher per week coffee habit. What’s more, 44% say they spent more on holiday gifts than they invested, and 37% spend more on vacationing.
Also see: Why does iced coffee cost $9?
It’s not that people don’t know they should invest, it’s that they often don’t think of it in the moment of spending, says Noah Kerner, CEO of Acorns. “In our culture we are pretty addicted to spending,” he says. We buy that cup of coffee almost automatically — and certainly without thinking about what that $4 could mean if we invested it, he explains.
The problem is, it could mean a lot — thanks to the magic of compound interest. Here’s a simplified example to show you how that works: Let’s say you’re spending $20 per week on coffee, which would add up to $1040 per year. If instead of buying cups of joe, you invested that $1040 each year from when you were 25 until retirement at 65, you’d end up with more than $170,000, assuming a 6% rate of return. If instead, you spent $1040 on coffee each year for the next 40 years, you’ll have spent $41,600 on coffee — with nothing to show for it except a bit of a buzz each morning.
Of course, while we know we “should” invest, many of us still have no idea how much to sock away in our 401(k)s or other accounts. Here’s what the experts say.
If you’re just starting out in your career and barely making ends meet, “just start saving something,” says Donald E. Bentley, a financial advisor at the Kentucky-based Family Wealth Group, as compound interest works majorly in your favor when you start saving at a young age. He recommends that you put at least up to what your employer matches in your 401(k). “That is free money, it’s a great deal.”
Once you start making more money in your 20s. When you start making a little more, you’ll want to ratchet up how much you invest in your retirement or brokerage accounts. Ideally, you’ll want to save 25% of your gross salary, says Megan Clark, the executive vice president of Clark & Associates Financial Solutions.
Of course, many of you likely balked at that 25% number as you’re still not making enough to put that much away. Bentley says try to at least up your savings rate by 1% or more a year — often your company’s 401(k) has an option that lets you automatically up your savings by a certain percentage each year so you can set that as your default and not think about it.
In your 30s. Aim to squirrel away 20% of your salary if you can. Clark says that at this point, you will want to have have at least saved an amount that is equal to one year of your current salary, and ideally more.
In your 40s. “Continue to save at least 20% of your gross salary, and hopefully by now you have saved three times the amount of your annual salary,” says Clark.
Bottom line: Still confused about how much you should invest each year? “The easy answer is: As much as you can!,” says Altair Gobo, author “Getting to the Green” and partner at U.S. Financial Services in Fairfield, NJ. And certainly more than you spend on coffee.
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