A recent article by Aviva states that the typical UK adults spends an average of £18.23 a week on invisible items. The terms invisible spending refers to the small and ‘almost invisible’ amounts people spend on a regular basis without paying too much attention. This includes items such as coffees, shop-bought lunches, impulse treats like sweets and chocolates and post-work drinks.
Whilst £18.23 a week may not sound like a lot, it sure does add up. Over a year, the total invisible spend is £947.96 and over a working lifetime – between ages 18 and 68 – this could stack up to a staggering total of £47,398 per person, before any potential inflationary increases are taken into account.
When you put it that way, the amount lost over your working life is huge! But here is the real kicker – if you had stuck that paltry some of £18.23 a week into a low cost plain vanilla index fund, generating the historical average of 8%, you would end up with £523,572. Yes that is over half a million pounds!
A lot of people will read this and still want to spend that £18.23 a week on invisible items. This is because delaying gratification is hard. But think about this, would you rather spend £18.23 a week on invisible items where the moment you consume it, it is finished, or would you rather have a cool £523, 572 in the bank and live a financially free life?
Now the £18.23 figure is going to be different depending on your circumstances. If you are a smoker and a coffee drinker, that number is likely to be higher than a person who is not.
Let’s look at individual items to see how much they are costing you in future wealth!
- Coffee – We’ve gone form a nation of Tea drinkers to a nation of coffee drinkers. Many people now spend an average of £2.50 a day on coffee. This adds up to £75 a month and £900 a year!
If you had to invest that instead in a low cost index fund at 8%, you would have £538,507 at the end of your working life. I hope your coffee tasted good!
- Cigarettes and Tobacco – Packs of cigarettes now cost £7. I know a lot of people who smoke a pack a day. They are spending £210 a month and a staggering £2500 a year. If they had to invest that money as above over their working lives, they would have £1,507,819 in the bank! Yes a pack a day forgoes over one and a half million pounds over your working life!
If you smoked a more conservative one pack every 3 days, you would still be out of pocket by £502,606 if you invested that money instead.
- Bottled Water – This is throne I do not understand, why do people buy bottled water. Water is supposed to be FREE. I blame marketing. Marketing has led us to believe that having bottled water over tap water is considered cool. What more is that you now get things like vitamin water which sell for over £2 a bottle. If you buy normal vitamins and drink water, you won’t even be spending a fraction of that.
Many people who buy bottled water spend an average of £15 a month on this product. That adds up to £180 a year. If you had to invest that money over your life time, you would be sitting on £107,701 Now I know you must be saying that the savings on water are not as much as those on coffee or cigarettes, but water is something that should essentially be free! besides, is haven’t £107,701 better than having £0 and getting duped into thinking bottle water tastes better than tap water??
Becoming financially free is not that hard if you put your mind to it and focus on what is important. Remember that it is not how much you earn that will determine if you’ll be rich, it’s how much you spend – and keep for that matter!