Personal finance expert Suze Orman has revealed how kicking the habit of drinking overpriced coffee could save you a fortune in retirement.
The financial advisor and former CNBC host said Gen Z Americans could amass a staggering $1 million in savings for their future life simply by giving up their daily $6 Starbucks.
Speaking to MSNBC Host Mika Brzezinski and Orman highlighted the power of small investments over everyday discretionary spending.
If a 25-year-old puts away a small amount each month into a retirement account, compound interest will cause this amount to snowball over 40 years, he explained.
“You’re all throwing a million dollars away. I’ve never bought a Starbucks in my life,” he said.
Personal finance expert Suze Orman has revealed how kicking your overpriced coffee habit could save you a fortune in retirement
Giving up a $6 coffee and putting it into a retirement account with a 10 percent rate of return could grow to more than $1 million over the course of 40 years.
In the March interview, Orman recounted what she had told Oprah on her show when she asked her what people spend their money on.
She told Brzezinski: ‘I said, Oprah, do you know what would happen if you were 25 years old and you bought a Starbucks every day and instead of doing that, you put $100 a month into a Roth IRA, a retirement account, and you did that every day until you were 65?
‘You guys made an average of 12 percent of your money over all those years. Do you know that by the age of 65, you’d have a million dollars? So you’re all throwing a million dollars away?’
Analysis by DailyMail.com shows that giving up a $6 coffee would save $180 a month.
If those savings are placed in a retirement account with an average rate of return of 10 percent, the funds would grow to $14,070.91 in five years and $130,497.61 in 20 years.
With the help of compound interest, this pot would grow to a whopping $1,007,209.33 over the course of 40 years.
Investment adviser Patrick Donnelly previously told DailyMail.com that resisting the temptation to buy a cold brew or latte and making it at home could mean you have more resources to fall back on in later years.
Donnelly of Donnelly Financial Services said, “That’s real money that can dramatically change your timeline to retirement and can dramatically change your retirement stability.”
Suze Orman said she had never bought a Starbucks in her life.
An analysis reveals that depositing $180 a month into a retirement account with a 10 percent return rate – instead of spending it on coffee – could save more than $1 million over 40 years
Your retirement balance will grow significantly due to compound interest (pictured: NerdWallet calculations)
Financial planner Patrick Donnelly said giving up your daily coffee could save you a fortune in retirement.
“We live in a world geared towards instant gratification and I think that’s one of the biggest obstacles to overcome,” he added.
‘We can easily fall into these negative spending habits.
“When we receive income, we have two choices: we can spend it on today’s expenses (some of which are necessary and some of which are unnecessary) or we can invest it in our future.”
The key, she said, is to consider your spending habits as “guilty pleasures” and pick one thing you could do without but that is detrimental to your savings in the long run.
This comes as alarming figures show that millions of Americans have nothing saved for retirement.
Across all ages, 28 percent of people have no money saved for their later years, while 39 percent do not contribute to a retirement fund, a GoBanking Fees A study conducted earlier this year revealed that…
Even among people aged 55 to 65, who are close to retirement, a quarter have nothing saved, it found.
The survey also revealed a wide disconnect between what people think they will need for retirement and the value of their savings.
A quarter of respondents said they expected to be able to retire on less than $500,000, while 30 percent estimated they would need a seven-figure nest egg.