When trying to make a point, it’s always handy if someone completely unbiased can back you up. Well, I have to say thank you to the young lady who did just that at one of my money workshops. We were exploring the opportunity cost of our spending choices and, without going into too much detail as to what this means, the lady I mentioned told the class how she used to buy a Costa coffee every morning on her way to work. She then made a financial decision to substitute this with one of those ready-made cappuccino sachets that you can buy in packs of 10. She knew how much she’d save in the short term by doing this, but I thought I would take it one step further and work out how much she’d save herself in the long term (as much as I deny being a typical accountant, I do still love numbers. ‘They’ say money talks and I think that it does, although perhaps not in the way that ‘they’ mean).

Say you buy a small cappuccino from Costa every working day. At the moment, this will cost you £2.25 for a small one. You then decide to make better use of your money, so you also substitute this for one of those ready-made cappuccino sachets. If you buy these from most major supermarkets, they are about £2.99 for a pack of 6. You end up with a net saving of about £38 a month. Not a whole heap of cash, but wait…

What if you invest this monthly saving of £38 in a fairly low risk equity investment, perhaps a tracker of sorts? You could probably earn yourself a fairly conservative average rate of return of about 6% per year over the duration of your investment. Now remembering that equities are a long term investment, you do this for 40 years, from the start age of 25 until you retire at 65. What is the result?…

The result is that you would land up with an impressive £76k of which only £18k is the money you put in yourself, the rest is the capital growth on your investment. Not bad at all considering it’s all from having a cappuccino sachet as opposed to a Costa coffee.

Now I know you work hard and you want to be able to enjoy your money. That’s totally fine, I also enjoy the occasional coffee (lattes are my preference though). However, it’s my mission to show you that current choices that may seemingly not make much of a difference in the short-term can have a snowball effect in the long run. Look after the pennies and the pounds will look after themselves.