Little expenses can add up.
Let’s take coffee, for example. I have a habit of going to get coffee (a latte specifically) most mornings. And, sometimes I’d go back in the afternoon. It used to be tea, but unfortunately for my bank account I made the more expensive switch to lattes a few years ago. I tell you this so that you won’t think I’m lecturing as I give my example below, but rather as a reminder to you AND ME of this high cost.
So, let’s get to it. My latte costs on average around $4.50, not including any tip. If I get a latte every day of the week, then it will cost $4.50 * 7 = $31.50. So far, it sounds like a lot, but maybe not TOO bad. What else could I do with that $31.50? Have a nice dinner. Buy a new shirt. Buy a few books.
Now let’s take that $31.50 spent on lattes each week and multiply it by the number of weeks in a year (52). That is $1,638. Now THAT is a lot of money. You can buy a lot of things with that amount of money. It’s definitely one or more months' rent in many places!
What else could you do with that $1,638 you just spent on coffee? You could save it for retirement. Let’s say each day you didn’t spend the $4.50 you put it in a coffee jar. At the end of the year you took that money to the bank and put it into a retirement account. Then you invest that money in an index fund (it follows how the stock market is doing generally... for a reminder on the importance of diversification go back to this post).
One year after you put that money in the bank, you would have $1,638 + any interest you earned off of it. The stock market, *on average*, earns about 7% per year (taking out expected inflation https://www.nerdwallet.com/article/investing/average-stock-market-return). So, you would have $1,638 + $114.66 = $1,752.66 in your account. Without doing anything, you’ve saved an additional month’s worth of coffee by investing it.
At the end of the second year, you would have another 7% interest earned, but this time on the $1,752.66, so by the end of the second year of having your money in the account, you’d have $1,875.35 (1,752.66 + the interest (.07*1752.66 = $122.69)).
If you are 20 years old and you take that $1,638 and leave it in until you retire at the age of 65, you will have $34,402. Just from ONE year of not buying lattes.
I have a longer discussion on compounding interest in this post and the importance of saving when you are younger. But, the key point is that little expenses add up. Small daily expenses can be just that – small – but when you sum them all up they actually can get quite large.
As for me? I’m trying to get better. I even own a cheap little espresso machine so that I don’t have to go to the coffee shop every day. Although, I’m sure the people at the coffee shop would miss my face, so I haven’t completely stopped going…
*** It is important with the 7% calculation above that you note I said on average. The stock market fluctuates a lot, so this is not a guaranteed return.
Coffee Angelfood Cake
It is difficult for me to explain how amazing this cake is. Beyond smelling my dad's coffee and then being too disgusted to try a sip, this cake was my first exposure to coffee. This cake is light, airy, and amazing. It's also very easy as it uses a box cake mix as the base.
You do need an angel food cake pan for this (which you do NOT grease). I also would warn against trying this in Colorado. I did that once and it did not turn out so well. Actually, my biggest fear of moving to Colorado would be how my baked goods would turn out...
Follow the instructions on your box of angel food cake mix. For the one I used, you just had to add water. Add 1 Tbsp. powdered coffee to batter and bake as instructed on the box.
Cream 1 stick butter
2 ½ cups sifted confectioners sugar
¼ tsp. salt
Add 3 to 4 Tbsp. milk
1 tsp. vanilla
Add last – 2 Tbsp. powdered coffee
Once the cake is cooled, add the icing carefully. The cake is light and fluffy, so you cannot just plop all of the icing on the top (like I initially tried to do). Slowly spread icing across your cake. Then serve!