Weaning back the coffee addiction to fatten your savings
IF Australians weaned back their takeaway coffee addiction, many of us could have fatter savings accounts and be debt-free.
IF AUSSIES weaned back their takeaway coffee addiction it could mean living a much happier retirement, new figures show.
Curbing back on that ritual morning coffee spend and investing the handful of coins elsewhere could result in Australians bolstering their savings or smashing their home loan debts years earlier.
Figures by IBISWorld show Australians consume 1.7 million coffees a day and spend more than $2.15 billion a year on caffeinated beverages.
Based on a person drinking five coffees a week at $3.50 each, by making their own cups of coffee at work and cutting back on their daily takeaway fixes they could be fiscally fitter in years to come.
New data compiled by a range of financial experts show Australians’ could be boosting their superannuation, farewelling their mortgages years earlier, fattening their savings accounts, increasing their share portfolios or culling their credit card debt simply by forgoing their routine morning cafe kick.
News Corp Australia crunched the numbers based on today’s dollar figures.
SUPERANNUATION
NEW figures by the Association of Superannuation Funds of Australia shows the average 30-year-old Aussie pocketing $70,000 a year would retire at age 67 with $504,000 in super.
This would jump by $54,000 if they quit their daily $3.50 coffee takeaway — or a cost of $17.50 per week — and instead tip the money as an after-tax contribution into their super fund.
ASFA’s chief executive Pauline Vamos said the “benefit of compound interest” can make a huge difference come retirement.
“When you retire, 30 per cent of your account balance is a result of contributions and 70 per cent is interest and returns,’’ she said.
“So the more you can put in earlier, particularly small amounts like this over the longer term can have a much bigger impact.
“People are retired for much longer and in the first years of retirement are very active and people need to think about the lifestyle they want.”
Ms Vamos said compulsory superannuation contributions — which are currently 9.5 per cent — won’t be enough in retirement and will mean many Australians will be partly dependent on the age pension to cover the financial shortfall.
HOME LOAN
DATA from comparison website Finder.com.au found by tipping their weekly coffee costs of $17.50 into a $300,000 30-year loan on the average variable rate of 5.35 per cent, the borrower would increase their repayments by $70 a month.
This would then cut their home loan interest bill by more than $32,600 over the loan term and they would pay it off two years and nine months earlier.
On a $600,000 home loan it would save more than $34,700 and reduce the loan term by one year and three months.
The site’s spokeswoman Michelle Hutchison said by cutting out coffee Australians could save a lot on their home loan.
“It’s a small sacrifice for a big difference at the end of the day and can save you a lot of money,’’ she said.
SAVINGS
RETURNS on savings accounts have dwindled in recent years as rates remain at historical lows, but by tucking away $17.50 per week earning the average interest rate of 3.68 per cent this would mean the saver would pocket $857 in the first year.
After 30 years this would result in more than $46,000 including about $21,000 in accumulated interest.
Ms Hutchison said it’s a case of “thinking big but starting small.”
“Commit to it by automatically debiting that amount into a savings account every month or every week so you don’t have to think about it can be great particularly if there’s something in particular that you are saving up for,’’ she said.
SHARES
SHADFORTH Financial Group’s John Barton said putting your coffee funds into an indexed fund is a big win — based on the average market returns over the past 10 years at about eight per cent over a 30 year period this would leave about $114,000 in an investor’s pocket.
“If you use that money to supplement your income in retirement that could mean an extra $6000 per year in retirement,’’ he said.
“It can be the difference to retiring comfortably or retiring miserably.
“If you do savings on multiple things like saving $5 on your phone bill and saving on your insurance, then that money saved can make a big difference.”
CREDIT CARDS
Australians owe a whopping $51.09 billion on plastic and Finder.com.au data shows on the average card debt that accrues interest at $2078 with an interest rate at 17 per cent, if the customer paid an extra $70 per month (a full month’s coffee savings) they would pay down their card debt far quicker.
If you pay the minimum two per cent in repayments on the standard credit card debt of $2078 you would pay more than $3900 in interest and take 27 years to pay the debt off.
If you pay an extra $70 per month you will pay the debt off in just four years and two months and pay just $587 in interest costs.
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