We have all heard about the importance of savings. But what if we look at savings from another perspective? What if we look at how much potential earning excessive spending could cost each of us?

Take coffee consumption as an example. All credit to this Twitter user for inspiration to use coffee as an example. Many of us love to drink coffee every day, but a coffee from a branded or local indie shop can cost around $5-6 per cup. Depending on the consumption level, one person can spend a lot of money on drinking coffee outside per year.

Cups Per Week | 1 | 2 | 3 | 4 | 5 |

Total Cost Per Week ($6/cup) (including tips) | $ 6 | $ 12 | $ 18 | $ 24 | $ 30 |

Total Cost Per Year (52 weeks) | $ 312 | $ 624 | $ 936 | $ 1,248 | $ 1,560 |

What if we substitute drinking coffee at a shop for drinking coffee at home? We all know that drinking coffee at home will save us a lot of money, but let’s run an experiment and find out approximately how much money can be saved. Here are two combos A) one 12oz bag of ground coffee that is in the cheap range and a French Press from IKEA that costs $9 and B) a slightly more expensive bag of coffee and a Metallisk at $20.

Either of these combos should be enough for a cup of coffee at home every day. For the sake of argument, let’s say every year a person needs 18 of these bags to have one cup of coffee a day. Combined, 18 bags of Dunkin Ground Coffee and the French Press will cost $120/year. Since we like to drink coffee with some milk, let’s throw in another $30 of milk and round it to $150/year. Here is how much drinking coffee at home would save a person:

Cups Per Week | 1 | 2 | 3 | 4 | 5 |

Total Cost Per Year (52 weeks) | $ 312 | $ 624 | $ 936 | $ 1,248 | $ 1,560 |

Total Cost Per Year From Combo A | $ 150 | $ 150 | $ 150 | $ 150 | $ 150 |

Saving from Combo A | $ 162 | $ 474 | $ 786 | $ 1,098 | $ 1,410 |

Over a long period of time, the compound interest will make these savings much more valuable in the future. Let’s look at four scenarios where the annual interest rate we can earn from these savings, whether it’s from a bank or investment in stocks or from dividends, is 3% to 10%

Cups Per Week | 1 | 2 | 3 | 4 | 5 |

Total Cost Per Year (52 weeks) | $ 312 | $ 624 | $ 936 | $ 1,248 | $ 1,560 |

Total Cost Per Year From Combo A | $ 150 | $ 150 | $ 150 | $ 150 | $ 150 |

Saving from Combo A | $ 162 | $ 474 | $ 786 | $ 1,098 | $ 1,410 |

Annual Rate at 3% | $ 12,215 | $ 35,740 | $ 59,265 | $ 82,791 | $ 106,316 |

Annual Rate at 5% | $ 19,570 | $ 57,259 | $ 94,949 | $ 132,638 | $ 170,328 |

Annual Rate at 7% | $ 32,341 | $ 94,627 | $ 156,913 | $ 219,199 | $ 281,486 |

Annual Rate at 10% | $ 71,700 | $ 209,789 | $ 347,878 | $ 485,967 | $ 624,056 |

**Essentially, what the table above means is that drinking coffee at home using Combo A would save a person on a 3-cup-a-week routine more than $300,000 after 40 years at the annual rate of 10%. Even at a more moderate rate of 5%, it would still be around $100,000, a significant sum for most of us. **

Here is what the savings would look like with Combo B and the same criteria

Cups Per Week | 1 | 2 | 3 | 4 | 5 |

Total Cost Per Year (52 weeks) | $ 312 | $ 624 | $ 936 | $ 1,248 | $ 1,560 |

Total Cost Per Year From Combo A | $ 200 | $ 200 | $ 200 | $ 200 | $ 200 |

Saving from Combo A | $ 112 | $ 424 | $ 736 | $ 1,048 | $ 1,360 |

Annual Rate at 3% | $ 8,445 | $ 31,970 | $ 55,495 | $ 79,021 | $ 102,546 |

Annual Rate at 5% | $ 13,530 | $ 51,219 | $ 88,909 | $ 126,598 | $ 164,288 |

Annual Rate at 7% | $ 22,359 | $ 84,645 | $ 146,931 | $ 209,218 | $ 271,504 |

Annual Rate at 10% | $ 49,570 | $ 187,659 | $ 325,748 | $ 463,837 | $ 601,926 |

From this example, there are two lessons. 1/ the compound interest is a powerful tool to learn and have in our favor. The sooner a person learns about it, the better and 2/ If a person is even only decent at maths and knows the power of compound interest, explaining savings in this manner could be more powerful than just talking about it. Personally, I wish my parents or teachers in Vietnam had taught me this when I was 15. I would have saved so much money from all the shenanigans and earned some from putting the money into an index fund or a high dividend yield stock.

You may argue that the scenarios are a bit extreme and that each of us should enjoy what life has to offer. Well, that may be right, but coffee isn’t our only sin, is it? How about regular food from Chipotle, the 5th streaming service of the month, the 20th bottle of perfume or the 15th pair of shoes? The point of this exercise isn’t to arrive at the exact figure, but to look at the opportunity cost of excessive current spending. A moderate control of spending and savings will help each of us save a lot of money, even after we enjoy the occasional delicacies.

FYI, here is a Future Value calculation I made, using Financial Calculators