The Personal Finance Podcast - How Much Do You Spend on Alcohol?

Episode Date: September 16, 2020

Episode 19: How Much Do You Spend on Alcohol? In this episode we cover:  The details of this fun-filled experiment How much you would save if you spend $50 a month  How much you would save if you spend $100 a month  How much you would save if you spend $150-$400 a month  What to do with all that extra cash  RESOURCES: CIT BANK (Best Savings Account)  Charts M1 Finance Best Place to Invest  Personal Capital Free Wealth Management and Budget App  ** Some links may be an affiliate link and we earn a small commission at no extra cost to you. We only recommend products we truly believe in.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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What's up, everybody? And welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of dollar after dollar.com. And today, we're going to be talking about how much money you would save if you actually stop drinking alcohol. And this is one of my favorite what ifs that people talk about. And it's talked about a lot in bars and through friends. And we were just talking about it with a group of my friends. But people always ask themselves,

I wonder how much money I've spent on alcohol throughout my entire life. Well, you're in luck, my friend, because your boy has figured out the answer. We're going to solve this mystery together once and for all. And in no way am I saying stop drinking alcohol when we go through this process. But I think it's a fun exercise to go through. So you can see how much money you're actually spending and how much purchasing power you're actually losing. if you spend a significant amount on a certain item.

And balance is always key with our personal finance, right? Balance is one of the biggest things that we talk about within our personal finances. There's nothing wrong with buying alcohol. There's nothing wrong with enjoying things that you like and buying things that bring you value. But at the same time, you just want to know what the tradeoff is with your money. This is why I put this exercise together. And the big thing to realize as we're talking about this is it's not just how much you're saving, but it's the opportunity cost you could be losing.

by spending too much money on alcohol. And there's a way to spend too much money on alcohol if you don't make a lot of money. So your income has to line up with the amount that you're spending. So what we're going to be looking at is how much money the money you spent on alcohol could make if you invested it instead. And the way I'm going to break this down is by various spends each month. So if you spend $50 a month or $100 a month or $250 a month or $400 a month,

we're going to go through each of those aspects so that you can see how much money your money is going to be making. over the course of time. And we look at it in two different ways. We look at it over 30 years, and we're going to look at it over 40 years. And if you really think about it, if you think to yourself, hey, I don't spend as much as he's talking about on alcohol, but think about how an expensive at a hobby it actually can be. If you're going to bars, you have to take ubers. You're going to go out and get some food with your drinks. There's all these different things that's going to add up on the side that you don't even think about. So really think through this and think about the compound

effect that alcohol can have and how it can add up. So let's get into how much, you would save if you stopped drinking. So first, let's get into the person who spends $50 a month on alcohol. You know who you are, the buy one, get one free wine drinker, the Natty Light drinker, the beer pong champion, or the stay-at-home drinker. So the stay-at-home drinker is known to grab a six-pack of the liquor store, throw back a few while watching some sports or movie, and it's usually a casual drinker, or they just go out with friends every once in a while and get some drinks.

So let's see how much spending $50 a month on alcohol will actually cost you. So the way I did this was I did the compound effect. So if you invested $50 a month instead of spending it on alcohol, this is how much you would end up over the course of 30 and 40 years. And I put these charts into the show notes so that you can actually see how much you would save over the course of time. So every five years, you'll see the increments of how much you would actually save. But over the course of 30 years, if you spent $50 a month on alcohol, you would actually forgo $70,427. $15 in $53 in retirement. But here's the acceleration point, because if you go to 40 years, you would save $161,053 in retirement.

So you may be thinking $50 a month, that's nothing. It's not going to be a big deal. But then you see these numbers and it's going to be $161,000 that you're spending over the course of 40 years. Well, that's a massive difference. And you may say 40 years is a long time. Well, that's from the age of 21 to 61. That's just going for those 40 years. If you drink for a longer period of time of $50 a month, it's only going to be

accelerated from that time frame. But if you're a drinker and you spend $50 a month or less, you're probably in the minority because most people don't spend that small of an amount on alcohol. Because if you go out for dinner one time for drinks, you're going to be spending more money than that on alcohol. So let's say you spent $100 a month on alcohol. And now we're starting to get to a normalized level and studies show that most people spend over $100 a month on alcohol. But this would be someone who's like to stay at home or occasional bar drinker. And $100 a month, you could go out to eat twice in a month and probably spend $100 because drinks are so expensive when you go out.

But the $100 a month drinker probably spends the majority of their time having drinks at home, but maybe they go out once or twice a month with friends. And like I said, it could really add up because if you think about it, two cheap bottles of wine a week can get you to $100. That's how crazy some of these numbers are. So if you think about something in terms of what you're buying and how much you're spending, you can actually get to this number much quicker. And if you don't have a budget and you don't have a way to track,

you're spending, then you're probably spending way more than you think you are on alcohol. So let's get into the numbers. If you spend $100 a month over the course of 30 years, you're going to lose out on $140,000 over that time frame. But if you do it over the course of 40 years, here's the massive jump. You're going to lose out on over $322,000. That's just with $100 a month. You're going to lose out on $322,000. Now, these numbers are starting to make you second guess it a little bit. And when you're listening to these numbers and thinking about these numbers, it doesn't have to be alcohol. It could be anything that you spend a small portion of your money on. So lately, I've been noticing how fast things are changing at home. The kids are growing like crazy.

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The Devil wears Prada 2 in Theat's Friday. So what if you spend $150 a month? And this is fairly easy to do as well, especially if you drink more outside of the house, you know, going to bars or restaurants or things like that, then you can really spend a pretty penny on alcohol. And that's the largest profit percentage for restaurants is alcohol. That's why they're able to jack up their prices on alcohol. And it's very easy to spend this amount.

So if you spend $150 a month on alcohol, alcohol. In 30 years, you forego $211,000. But in 40 years, you forgo $483,000. You're almost at a half a million dollars if you spend $150 a month on alcohol. So if you think there's no way that you spend that much on alcohol, just think about it this way. That's less than $40 a week on alcohol. So if you go out to bars a couple times a week with friends or you go to restaurants and buy a couple fancy drinks, you're going to be spending $150 or more on alcohol. And now let's get into the $250 a month drinker. So we're going to jump up $100. And this is who I call the fancy bar, the fancy bottle drinkers. These are the people who maybe go to martini bars. They think they're in sex in the city

or something, or they go over and buy fancy wine bottles at the wine store down the street because they got their fancy pants on. But if you spend $250 a month on alcohol, this is going to have a true significant impact on your net worth over time. This is where you're starting to look at the numbers and say, I'm probably overspending on alcohol if I'm spending this much, especially if you're trying to build wealth for your future. This is where you really got to look at it and say, what am I doing here? So if you spend $250 a month on alcohol, over the course of 30 years, you will forego $352,000. And over the course of 40 years, you're going to forego, now listen to this, hope you have a drink in your hand because this one's going to be tough to stomach if you

spend $250 a month, over the course of 40 years, you're going to forego $805,000 just by spending $250 per month. That's a couple restaurant visits or a couple bar visits a week. That's just a little bit over $60 a month. So if you buy two $30 bottles of wine per week, or if you buy a $30 bottle of wine per week and go out with drinks for friends once per week, you're going to be spending this much on alcohol every single month. And you're going to be losing and foregoing over the course of 40 years, $805,000. That's absolutely crazy. You're getting close to a million dollars just by spending $250 a month on alcohol. This is where you have to start second guessing and thinking through this, because the amount of money you're spending probably doesn't bring you enough value as $805,000

would over the course of your retirement. Just for example, $805,000 in retirement is just around $33,000 that you can draw down per year. So you're foregoing a $33,000. $33,000. income in retirement by spending $250 a month. And then lastly, we're going to get to the $400 a month drinker. Now, this is the clubber. This is who I call the clubber who's fist pumping in the middle of the club, going crazy. If it's a guy, his shirt's probably unbuttoned, one button too many. Or it's the extreme high roller so someone maybe goes to casinos or things like that. But honestly, if you really think about it, a lot of people you know probably spend $400 a month drinking. Because there's a lot of overpriced drinks out there, my friends. Especially if you go to places like San Francisco or New York City or

things like that, it's $20 a drink just to go to a restaurant. So you could easily spend $400 a month and you didn't even have to fist pump once. But if you're spending $400 a month, as you could probably imagine, it's going to have a significant impact on your bottom line, especially when you get to retirement. But let's just get real here. If you're spending $400 a month on alcohol, you're spending too much money. No judgment, but you're spending too much money, okay? You're going to see why in about two seconds here. And honestly, if you're listening to this right now and you spend over $400 a month, get a drink in your hand because you're going to need to relax a little bit after I tell you how much you're going to be losing here. If you spend over $400 a month, you're struggling to save money, you're struggling to invest, this might be the first spot you want to look.

Now, here at the Personal Finance podcast, we're all about increasing your income so that you can buy more things that bring you value. But $400 a month on alcohol probably is impacting your health. It's probably impacting your performance at work and various other things that will not allow you to increase your income. So you really have to second guess and think through it if you're spending this much. Over the course of 30 years, you're going to have spent $563,000 if you would invest in that money instead. And over the course of 40 years, get ready, $1.28 million. It's mind-blowing to me how much money you can forego if you break these numbers down and look at the difference between compound interest within your investments. So you may be saying to yourself, hey, Andy, man, I'm not saying I'm going to cut back on my spending.

on alcohol, but if I did cut back on my spending on alcohol, where should I put the extra money? Wink, wink, wink. We'll never fear because your boy has always got you back. And what I would do with the excess spending, if you're going to save a little extra money somewhere, what I would do with that money is a few things. The first is if you want to save it for retirement, for example, then I would look at saving in a Roth IRA. For example, if you spend, say, $400 a month on something that you want to cut back on, well, to max out your Roth IRA, all you need is $500 a month to be able to max out your Roth IRA. And as we talked about in the Roth IRA millionaire episode, you can easily become a Roth IRA millionaire. As you can see from these numbers that we just talked about,

by maxing out your Roth IRA, you can easily have a million dollar Roth IRA over the course of your investment timeframe. Now, if you're not familiar with a Roth IRA or you haven't heard the Roth IRA episode, what a Roth IRA is is a retirement account, where you pay taxes on the money that you put into your Roth IRA, but you don't have to pay any taxes as the money grows and when you take the money out of your Roth IRA. Because a lot of times when you're investing, if you just open an investment account, say over at Fidelity or somewhere like that,

and it's not in a retirement account, then you're going to have to pay capital gains taxes on the money that your money earns. But in a Roth IRA, you don't have to do that. So you're going to save yourself a significant portion of your income because your money is making money, and that money that your money is making, you don't have to pay a 33% tax on that money. And so it's a huge savings for you over the course of your retirement years, whereas if you're putting in $400 to $500 a month, you're going to be a Roth IRA millionaire

if you have a long time horizon. Now, if you want to save that money, say, for something short term, like a house or a car, then I would look at putting that money into a high-yield savings account. And one of the best ones I like is CIT bank. I'll leave a link in the description that is an affiliate link if you click that. They have some of the highest interest rates on their savings accounts out there because you don't want to put money into investments if you're going to spend it in the short term. So say you want to buy a house in a year or two, then just go ahead and put that money into a high yield savings account so you can earn a little bit of interest. So if the market dips, you don't have to lose half of that money. And lastly, if you're already maxing out your

Roth Aura or the retirement accounts and you don't know where to put your income, but a health savings account is another great place to put your money because it has tremendous benefits for your retirement and you don't have to put a significant portion of your income in there for it to really build up. And we're going to go through HSAs in an upcoming episode in great detail, but they're an awesome, awesome way to save for retirement. I actually call them super retirement accounts. So stay tuned for that episode where we're going to go through the HSA and how amazing it is because I think it's one of the coolest things in finances. It's one of the best hidden secrets in finance that people just don't know about. And you're going to be minimizing your tax burden significantly

if you invest in an HSA. And before we wrap this episode up, just understand that there's nothing wrong with drinking whatsoever. There's nothing wrong with spending money on things that bring you value. There's spending money on things that help you relax. And that's what alcohol can do for some people. And if you love being in the club and pop and bottles full of bub, then you do you. But at the same time, just understand what your tradeoff is. Understand. what the tradeoffs are so that you can make sure that your spending is in line with your values. And that's what we say over and over on this podcast. That's what we always talk about is money needs to be spent lavishly on what brings you value. Because there's tradeoffs to everything that you buy.

So making sure you aim at the target, aim at the thing that you care about is how you truly build wealth. That's how you truly have financial freedom. And that's the cool thing because you work hard. Everybody out here, everybody listening to Personal Finance podcast works hard. So you deserve to kick up your feet, crack open a cold one, or pop a bottle, and enjoy life. Because that's what it's about. But understanding those tradeoffs is a massive benefit. It's a massive benefit for everyone because you can make better decisions with your money. You can make better decisions with everything that you do. So understanding what your money can do for you puts you 10 steps ahead of the average person. And understanding what compound interest can do for you put you 20 steps ahead of the average

person. So if you're listening to this episode, unless you're at work, grab a drink, kick up a your feet and know that it's money well spent. Thank you guys so much for listening. And if this is your first time listening, consider subscribing so you never miss an episode. And hey, if you get value out of this show, consider sharing it with a friend because we believe that every person in this world can build true wealth and build financial freedom. We want to share that message with everyone else because it starts right here. It starts with financial education. And it's not taught in high schools. It's not taught in colleges. So we want everyone to understand exactly how they too can build wealth and how they can go about building an amazing financial future.

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