The Spend | Happy Hour
Let's say happy hour is one of your weekly rhythms. You meet up with some friends at the local pub, grab a few beers, maybe a bite to eat, and pay your tab before heading home. Total bill - $30.
The Opportunity Cost | Retirement
At any time, you have innumerable other ways to use that $30 you spent on happy hour. Let's look at what happens if you invest this money for retirement instead. That weekly happy hour at $30 a pop adds up to $1,560 over the course of a year. That's the after-tax value.
But, let's assume for a moment that you are in the 25% federal marginal tax bracket and pay 5.08% to the state. That $1,560 is actually $2,231 of before-tax income. Since there's no tax deduction for happy hour, you have to earn $2,231 to pay for your fun.
We're not finished. Let's further assume that instead of happy hour, you invested for retirement and your employer matches your contributions at a rate of fifty cents on the dollar. The pre-tax value of your employer's contribution amounts to $1,115.
When you account for the actual cost of happy hour ($1,560), then add the opportunity cost of tax deductions lost ($671), and employer matching contributions lost ($1,115), you're looking at a total retirement savings opportunity cost of $3,346 per year.
The Long-term Opportunity Lost | 30-year Value
If we look at the long-term retirement savings opportunity lost over the next 30 years, it adds up to a total of $722,075.84 In words, that's seven hundred twenty-two thousand seventy-five dollars and eighty-four cents.
Strike a Balance | Don't Be Boring
We have a saying in our house, "If you're bored, you're boring!" We all need some social time to blow off steam, connect with friends, and add a little spice to life. Trust me. I'm HUGE on fun. Strike a balance. Be judicious with your spending and reign it in when you need to.
If you're living paycheck-to-paycheck, swimming in a pool of debt, or are short on retirement savings, skip a few happy hours, look for opportunities to drink at your or a friend's home, and put the money you saved toward your most pressing goal.
In our example here, you could spend $10 on a six-pack of tasty craft brew instead of going out. Making that change can add $481,383.89 to your retirement.