Keeping those new year’s resolutions is notoriously difficult, with most of us breaking our pledges by January 12 – Quitter’s Day – every year.
It comes as no surprise that if you give up smoking you’ll be better off, and to a lesser extent drinking or staying away from sugary treats. But how much are those savings worth if you invest all that lovely money you’re not spending?
About to break your resolve and start smoking again? That next cig could be costing you £40,000. Breaking those good intentions and ordering a takeaway? That’d be more than £25,000.
We’ve crunched the numbers on the amount you could make by investing the savings from quitting – the totals might surprise you.
Calculations based on making monthly investments, and a predicted long-term investment growth of five per cent. Sources: ONS/Faire survey/Smoking Toolkit Study/Action on Smoking & Health/Ninja
The upsides to giving up
Giving up smoking is, unsurprisingly, likely to yield the biggest wins financially, as well as health-wise, especially if you’re someone with a regular habit.
With the average cost of smoking for a year at £3,332 according to Action on Smoking and Health (ASH), if you just save the money instead, you’ll have an extra £33,320 over ten years. But put the money you save into investments instead and you should have a whopping £43,049 after ten years, assuming your money grew at an average of five per cent a year.
Looking to save a deposit for your home… that’ll do it. Or buy a Mercedes C-Class. Or ten no-expense-spared bucket-list holidays. Nicotine may suddenly seems a lot less tempting.
Even vaping – the cheapest way to feed a nicotine habit – starts to get expensive when you start to put it in these terms. You’ll still be spending an average of £8.39 a week, or £36.35 a month on your habit according to the Smoking Toolkit Study.
Put that cash into an investment account instead and you could give yourself a £5,633 pay-day in ten years’ time. That’s a new bathroom.
Our nicotine habit isn’t the only vice eating into our money. Keeping other resolutions could benefit you financially too.
One recent survey from Ninja found that adults under 25 spend an average of £43 a week on takeaways. Put that money away in an investment Isa instead and you’ll have over £12,000 in five years, and nearly £29,000 after ten years. That’s the average amount it costs to start a business.
Cutting out sweet treats and alcohol are also big savers if you have average consumption. A recent study by online wholesalers Faire found that we spend just under £1,000 a year on average on small treats worth under £10 such as chocolate, flowers and stationery.
Canning the impulse buys could give you £12,864 in ten years’ time if you invested the cash instead.
Meanwhile, the average spend on alcohol for a household of 2.3 people (the UK average) is £783 a year, worth £10,113 after a decade if you invested the money instead.
The effects of compounding
These savings assume that you’re investing your money into an investment fund that performs steadily. It doesn’t take account of any charges that you pay for the fund and assumes that every year your money grows by five per cent.
Of course, no investment will perform at exactly this rate. Some years many investment funds do better than this, and other years they perform worse. The value of investments can fall as well as rise.
However, five per cent is a good average number to take. Figures from the Barclays Equity Gilt Study, which looks at the performance of different assets over time, suggest that the average rate for UK shares is just above this, at 5.4 per cent, if you look over 50 years.
What really changes the game, though, is the fact that the money you put in investments over time is compounded – your returns earn money themselves. Like a snowball rolling down a hill which keeps adding more snow to itself as it gets bigger, your investment gains speed as your pot gets bigger.
To hit the figures mentioned above you’ll need to be consistent with investing the money you are saving with your resolutions. One way to do this is to automate your investments with a direct debit – these calculations assume you’re doing this monthly, but some investment products allow you to invest weekly or even daily if you prefer, every time you turn down a drink or a cigarette.
Investing regularly can also ensure that your investments behave in a less volatile manner.
Sarah Coles, personal finance expert at DIY investment group Hargreaves Lansdown, says that this is particularly valuable at tense times for stock markets.
‘You won’t invest everything at the best possible second, but most people who try to time the markets don’t manage to do this either – especially when such unpredictable forces are having such a big impact on market movements.
‘Instead, you take timing out of the equation and focus on time in the market instead,’ she says.
Turbo-charge with tax efficiency
If you’re investing the profits from your resolutions, make sure you are not handing any of them to the taxman. It’s important to invest using an Isa (individual savings account). Everyone can put £20,000 into an Isa this tax year, and this allowance resets each April.
Money in an Isa can grow without any capital gains, dividend or income tax, whether it is in cash savings or investments, so you’ll reap the full reward from your resolutions.
