With Christmas and New Year’s Eve now but a distant memory, many people’s attentions have turned to New Year’s Resolutions and how to pay for the various excesses of the holiday period.
So, it seems somewhat logical for many people to be giving up alcohol and/or tobacco for the month of January. This, it is claimed, not only helps you to save more money, but also improves health and wellbeing after the festive celebrations have ended.
Of course, not everyone taking part in giving up alcohol and tobacco in January will succeed. In addition, even fewer will continue to do so in February, March and throughout the rest of the year.
This, then, got me thinking. Precisely how much could you realistically save by ceasing the consumption of alcohol and tobacco for a longer period, say 10 years, and investing the money in a diverse portfolio of shares?
Certainly, it may be a considerable challenge, but as the saying goes: ‘where there’s a will there’s a way’.
Average Consumption
It may be somewhat surprising to find out that in 2013 the average amount spent by UK households on alcohol and tobacco was just £12.60 per week. Sure, that figure includes all non-smokers and non-drinkers so, realistically, is likely to be considerably higher for regular drinkers and smokers. However, since it’s a specific figure provided by the ONS, it’s a sensible place to start.
Potential Savings
Using the weekly figure of £12.60 equates to £54.60 per month, or £655.20 spent on tobacco and alcohol per year. If this amount were simply saved over a period of ten years it would create a ‘nest egg’ of £6,552.
However, if you were to invest it in a diversified portfolio of shares, the figure could be much higher. Using an annual return figure of 6.4% (which is the annualised return of the FTSE 100 from its inception in 1984) would make the £6552 saved over the course of the ten year period grow to £9,055.
An Additional Boost
This figure, though, does not include dividends, since the 6.4% return per annum is the change in the FTSE 100’s price level since 1984 and is, therefore, not a total return figure. Including dividends at the FTSE 100’s current yield of around 3.5% means that an annual total return of 9.9% could be on offer.
Such a rate of return would mean that the savings made on alcohol and tobacco could grow to as much as £10,855 after ten years, which could prove to be a welcome ‘nest egg’ for contributing to a house purchase, a new car, or even a more comfortable retirement.
