The $5 you’ll never want to spend again

Chances are you’ve spent $5 on a coffee before and didn’t think twice about it. But what if that same coffee cost you $45? Would you think twice then?

If you’re anything like me, you’ve traditionally looked at $5 as a way to get a quick coffee, or a drink at the bar (though in NYC that’s almost never the case). Never seeing $5 as meaning much or holding much value because after all, it’s just $5. Investing $5 won’t make you rich, and spending it can’t make you poor, right? Not exactly.

If you were to take the $5 you usually spend on coffee and invest it in VTSAX, a broad index fund hosted by Vanguard that covers the top 500 traded stocks in the U.S. market, that $5 would become almost $45 in 35 years.

VTSAX has hosted an average annual return rate of 6.45% since its inception in 1992. By using the average return rate of 6.45%, with compounding interest, the $5 you normally spend without thinking twice becomes almost 900% of its original value in 35 years. A staggering return for something you otherwise would look at as having little to no impact on your financial future.

If you start to think of the $5 you normally spend on coffee as the $45 it can become you create a behavioral modification because let's face it who wants to spend $45 on coffee. You’ll start to place a great value on the $5, realizing what it can become rather than what it is right now.

But, if that's still not convincing enough, taking growth into account, if you invest the $5 you usually buy coffee with every weekday into VTSAX that’d, conservatively, be a $100 monthly contribution. Or over the course 35 years, a total contribution of $42,000 amounting to a portfolio of nearly $152,000 with interest. Would you rather be the person who spent $42,000 on coffee or the person who made $110,000 by investing $100 a month?

Now I’d be naive not to address that there’s a lot of unforeseeable circumstances that come with investing in anything tied to the stock market. There’s no way to guarantee a 6.45% return rate every year. In fact, there’s no way to guarantee there will be any return. Inevitably, some years you will see a loss, and other years you’ll see gains far past that 6.45%. There’s inconsistencies, it’s part of investing. However, over the course of its nearly 100-year existence, the U.S. stock market has only trended upwards over a 30-year stretch in time.

What that means is if you make steady investments and hold — not panic selling every time the “market is crashing” then you will see a steady return. It won’t feel groundbreaking at first — it doesn't have the rush of day trading — and it’s easy to lose patience. But, if you treat investing as a marathon and not a sprint you can turn $5 into $45 with little to no effort.

Start by asking yourself, is this coffee worth $45? It will make the $5 feel as significant as it really is and create a behavioral modification that will make you more inclined to instead invest that $5 and let it grow. Never wasting your money on overpriced coffee again.