a day of savings? Here’s how the math works. First calculate the amount you take home after taxes as a percentage on your last dollars of earnings. For example, if you pay a 25% marginal tax rate, you take home only 75% of those last dollars you make.

Next, divide the daily bad habit cost by the tax home rate. For example, divide the $6 pack-a-day habit by 75% to get $8. Essentially, this calculation shows you how much you can save into an IRA or 401(k) using, say, your cigarette money once you factor in the income tax savings.

Finally, you need to add in the employer savings. To calculate this, multiply the grossed up savings by matching rate. With a 50% match and $8 of grossed up savings, the employer contribution adds another $4, producing total daily savings of $12.

And that’s how a $6 a day bad

I got to thinking the other day about the lifetime cost of my bad habits, both those habits past and those present.

And I don’t just mean the simple cost of, say, those Marlboro cigarettes, the morning Starbucks, or the weekend case of beer. I mean the full opportunity cost when you also include things like the interest you or I could have earned by saving money. And some years the employer matching you or I could have gotten by taking advantage of company-sponsored 401(k) plans.

Unfortunately, I am sad to say, I know enough finance and Microsoft Excel to make the calculations. And the results were not pretty. (You might just want to stop reading right here.)

But one final set of comments. First, to keep things easy I looked at forty years of bad habits vs. forty years of saving and investing. Second, I assumed that you or I would invest via an employer’s 401(k) account that provided a 50% matching contribution and that earned a 6% real rate of return. Finally, I assumed that the marginal tax rate was 25%.

And by the way: I also used an inflation-adjusted rate of return input. So my numbers are actually already adjusted for inflation.

Got a light Marlboro Man?

I figure a pack a day habit now costs, what, $6 a day? And I remember when, as a teenager, you could buy them for $.45 out of a machine when the adults weren’t looking.

While $6 a day sounds bad, when you look at what happens if one would have used the money for saving inside a company 401(k), it gets even worse.

A $6 a day tobacco habit turns into $12 in daily savings once one adds the tax savings and the employer matching.

And then once one compounds the interest over four decades, no kidding, you’re looking at a potential $716,936 dollars. And remember that’s un-inflated. If inflation runs, say, 3%, one actually ends up with considerably more. About $1.7 million.

Make Mine the Million-dollar Mocha

Okay, tobacco. Sure. You know that had to be bad. But what about something more innocuous. Something that’s not really a bad habit, like stopping off at Starbucks in the morning.

I figure a morning mocha grande runs about $4 with tip? That’s not so bad, is it?

Well not so quick Howard. A $4 a day caffeine fix turns into $8 in daily savings once you or I add the tax savings and the employer matching.

And then once one compound the interest over four decades, you’re looking at a potential $477, 957 dollars. Again, that’s un-inflated. Run inflation at 3% and one actually ends up losing the opportunity to accumulate a little over $1.1 million.

Last Call for Alcohol

One last example. How about enjoying a half case of beer over the weekend. Just to unwind from the pressures of our jobs, I mean. Nothing serious.

Say $10 for the beer and $10 for the munchies you’ll need to go with them?

A $20 per weekend party splurge turns into $40 of lost investment money once you include the tax savings and the employer matching. Then once you compound the interest over four decades, you’re looking at a potential $341 ,398 (if un-inflated) and slightly more than $800,000 (if inflated at 3% annually).

How the Math Works

Interested in how a $6 a day bad habit magically turns into $12 a day of savings? Here’s how the math works. First calculate the amount you take home after taxes as a percentage on your last dollars of earnings. For example, if you pay a 25% marginal tax rate, you take home only 75% of those last dollars you make.

Next, divide the daily bad habit cost by the tax home rate. For example, divide the $6 pack-a-day habit by 75% to get $8. Essentially, this calculation shows you how much you can save into an IRA or 401(k) using, say, your cigarette money once you factor in the income tax savings.

Finally, you need to add in the employer savings. To calculate this, multiply the grossed up savings by matching rate. With a 50% match and $8 of grossed up savings, the employer contribution adds another $4, producing total daily savings of $12.

And that’s how a $6 a day bad h

, I assumed that you or I would invest via an employer’s 401(k) account that provided a 50% matching contribution and that earned a 6% real rate of return. Finally, I assumed that the marginal tax rate was 25%.

And by the way: I also used an inflation-adjusted rate of return input. So my numbers are actually already adjusted for inflation.

Got a light Marlboro Man?

I figure a pack a day habit now costs, what, $6 a day? And I remember when, as a teenager, you could buy them for $.45 out of a machine when the adults weren’t looking.

While $6 a day sounds bad, when you look at what happens if one would have used the money for saving inside a company 401(k), it gets even worse.

A $6 a day tobacco habit turns into $12 in daily savings once one adds the tax savings and the employer matching.

And then once one compounds the interest over four decades, no kidding, you’re looking at a potential $716,936 dollars. And remember that’s un-inflated. If inflation runs, say, 3%, one actually ends up with considerably more. About $1.7 million.

Make Mine the Million-dollar Mocha

Okay, tobacco. Sure. You know that had to be bad. But what about something more innocuous. Something that’s not really a bad habit, like stopping off at Starbucks in the morning.

I figure a morning mocha grande runs about $4 with tip? That’s not so bad, is it?

Well not so quick Howard. A $4 a day caffeine fix turns into $8 in daily savings once you or I add the tax savings and the employer matching.

And then once one compound the interest over four decades, you’re looking at a potential $477, 957 dollars. Again, that’s un-inflated. Run inflation at 3% and one actually ends up losing the opportunity to accumulate a little over $1.1 million.

Last Call for Alcohol

One last example. How about enjoying a half case of beer over the weekend. Just to unwind from the pressures of our jobs, I mean. Nothing serious.

Say $10 for the beer and $10 for the munchies you’ll need to go with them?

A $20 per weekend party splurge turns into $40 of lost investment money once you include the tax savings and the employer matching. Then once you compound the interest over four decades, you’re looking at a potential $341 ,398 (if un-inflated) and slightly more than $800,000 (if inflated at 3% annually).

How the Math Works

Interested in how a $6 a day bad habit magically turns into $12 a day of savings? Here’s how the math works. First calculate the amount you take home after taxes as a percentage on your last dollars of earnings. For example, if you pay a 25% marginal tax rate, you take home only 75% of those last dollars you make.

Next, divide the daily bad habit cost by the tax home rate. For example, divide the $6 pack-a-day habit by 75% to get $8. Essentially, this calculation shows you how much you can save into an IRA or 401(k) using, say, your cigarette money once you factor in the income tax savings.

Finally, you need to add in the employer savings. To calculate this, multiply the grossed up savings by matching rate. With a 50% match and $8 of grossed up savings, the employer contribution adds another $4, producing total daily savings of $12.

And that’s how a $6 a day bad

ing.

And then once one compounds the interest over four decades, no kidding, you’re looking at a potential $716,936 dollars. And remember that’s un-inflated. If inflation runs, say, 3%, one actually ends up with considerably more. About $1.7 million.

Make Mine the Million-dollar Mocha

Okay, tobacco. Sure. You know that had to be bad. But what about something more innocuous. Something that’s not really a bad habit, like stopping off at Starbucks in the morning.

I figure a morning mocha grande runs about $4 with tip? That’s not so bad, is it?

Well not so quick Howard. A $4 a day caffeine fix turns into $8 in daily savings once you or I add the tax savings and the employer matching.

And then once one compound the interest over four decades, you’re looking at a potential $477, 957 dollars. Again, that’s un-inflated. Run inflation at 3% and one actually ends up losing the opportunity to accumulate a little over $1.1 million.

Last Call for Alcohol

One last example. How about enjoying a half case of beer over the weekend. Just to unwind from the pressures of our jobs, I mean. Nothing serious.

Say $10 for the beer and $10 for the munchies you’ll need to go with them?

A $20 per weekend party splurge turns into $40 of lost investment money once you include the tax savings and the employer matching. Then once you compound the interest over four decades, you’re looking at a potential $341 ,398 (if un-inflated) and slightly more than $800,000 (if inflated at 3% annually).

How the Math Works

Interested in how a $6 a day bad habit magically turns into $12 a day of savings? Here’s how the math works. First calculate the amount you take home after taxes as a percentage on your last dollars of earnings. For example, if you pay a 25% marginal tax rate, you take home only 75% of those last dollars you make.

Next, divide the daily bad habit cost by the tax home rate. For example, divide the $6 pack-a-day habit by 75% to get $8. Essentially, this calculation shows you how much you can save into an IRA or 401(k) using, say, your cigarette money once you factor in the income tax savings.

Finally, you need to add in the employer savings. To calculate this, multiply the grossed up savings by matching rate. With a 50% match and $8 of grossed up savings, the employer contribution adds another $4, producing total daily savings of $12.

And that’s how a $6 a day bad

dollars. Again, that’s un-inflated. Run inflation at 3% and one actually ends up losing the opportunity to accumulate a little over $1.1 million.

Last Call for Alcohol

One last example. How about enjoying a half case of beer over the weekend. Just to unwind from the pressures of our jobs, I mean. Nothing serious.

Say $10 for the beer and $10 for the munchies you’ll need to go with them?

A $20 per weekend party splurge turns into $40 of lost investment money once you include the tax savings and the employer matching. Then once you compound the interest over four decades, you’re looking at a potential $341 ,398 (if un-inflated) and slightly more than $800,000 (if inflated at 3% annually).

How the Math Works

Interested in how a $6 a day bad habit magically turns into $12 a day of savings? Here’s how the math works. First calculate the amount you take home after taxes as a percentage on your last dollars of earnings. For example, if you pay a 25% marginal tax rate, you take home only 75% of those last dollars you make.

Next, divide the daily bad habit cost by the tax home rate. For example, divide the $6 pack-a-day habit by 75% to get $8. Essentially, this calculation shows you how much you can save into an IRA or 401(k) using, say, your cigarette money once you factor in the income tax savings.

Finally, you need to add in the employer savings. To calculate this, multiply the grossed up savings by matching rate. With a 50% match and $8 of grossed up savings, the employer contribution adds another $4, producing total daily savings of $12.

And that’s how a $6 a day bad

a day of savings? Here’s how the math works. First calculate the amount you take home after taxes as a percentage on your last dollars of earnings. For example, if you pay a 25% marginal tax rate, you take home only 75% of those last dollars you make.

Next, divide the daily bad habit cost by the tax home rate. For example, divide the $6 pack-a-day habit by 75% to get $8. Essentially, this calculation shows you how much you can save into an IRA or 401(k) using, say, your cigarette money once you factor in the income tax savings.

Finally, you need to add in the employer savings. To calculate this, multiply the grossed up savings by matching rate. With a 50% match and $8 of grossed up savings, the employer contribution adds another $4, producing total daily savings of $12.

And that’s how a $6 a day bad habit turns into $12 of daily savings.

Closing Comments

Don’t get me wrong. I’m not saying you should give up every bad habit. Er, I haven’t given up all of my mine.

But do consider that regular spending on things you or I may not really even want can easily double in amount when you stop spending and start saving in something like an IRA or a 401(k). If one then plops the savings into a tax advantaged account—something like a 401(k)—the numbers get big fast.