While I like to think of myself as a financially savvy human being, the salad pictured above is admittedly mine and very well may be worth $300. Before you roll your eyes and move on to another article or website — hear me out.

Believe it or not, this salad cost me $13.23 (including tax) at sweetgreen on Wall Street. New York City prices are no joke!

However, my motivation behind this writing is not to throw shade at the extortionate cost of living associated with the Big Apple, but rather illustrate the powers of deferred gratification and compound interest.

Opportunity Cost

The following inputs are assumed for the scenario depicted below:

  • $13.23 initial investment
  • 9.5% investment return
  • 35 years
  • Annual compounding
Source: Investor.gov

In this example, if my $13.23 lunch outlay were instead invested in the stock market and held over a long period of time, it would potentially result in a future value of $317.

While equity market returns vary widely from year to year, the historical return of the S&P 500 is roughly 9.8% (unadjusted for inflation) dating back to inception.

Whether that represents an ambitious future outlook is besides the point considering I do not have a crystal ball and am not interested in making forecasts. As witnessed during the past week, the stock market is fairly unpredictable and volatility can rear its head at any moment.

For the purposes of this exercise, I slightly understated the historical average and used an annual return figure of 9.5%.

As a 26-year old, the investment horizon of 35 years brings me very close to the age of 62, where I would theoretically be preparing for retirement and have the option to begin partially collecting Social Security benefits in the event that the program is still intact (keep those fingers crossed).

Compound Interest

It has been rumored that legendary innovator Albert Einstein referred to compound interest as the most powerful force in the universe and the 8th wonder of the world.

The concept of compounding revolves around earning interest on interest and the key ingredient to unleash it is time. As you can see on the aforementioned graph, the effects of compound interest noticeably take flight around year 25.

“I made my first investment at age eleven. I was wasting my life up until then.”

-Warren Buffett

The Oracle of Omaha was certainly referring to the power of compound interest when he made that proclamation.

Striking a Balance

While I realize brown bagging lunch everyday is an unrealistic proposition for most, implementing a hybrid approach between preparing and purchasing lunch can go a long way towards financial freedom.

After relocating to New York City, I fell into the habit of buying lunch everyday. I recently set a goal to bring my own meals for the majority of the workweek while treating myself to takeout on Fridays.

The same logic applies to other seemingly small purchases, such as daily coffee or tea. While it may seem negligible in the present moment to save a few dollars here and there, cutting down on unnecessary purchases will pay dividends down the road.

With that said, my intent is not to discourage spending money or avoid going out to eat (as a low-key foodie that would be hypocritical of me).

Ultimately the premise behind this article is to emphasize the future value of a dollar, particularly for younger individuals with a relatively long time horizon towards retirement, by using a real life example that goes far beyond a routine lunch purchase.

Disclaimer: The information contained in this writing represents the personal and subjective opinion of the author and should not be interpreted as investment advice.



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