The Financial Cost of Smoking Over Your Working Life

Cigarettes are back in the news with research released this month from the

Australian Bureau of Statistics (ABS)revealing that 13.8% of Aussie adults consider themselves daily smokers.

It’s a sad statistic given the irrefutable evidence of the damage that smoking does both to your health and your finances. Today I’ll give a couple of examples which may help to motivate smokers to give up, at least cut down.

Think about two people aged 25.. Assume that one chooses to smoke, and the other chooses to invest the price of a large packet of cigarettes a day ($29 a day or $882 a month) into a managed fund that invests her money into a range of blue-chip shares. The price of cigarettes rises at least as fast as inflation, so it we assume inflation runs at 3 per cent per annum, the price of cigarettes will rise by 3 per cent per annum..

If the non-smoker increases their investment by 3 per cent per annum too, the amount invested, or spent on cigarettes, by age 65 will be $818,000. If the share trust returns 9 per cent per annum, (a realistic return if inflation is 3%) the sum accumulated by the investor will be $4.6 million at age 65. The smoker’s return on their investment is ongoing health problems, the non-smoker has become seriously wealthy.

You may argue that $4.6 million won’t be a huge sum in 40 years time after inflation is taken into account, but it is equivalent to about $1.4 million in today’s dollars.

Put it another way. If a person who is young now wants to retire at age 65 with the equivalent of $1.4 million in today’s dollars all they have to do is invest the equivalent of a packet of cigarettes a day from the day they start work.

What if you are older and have a mortgage?

CASE STUDY You are age 35 and have a home loan of $400,000 over 30 years which you are repaying it at $2147 a month. If you quit smoking and use the $882 a month saved to increase your payments to $3029 a month you will pay off the loan in 16 years. You will be debt free at 51 instead of 65 and save over $200,000 in interest.

If you give up smoking make sure you commit the money that you are going to save, otherwise, it’ll be quickly frittered away like your last pay rise. If you have a home loan immediately increase the repayments by the amount you no longer spend on cigarettes, if you don’t have a loan, talk to an adviser about a regular savings plan. Above all get serious – as my GP says “they all stop after the first heart attack”.