Quit Smoking, Invest the Money Spent on Cigarettes and You Might End Up a Millionaire

I'm not a smoker. I never have been and never will be. Why, you ask? Is it because I'm scared of developing lung cancer? No. What about emphysema? No, not really. Then it must be because I don't want to spread these dangerous carcinogens into the air for others to breathe-nope, try again.

I'm not a smoker for the simple reason that I cannot afford it. Oh, I have the money. I just can't afford it in the long run. You see, if I was a smoker, I would spend an average of 40% more on health insurance every year. My life insurance rates would be higher than the already ridiculously high rates I currently pay. And to cap it off, I would be more susceptible to diseases as I got older, which would mean more frequent visits to medical facilities. Translation-money, money, money right out the door.

Although this is a fairly good argument, I'm the type of person who likes to see numbers. How much am I really going to save in my lifetime if I choose not to smoke? For both smokers and non-smokers, the answers may startle you.

Let's take an average 25 year old man who smokes and compare him to his non-smoking counterpart. Our smoker, who I will call Hack, smokes an average of two packs of cigarettes per day. Each pack costs $3 for a total of $6 per day. This equates to roughly $42 per week and $180 per month. As many smokers will agree, Hack enjoys chewing on the occasional cigar on the weekends while watching football with the guys. Although each one only costs $5 (American-not Cuban), that brings his total monthly smoking expense to $200 per month.

For the average American, that may not seem like much money, but let's not forget our other expenses. The typical smoker pays an average of 40% more on health insurance. If the average person spends $500 per month on insurance, this adds an additional $200 per month to his smoking expense. Life insurance rates also go up an average of 25%. A typical $80 life insurance policy will cost a smoker $100.

For the sake of ignoring the unpredictable, let's assume that Hack will have no other expenses related to health. If he never develops a health disease related to smoking, his total monthly contribution to tobacco inhalation is approximately $420 per month. This figure bites into my budget a little more than the previous one.

Let's now compare Hack to his non-smoking friend, who I will affectionately call Steve. Like many non-smokers, Steve is wary of getting into the habit of smoking at the age of 25 because of the many health risks, as well as the many expenses related to it.

Steve reads this article and decides that he wants to save the $420 per month instead of spending it on smoke. His wife talks him into saving only $400 per month and donating the other $20 per month to the Lung Cancer Research Association. Although he is not the sharpest tool in the shed, he invests $400 every month in a well-performing mutual fund that earns an average of 10% per year. And like many smart investors, he leaves the money alone. He reinvests all interest and dividends back into the fund every year of his working life.

Fast forward 40 years. Both Steve and Hack have retired.

Steve's financial advisor calls and tells him that he now qualifies to withdraw from his 401K without penalty. He questions his advisor about the amount in the fund and receives the response, "Sir, our records indicate that you have $2,529,632."

Stop reading and look at the above number again. $2,529,632!

I know what you're thinking. Steve must have had a tremendous job and huge retirement matching plan from his business. His financial advisor must have placed his funds in highly risky accounts and had a 40 year lucky streak. He must have secretly deposited extra monthly amounts into the fund without his wife's knowledge. Wrong, wrong, wrong! Steve did this by investing money he would have otherwise spent on a 40-year habit.

Assuming that he only saved what he would have spent on cigarettes and the added insurance expenses, Steve would be a multi-millionaire at retirement.

To better summarize this scenario, remember that Steve's wife suggested that he donate $20 per month to lung cancer research. Let's say that he ignored her suggestion and invested the full $420 and was able to see an average return of 12% on his mutual fund every year---the percentage that most financial advisors aim for when investing for retirement. Given this scenario, Steve would be about $60,000 short of $5 million dollars. Yes, $5 million!

For the sake of curiosity, let's look at some other figures. Let's assume Steve didn't smoke two packs per day and didn't invest it at 10 or 12%:

3 packs/day at 5% = $747,000
1 pack/day at 5% = $473,000

3 packs/day at 8% = $1.7 million
1 pack/day at 8% = $1.08 million

3 packs/day at 14% = $10.9 million
1 pack/day at 14% = $6.9 million

What happened to Hack, you say? He's living off of his company pension and social security checks. Unfortunately, most of that money is continuing to finance his 40-year habit.

Should a person smoke? I believe a person has the right to do anything they want to in life. However, one has to stop and understand the financial ramifications of making such a decision. Is it beneficial to your health to stop smoking? Yes. Is it beneficial to your 401K to stop smoking? Perhaps that should be the question we ask ourselves.