When I was growing up, coffee was an afterthought at the food court. But today Singapore is awash with incredible artisanal cafes - from the super homey Kafe UTU to safari-tent-themed Tiong Bahru Bakery in Dempsey Hill. We are probably one of the most caffeinated people in the world.

Cafes have evolved beyond simply being the spot for your daily caffeine fix, to become what Starbucks founder Howard Schulz termed as the “third place”, serving as a spot for a first date, casual business meeting, study room, or afternoon tea break. It’s where you go if you’re not home or at the office.

But have you ever taken a step back to think about what it is costing you?

In Singapore, you can get coffee for as cheap at 80 cents at the neighbourhood kopitiam. But if you want the fancy type, that's $5 for basic "white" (aka with milk), and $1 extra for it to be iced. Doesn't sound like much right?

But if you take a step back for a second - it really adds up! If you have a coffee a day, that's $1,825 a year. In fact, a survey by Acorns found that 40% of Americans spend more on coffee than they invest!

But that's just thinking about the cost today. If you think about what that $5 coffee could be worth in retirement, that's when it gets really scary. Assuming annual returns of 7%, at retirement (say 40 years from now) that's $75 dollars less in retirement savings per coffee.

And what is really scary is if you start counting how much you spend on coffee over the years. Over a 40-year working life, assuming coffee prices don’t change, that’s $73,000 in coffee in today’s money. If we were to apply the same annual returns of 7%, that’s $365,000 less in your retirement account.

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.”
  • Einstein

Compounding is simple, Don’t ignore what you think are small numbers today, time turns every number into a huge number.

The lesson from this is to start investing early. Instead of buying a coffee, if you put aside the $5 everyday into an investment account for your children until they are 18, you could literally make your children millionaires by the time they are in their 50s.

The moral of the story is not to stop drinking coffee, but to understand the importance of compounding...start investing early, and know that the cents add up.

The next time you feel an urge for your morning coffee, reconsider the office Nespresso. But if you really want your flat white, enjoy it! You've probably earned it!