Here's Why It Pays to Invest in the Products You Love Rather Than Buy Them

It's a strategy that could make you very wealthy.

When we think about the things we spend money on, we can generally break them down into two categories: needs and wants. Needs include things like our mortgage payments, cars, and food we put on the table. Wants encompass everything from streaming services to the various subscription boxes you might sign up for and forget to cancel. 

It's not really reasonable or realistic to limit yourself to only spending money on needs. After all, you have to enjoy life to make it worth living. And so you may decide to spend a portion of your income on things that bring you temporary joy. 

But you may also want to keep spending of that nature to a minimum. In fact, if you were to take some of the money you'd normally spend on wants and invest it in a brokerage account instead, you may be shocked at how much wealth you have the potential to accumulate.

Investing can really pay off

In a recent tweet, investing guru Graham Stephan stated point blank: "In my view, you must absolutely spend on things and experiences that bring you joy. At the same time, you should be aware of its long-term impact."

He then highlighted an example to show the difference between spending money on a product you might love versus investing in it. And his example was none other than Starbucks coffee -- a popular treat that some of us might indulge in daily.

In Stephan's example, someone buying coffee daily might spend $4 each time, which could amount to $19,200 over a 20-year period. On the other hand, someone who invests $4 a day in Starbucks stock over 20 years might come away with $161,396, and earn $229 a month in dividend payments. 

Now, Stephan assumes a 19% average rate of return, which is unrealistic over the long term. The point, however, is that if you cut back on a few expenses and invest that cash, you could end up with a heaping pile of money after many years. And that could spell the difference between meeting major life goals, like being able to retire comfortably, or falling short. 

It's all about compromise

If your Starbucks coffee is something you very much look forward to, then you don't necessarily have to stop buying it and invest your $4 every day instead. But it does pay to do an audit of your personal spending and identify expenses in the wants category you may be willing to give up. If you then take that money and invest it, you may be surprised -- in a good way -- at how much wealth you're able to accumulate in your lifetime. 

Remember, too, that companies like Starbucks that pay dividends give you two opportunities to make money. First, you can eventually sell your shares at a higher price than what you paid for them and walk away with the profit. Secondly, you can collect dividend income that you either cash out or reinvest.

If you do decide to give up your daily coffee, you could compromise by putting that cash into shares of Starbucks and holding them for years, but cashing out your dividends along the way and using that money to fund your caffeine habit. That certainly wouldn't be an unreasonable route to take.