It is better to save than to smoke


Young people these days are far more conscious about the health of the environment and the wellbeing of the planet than previous generations. One would therefore expect them to be more health conscious in their personal lives and less likely to spend their money on a potentially addictive activity such as smoking.  Unfortunately, this does not appear to be the case.  There are still vast numbers of young people smoking on campuses, in the streets and in the many watering holes in and around our towns and cities.

When people start smoking it is unlikely that they are aware of the opportunity cost of not smoking; in other words, what the benefit of investing the money instead of spending it would be. This can be best illustrated by an example.

If you smoke 20 or more cigarettes a day, you are probably spending at least R1 000 per month on your habit. This amount increases every year as the Minister of Finance adds to the cost of cigarettes through so-called “sin-taxes” in his annual Budget Speech tabled in Parliament. If, instead of purchasing cigarettes, you rather invested the same amount in a tax-free unit trust or similar type of investment generating a return of 12% per annum, after 25 years your investment would be worth around R4.3 million.  

A further negative financial consequence of smoking is the additional cost of life, disability and dread disease insurance. A typical quotation for one or more of these benefits will reflect that the monthly premium you will pay as a smoker is approximately double that payable by a non-smoker.   

If you had an assurance policy with a combination of life, dread disease and disability cover and you were paying a premium of R2 000 per month, the same cover would cost approximately half of that amount (R1 000) if you permanently gave-up smoking.  If you added the additional saving, resulting from the reduction in your life assurance premium to your investment, in 25 years’ time the total value of your investment would be worth approximately R8.6 million.  

This would equate to an additional R2 million in today’s money.

Instead of investing in a unit trust, you could invest in a variety of investments, including a retirement annuity. If you chose to invest in a retirement annuity, you would also be entitled to a tax refund every year from SARS amounting to a significant portion of the amount saved.  This would mean that your saving would be even greater.

It is never too early or too late to start investing. If you do decide to give up smoking, an experienced Certified Financial Planner® will be able to advise you as to how to invest your available funds in a suitable investment likely to generate the abovementioned returns. For the smoker described in the example above, the money spent on this habit, if not invested, would literally be going up in smoke!  

Rands and Sense is a monthly column, written by Ross Marriner, a CERTIFIED FINANCIAL PLANNER® with PSG Wealth. His Financial Planning Office number is 046 622 2891.

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