The cost of smoking

Stuff reports:

Would you rather smoke your way to an early grave, or knock $350,000 off your mortgage?

One of the most regularly trotted-out reasons for quitting is that it's expensive. Well, duh.

But cigarettes are about to get a whole lot dearer, and many nicotine junkies may not fully grasp what an enormous sum of money is going up in smoke. …

This month, the excise tax went up another 10 per cent, and that's not the end of it.

There are another two 10 per cent hikes planned, which means that in 2016, a pack of 20 cigarettes will cost at least $20.

So how much is the lifetime cost of smoking?

We'll use an interest rate of 5 per cent for our scenario, which is a reasonable after tax-return for a diversified portfolio of .

For simplicity we'll run the numbers for a diehard, pack-a-day smoker. $20 a day is $140 a week, $600 a month and $7200 a year.

Now we introduce the magic of compounding interest. It starts off slowly. In the first year, compounding monthly, you would have earned an extra $200 on top of the up-front cash savings.

By the 10th year, you'd be earning a staggering $4400 worth of extra each and every year simply by giving ciggies the flick.

After 20 years, you'd have a tidy quarter of a million bucks saved, almost half of which would be investment returns. …

With our adjusted interest rate, you'd save a whopping $350,000 on your mortgage by channelling all your cigarette money into paying it off.

A huge saving. Another way of looking at it, is that you could use that $350,000 to do $8,500 overseas holidays twice a year.

Take the example of woman, Liz, who's beating the tax hikes by growing her own.

Friends and family members have also successfully grown their own baccy – which is reportedly not too bad, especially when mixed with a pouch of commercial stuff.

This is an issue, in that if you price a product too high, then the hardcore will turn to the black market or grow their own.

Most smokers are from lower income families. Stopping smoking is a great way to increase your disposable income. Easier said than done, but worth doing.

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