How much does that Starbucks habit REALLY cost you?

How much does that Starbucks habit REALLY cost you?

Investor · Orange County, CA · Member since 2009 · 230 posts · 138 votes

I just finished Money: Master the Game by Tony Robbins. Great book! 

One part that really hit me in the book was the long-term opportunity cost of "little" splurges like regularly hitting Starbucks or eating out. Relatively small monthly expenses may not seem like a lot of money, but they can represent a huge opportunity cost from the standpoint of retirement savings.  

For example, let's assume a guy named Joe spends just $5 every morning at Starbucks. Assuming 30 days in the month (to keep it simple), that adds up to $150 a month spent on coffee.   

What if Joe trimmed his Starbucks habit back to a max of $50/month and faithfully invested the $100 savings in his IRA? Assuming just a 5% rate of return on the money, this is what his former Starbucks money would turn into decades down the line:

  • 20 years: $41,103.37
  • 30 years: $83,225.86
  • 40 years: $152,602.02

Wow. Assuming Joe is in his 20s or 30s, he could potentially add well over $100K to his retirement net worth simply by trimming back his Starbucks habit. 

Robbins makes the point that there's nothing wrong with spending money on things you enjoy, but keep it within reason. It's important to remember the long-term cost of overspending on little indulgences. 

Even if you can't give up the Starbucks or eating out habit, it's probably worth it to see if you can get a better deal on your cable package, car insurance, cell phone plan, etc., then invest the difference into your retirement savings. As you can see (and as Robbins points out), a little discipline today can go a long ways toward a better future in retirement.

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Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
9y

It's my opinion that this is a ridiculous premise. Yes, any small expense, repeated regularly, can compound over time. By definition, if it is repeated frequently so as to represent a significant cumulative result, it is a large expense. 

However, to claim that your latte is keeping you poor is a silly and ineffective approach to developing a plan. If you are on this site, your goal likely isn't to save an additional 1-2% of your income. It is likely that your goal is to attain financial independence with significant ($1M+?) assets and significant cash flow ($3,000 - $5,000 - $10,000+?) and to do this far earlier in life than 40 years down the line in our 60s and 70s.

 To move towards that goal, a strategy of cutting out lattes is going to be laughably ineffective. Assuming that you are attempting to cut out spending, there are likely to be only three categories in which you can make a material (decades faster in achieving your goal) difference.

Note, this does not take into account what you can do on the income front.

These three categories are:

* Your Housing Costs

* Your Transportation Costs

* Your food costs 

See this graph of average american household spending from the Bureau of Labor Statistics:

Where are lattes in that graph? Maybe a percentage of food? Maybe entertainment?

Ridiculous. 

Obviously, if you analyze your own spending and find lattes to be a chunk large enough for it to have it's own piece of the pie, fix that personal problem. 

But, the rest of us would do better to focus heavily on fixing huge problems, like cutting our housing and transportation budgets in half.

Of course, cutting out spending in general on unnecessary things like lattes does help a little bit. 

I think that a smarter way to interpret the point about lattes is in thinking through every small decision of similar size, and making it a default to reject them out of hand, and plan around them. This includes coffess, snacks from vending machines, drinks or food at local restaurants when the same value could be had at home for 1/10th the cost, etc.

See this reply in the discussion

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  • Rental Property Investor · Hailey, ID · Member since 2015 · 218 posts · 143 votes
    9y

    I take the Ramit Sethi approach to this. It's pretty silly. So many other areas of life to negotiate and cut expenses or increase income. 

    Anyone that needs to go to Starbucks every day ought to invest in a coffee maker. Frivolous spending should always look at cutting back.

  • Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Jay Hinrichs:

    @Steve Vaughan  although I do spend 5 to 6 bucks a gallon on Av Gas  LOL and a fill up is 82 gallons or 400 to 500 bucks a pop !!!... but what the heck... can't take it with ya

     That sounds pretty cheap compared with operating a jet at $6000/hr. ;)

  • Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    Tony solves HIS extravagant spending habits by: writing ANOTHER book!

    (@Mark F., here's a tip for saving money: don't buy it/them!) Cheers...

  • Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
    9y

    Starbucks $50 gift cards can be given as gifts which translate into expenses. Expenses are deductible. So, skip the Starbucks and save yourself $5 a drink or indulge and work the system.

    Buy a rental house and raise your tenant's rent $25/month. Then you can spend $5/wk on a drink. Take the money you were going to spend on a Corvette, buy a condo and rent it out, then use the rent payments to lease the Vette. When you tire of the car, which you will, you can give it back to the dealer and sell the condo to get your money back. (I know a guy that did just that.)

    These studies of how to save a few bucks here and there are awesome when you're first starting out. I used to play the 20/20 game. Every month I worked to make an extra $20 in cash flow and save $20 in unnecessary expenses. Then I upped it to $100 a month. Eventually these exercises become not unnecessary, but not really worth the effort invested when you realize you can make $1K, $5K, $10K or $30K a month just by making offers on more expenses properties. An American-Chinese friend once said to me, "Make offers on houses, buy houses. Make offers on buildings, buy buildings." Even our President-elect wrote some 20 or 30 years ago, "The only difference between $100,000 and $1,000,000 is a decimal place." If you think small, you do small things.

    If you net worth gets up in the commas and you're still being Mr. Cheap-o like this guy I knew who was worth a significant amount, yet drove around in a 1970s station wagon and wore suits that looked like he bought them 50 years ago, well you're just screwing yourself and missing out on the whole point of making money - to spend it (and that can be on yourself or others in whatever way you deem fitting). 

    BTW, that guy died, was probably buried in one of those cheap suits, his son got all the money and sold off his dad's business. Which is what most kids will do with their inherited real estate and companies.

    If you want to pursue this topic further, and I recommend all those with no education on money do so, you should read, "The Compound Effect" by Darren Hardy. He teaches how this philosophy can be applied to not only your financial, but also your personal health. Just think, one less donut a week is 52 less donuts a year. That's a lot of donuts!

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Aaron Mazzrillo   classic case of what you describe are the larger timber land owners up here in the Northwest.. sitting on Millions in Timber yet living in a house that is old and moldy driving there beater chevy truck.. LOL.. I used to lay out this fantastic plan for them..  Sell me the timber for 1 million  CASH  1031 that money into a multi family close to you in Oregon.. Even if you paid cash it would generate 10k a month or better back in the day.. You still have your Land I replant it and I pay all your harvest and severance tax's... great deal right.. Next Gen. will get the next harvest in their later years..My farmer went from watching tree's grow  ( pretty slow process) to enjoying more cash flow then they ever saw on a quality asset.. they never sell their paid for land that has been in the family forever...   you would think I could have sold the heck out of this program.. Did it exactly 2 times.  These folks would just look at me and say   HM that does not seem legal   LOL... and sure enough we keep them in our data base and over the coming years when they pass.. guess what happens.. kids log timber take money and spend it.  most of the times we still got the logging job.  But it was not as lucrative as if we paid cash for the timber.. those were when we made in some cases 100 to 400k per job in 60 days.. pretty sweet when they worked.

  • NYC, NY · Member since 2013 · 50 posts · 22 votes
    9y
    What if I told you that you could own the pad you're renting for two years worth of rent? Well, that's exactly what a high end coffee machine is. I love my Jura ena 9. It was costly when I bought it (bought it at Costco.com for their indefinite return policy on certain items). That said, the gf and i make at least 2 cups a day of basic coffee. That's like 5 bucks at Starbucks- let alone the times we splurge w espressos or make lattes using the machine. I can confidently say that each cup of coffee is consistently as good as the day I bought it. In the end, I've owned it for over two years- it's paid for itself and it is a joy to experience. Definitely recommend checking the brand out if you can. Cheers
  • Patrick LiskaPro Member
    Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
    9y

    Nothing, i can't stand Starbucks coffee. that said, you can be frugal, but will you be happy? I buy cigars every once in a while and i will enjoy it while i look over my statements from my PM ( it relaxes me - HaHa ). yes not buying Starbucks every day will save you a fortune, but so will cutting out a lot of things. If you want something bad enough, there are other ways to get it, if you are creative enough. why not work an extra hour a day, that will pay for Starbucks and give you some pocket change after to save up.

  • Pittsburgh, PA · Member since 2015 · 179 posts · 115 votes
    9y

    @Mark F.

    I think the conclusion of "the latte theory" has less to do with actually going to Starbucks and more to do with a conscious thought of how you're spending money.  Many people go to Starbucks, or wherever, because "that's their thing" and "they deserve it" just like they deserve their big house, fancy car, etc.  However, they're unconsciously just buying things and allocating their resources (money and time spent making money) to items that are really draining their net worth.  

    If someone wants to go to Starbucks because they enjoy their cup of coffee everyday, fine.  Life is meant to be enjoyed and should be some 80 year sacrifice.  As long as they're allocating their resources consciously and have another plan besides blaming everyone else for why they are broke and can't retire, then I'm all for the green mermaid.  

    As @Scott Trench mentioned, it's not the Starbucks and the $150 per month that's going to be the difference in your life.  However, in my opinion, it's going to be the consciousness of spending, savings, and investing that will be the difference. 

  • Investor · Lakewood, OH · Member since 2016 · 203 posts · 191 votes
    9y

    @Mark F.

    I think what's more important here is the Law of Compounding Interest. Albert Einstein believed it was the most powerful force in society. Einstein also believed that the formula for compounding interest was the greatest mathematical discovery of all time. 

    That being said, the coffee example is for people with limited knowledge of finance, economics or investing. Half of the reason I'm investing in real estate is because of the compounding returns to scale. In REI, we can see exponential growth in equity acquisition, cash flow and buying power. This is because REI is associated with ROI and LEVERAGE which amplifies returns and the compounding growth function.

    The point is that compounding interest is perhaps the most amazing thing I've ever studied. The coffee concept makes compounding interest relevant to people with no concept of money whatsoever. I'd rather see people educated on the Law of Compounding Interest itself.

    "Compound interest is the 8th wonder of the world. He who understands it, earns it...  He who doesn't, pays it."

    ~Albert Einstein 

  • Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    9y

    Nice! A couple of points:

    Starbucks uses GMP beans - that's one strike against them. They are boycotting Israel - that's two strikes against them.

    Thus, if you decide to have a coffee addiction, find a local business to support :) 

  • St Petersburg, FL · Member since 2014 · 65 posts · 22 votes
    9y
    While I'll concede that a small amount invested over time is effective in building wealth (albeit not a large amount of wealth, nobody is retiring on the 100K they saved by foregoing lattes), the thinking is upside down. To truly build wealth, you have to pay yourself first. So the line item isn't earn-buy lattes-invest, its earn-invest-buy lattes or whatever else you want. People don't walk around not buying things and investing the money they saved from the "not buying." You begin with the end in mind. You figure out a reasonable number that will get you your retirement lifestyle, figure out how much a month you need to save, invest that and live off the rest. Then you go out and buy all the lattes televisions or cars you want (that you can afford).
  • Specialist · Kiryat Motzkin, Israel · Member since 2014 · 266 posts · 159 votes
    9y
    Originally posted by @Ben Leybovich:

    Nice! A couple of points:

    Starbucks uses GMP beans - that's one strike against them. They are boycotting Israel - that's two strikes against them.

    Thus, if you decide to have a coffee addiction, find a local business to support :) 

     BTW Ben, I don't think they are boycotting Israel. They opened branches here a while back, and went bankrupt almost immediately. Thier coffee is just terrible. Can't understand why anybody buys it.

  • San Diego, CA · Member since 2015 · 273 posts · 226 votes
    9y

    A lot of focus on the coffee and not the point- mindful spending.  Another point missed, if you cut out that daily purchased coffee and still find yourself equally happy that is one less expense you have to budget for in retirement.  So the compounding increases, because you now need $1825 ($5x365) less a year to live on and be happy.  This assume your goal is to retire and be financially free.

    Of course, if you derive enough joy from that expense (coffee, or whatever) then this does not apply.  

  • Littleton, CO · Member since 2014 · 195 posts · 72 votes
    9y

    I agree that the daily trip to Starbucks does effect some peoples retirement plans.  Those people are the ones that do not have or stick to a budget to plan for the future. 

    When I was in the Military, I had a goal to be able to buy a nicer car when I got stationed back in the United States.  Being in Germay (West Germany at the time), a car was not needed unless you lived off base or had a family.  No Starbucks to go to back in the 80's but the NCO Club was the Vice of many "Dorm Rats".  

    One of my Dorm Mates would spend over 25% of his base pay on his club bill and Alcohol.     Base pay was only around $1100 back then.  Many heavy Drinkers (and smokers) in the Military, back in the 80's.

    After 2 1/2 years,  I not only had enough to put a large down payment on a nicer car (Shiny Object Syndrom), I also had enough saved to go on a 3 week trip all over Europe. 

    Back then, I did not have a retirement plan but a relatively strict budget and goals. 

    I now realize that if I had put just 5% of my income into some kind of retirement account, It would have grown into a decent amount 20 years later.

    As Dave Ramsey says,  If you will live like no one else, later you can live like no one else.

  • Investor · Orange County, CA · Member since 2009 · 230 posts · 138 votes
    9y

    LOL, everybody seems to think that I'm saying we should live like the Amish for the sake of our retirement accounts. Definitely not! 

    My wife and I could chop our travel, eating out, buying gifts, and giving away to charity for the sake of our retirement accounts, but we're not doing that. Nor do we plan to. We DID, however, go to a cheaper cell phone plan where we can get the same lifestyle benefits for less cost. We also keep ourselves on a budget even for splurges because we believe it's smart to have a plan for our money so we can keep our retirement on track. Those savings mean we have more cash invest for our future. 

    Nowhere did I say that people should eliminate all fun things from their lives so they can save more in their IRA.

    :)

  • Investor · Orange County, CA · Member since 2009 · 230 posts · 138 votes
    9y
    Originally posted by @Robert Blanchard:

    I agree that the daily trip to Starbucks does effect some peoples retirement plans.  Those people are the ones that do not have or stick to a budget to plan for the future. 

    When I was in the Military, I had a goal to be able to buy a nicer car when I got stationed back in the United States.  Being in Germay (West Germany at the time), a car was not needed unless you lived off base or had a family.  No Starbucks to go to back in the 80's but the NCO Club was the Vice of many "Dorm Rats".  

    One of my Dorm Mates would spend over 25% of his base pay on his club bill and Alcohol.     Base pay was only around $1100 back then.  Many heavy Drinkers (and smokers) in the Military, back in the 80's.

    After 2 1/2 years,  I not only had enough to put a large down payment on a nicer car (Shiny Object Syndrom), I also had enough saved to go on a 3 week trip all over Europe. 

    Back then, I did not have a retirement plan but a relatively strict budget and goals. 

    I now realize that if I had put just 5% of my income into some kind of retirement account, It would have grown into a decent amount 20 years later.

    As Dave Ramsey says,  If you will live like no one else, later you can live like no one else.

    I think @Robert Blanchard and @Sarah Dunn are the relative few on here who understood the point I was trying to make. Everybody else seems to think I'm saying to stop living life. I think we need to live life (and that's the point Robbins makes in the book), but at least be relatively disciplined with spending so you have more to save for the future. 

  • Investor · Orange County, CA · Member since 2009 · 230 posts · 138 votes
    9y

    @Brent Coombs With all due respect, reading books on money, finance, economics, sales, mindset, etc., has made me far more money than it's cost me. I don't see that as a vice at all. After all, I wasn't born with all the answers. 

  • Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    9y
    Originally posted by @Saul L.:
    Originally posted by @Ben Leybovich:

    Nice! A couple of points:

    Starbucks uses GMP beans - that's one strike against them. They are boycotting Israel - that's two strikes against them.

    Thus, if you decide to have a coffee addiction, find a local business to support :) 

     BTW Ben, I don't think they are boycotting Israel. They opened branches here a while back, and went bankrupt almost immediately. Thier coffee is just terrible. Can't understand why anybody buys it.

     Seriously - every community I've ever lived in has that one coffee place the the locals know to be the place. Why anyone would drink starbucks is beyond me...

  • Columbia, SC · Member since 2016 · 7 posts · 4 votes
    9y

    I agree with @Scott Trench . Dave Ramsey, Susie Orman, all of these gurus are telling you stupid stuff like this. That's how they make money! By telling broke people how to stay broke! That scenario doesn't account for inflation alone, not to mention the miserable existence of a life that you lead by depriving yourself of something you enjoy!

    So, if I stop drinking Starbucks, going to movies, cable, and I consistently save my 10% a year on an average salary of $50k/yr. I would have enough money saved $152,602 to stretch out from the age of retirement (65 years) to the average age of death in America (78 years). So I'm going to stretch that $125k over 13 years, of coursing hoping to die at 78 so I don't run out of money! That's tuna fish diet dog!

    I prefer to up my income. 18.8% (Pews, 2016) of Americans over the age of 65 say they have to work in order to stay alive! Check out why Americans over 65 yo have to work!

    That being said. Those models of saving your way to a million is ridiculous. And by the way that $125k would be good money to put into a real estate deal or something, but you're about to die! It's like that experiment with the monkeys in the cage.

    The scientists put monkeys in a cage and let them climb up to grab bananas that were hanging. Once they got used to having it, one of them would get zapped when he tried to grab them, He kept trying and had the same result. After a while, the monkey said forget the bananas. Replace bananas with Starbucks or whatever small purchase you think is keeping you broke. You will continue to scrimp and save and count pennies, and yes a Starbucks is counting pennies (633 to be exact), you will forever have a broke mind. You will be focused on saving pennies rather than making dollars! JMO

  • Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    9y

    That premise was originally in a book called, The Automatic Millionaire." I used to subscribe to that scarcity mindset too.  Now, my mindset is that you can't get rich on $4 per day unless you are talking about 40 years.  How about, go out there and make so much money that $4 a day is not even a consideration.  Go make $500K a year. Then you won't care about the $20,000 you could have saved by never going to Starbucks. Change your mind in order to change your life.

  • Lansing, MI · Member since 2015 · 301 posts · 149 votes
    9y

    I say buy those indulgences whenever you want to. Be it a daily Starbucks, or going out to eat once a week. Here's the caveat though - what is one doing to create the income to be able to purchase the indulgences and not have it affect them financially? There's a big difference between a W-2 employee who drives a leased car, has a house payment at the top of their budget and someone who has multiple streams of income (W-2, real estate, other business, etc). 

    If you have your income game tight, by all means treat yourself a little!

  • Visalia-Fresno, CA · Member since 2009 · 1k+ posts · 863 votes
    9y

    Spend more time creating more income and all of our problems will be solved.  Keeping our tires inflated for better fuel mileage will not create wealth.


    Franklin

  • Member since 2016 · 13k+ posts · 12k+ votes
    9y

    I see Starbucks as a representation of all the waste full spending taking place in todays society. From cell phones, we deem as being essential to life, cable TV and yes the exorbitant cost of designer coffee when a regular coffee at a diner serves the same purpose at 1/3 the cost.

    Most of society works to enjoy life not to advance financially. They also spend a great deal of time complaining about the cost of all the wasteful items they are throwing their money away on. 

  • Real Estate Agent · Westboro, MA · Member since 2016 · 1k+ posts · 471 votes
    9y

    Create more income. Simple. There should not be a thought of spending a few dollars on coffee.. It is not much a year saved. If you are worried at going broke spending a few a day, you should probably not be going to Starbucks in the first place   

  • Mark S.Pro Member
    Rental Property Investor · KY · Member since 2013 · 1k+ posts · 540 votes
    9y
    Especially in MA. Just go to Dunkin'. ;-)
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