Does Buying Coffee Everyday Make Your Poor?
Tags: Money, Finance, Coffee, Inspiration, Investing

Does Buying Coffee Every Day Keep You Poor?

How much money you would save/earn if you stopped buying your everyday coffee Nat Follow Dec 24, 2020 · 8 min read

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“Don’t talk to me until I’ve had my morning coffee,” people (annoyingly) say, as coffee has become an essential part of an everyday morning for many. Most likely, you yourself started the day with a nice cup of joe, but did you buy that coffee or make it at home?

Many American’s buy their coffee from the shop, but I like to make my coffee at home in my overly priced New York apartment. I rarely go out to buy a cup of coffee and if I do I usually get it from Starbucks. Starbucks to me is a luxury which I only reward myself once in a while. For me, their drinks are a little too expensive to enjoy regularly, but I still often find Starbucks suffocatingly busy every weekday morning. This makes me wonder if these are the same people who buy their coffee every day. How do they afford rent?

Mr. Wonderful’s Philosophy

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I’m not the only one who views buying coffee as an unneeded expense. Shark Tank investor, Kevin O’Leary famously said, “Never do I do that. That is such a waste of money for something that costs 20 cents.” O’Leary is an avid coffee drinker, but never buys his coffee at coffee shops that mark up the cost. Instead, he makes his morning coffee at home every day and invests the difference.

According to NBC, an average cup of coffee is about 30 cents. In my experience, a cup of coffee goes for $4 or more. That’s more than a 30% price hike! So maybe O’Leary is on to something after all.

Put it into your savings

But how much can one actually save, or even earn, from not buying coffee? Let’s do a quick calculation for if we were to skip buying coffee for a whole year. Since Starbucks is the most well known coffee shop, we will use it’s average price for cup of coffee in our calculation. This is going to be around $5. Keep in mind that most people who go to Starbucks rarely buy an ordinary cup of coffee, but instead buy one of their specialty drinks. If you buy a morning coffee every day at $5, that will equate to $1,825. With that money you could buy the newest iPhone every year! Or pay half a month’s rent in NYC.

Now if we were to put $5 every day into a savings account with a generous APY of 1.00%, we would have $1,834.18. Not much. Only a $9.18 difference compared to not earning interest. But how about if we let that same $1,834.18 compound for 10 years? Well it turns out it’s not that much either. We get $2,006.02, a of gain about $100, which is very little when compared to the 10 years it took to get. But hey, that’s 20 drinks right there. It only took 10 years…

So obviously, Mr. Wonderful wasn’t talking about cutting out the coffee buying only for a single year. What he meant was to stop buying coffee as a habit throughout one’s life. Taking this into account, if instead of buying coffee every day and saving the $5 every day for 10 years at the same 1% interest rate, we will get $19,193.94, with $943.94 of it being the interest earned.

As you can see, we saved a lot more money, and earned 9x more than if we only saved for a single year. You’re still far off from being rich like Kevin O’Leary, but hey, you could use this money to pay off some debt you might have. 19k is enough to buy a car or cover your New York rent for half a year!

Investing it instead

Wait! We are forgetting a crucial aspect of Kevin O’Leary’s philosophy. Kevin doesn’t just save his coffee money. He invests it!

The S&P 500 is a widely used stock market index that measures the stock performance of 500 large companies in the United States. It’s 10 year average return is conservatively about 10%. Though certain years are lower and some years are higher, we will use 10% for our calculations.

So rather than saving $5 every day into a bank account and instead investing it in the stock market, we would end up with a total of $31,360.44. We earned a total of $13,110.44 in interest, an increase of 14x over the savings account. This shows the power of not just compound interest, but the power of the stock market as well.

Increase the time of investing from 10 years to 20 years we get a total of $116,595.28. At 30 years we get, $348,255.85. With this money you can finally afford your studio in New York! Jokes aside, it looks like we have managed to accumulate a substantial amount of money just from not buying coffee every day and investing the money into the stock market instead. Enough money to get by comfortably if an emergency were to arise or if you want to indulge in some of life’s niceties.

Real life examples

These calculations were based on people who buy their coffee every day. I don’t know a single person does this. In reality, an average person is perfectly fine with their spending habits when it comes to coffee. It is really hard to become wealthy just by cutting costs alone.

Many stories have been born from Kevin O’Leary’s famous philosophy. College student, Soha Rahimi, saved $1,277.50 a year from not buying coffee. Jennifer Still saved $154 in one month by making coffee at home. I’m on track to save $1250 by not buying coffee and investing that money in Starbucks stock instead.

My perspective

Before you never spend a dime on coffee ever again, there are a couple of things to note. Returns from the stock market are never guaranteed. In fact you can actually lose money investing in stocks. A golden rule for newer traders is to never invest money you are not willing to loose.

Also, make sure to balance your coffee money saving with your loans and credit card debt. The interest you earn from saving/investing $5 a day will be cut short by the interest on the loans and debt you owe.

Realistically it is okay to treat yourself out once in a while. Imagine not going out for coffee with friends or family for 30 years of your life. While the coffee at home is okay, nothing beats the taste and experience of a professionally made drink at the coffee shop. Where else would you get your name mispronounced? I personally get Starbucks maybe once every two weeks. It a deliciously sweet treat I get to look forward to rather than getting it every day.

I couldn’t make this at home for the life of me.

It is important you don’t compensate for not buying coffee. Like weight loss, when a person goes for a long run and says they deserve a cheat meal, like pizza, people often have similar mindsets when it comes to money. Just like how eating a pizza completely negates or even adds more calories than what was just lost, buying something else with the money you saved from not buying coffee is not helping your bottom line. Just because you skipped on buying a morning coffee does not mean you get to reward yourself with something else later in the day. In the end, it is as if you bought the morning coffee in the first place.

My last piece of advice is to think about the tradeoffs when it comes to buying coffee. This is what really matters. If you can go without buying a cup of coffee every day, good for you. If you can only handle abstaining every other day, go for it. If you absolutely need to buy that cup of joe, say you were running late and didn’t have time to make coffee at home, be my guest. As long as you view that you would rather have that cup of coffee that very instant rather than the $5 plus interest in your pocket, you should buy that coffee. If instead you view that the $5 plus interest as a greater value than the cup of coffee, save your money.

Closing

Making coffee at home saves you money. Though not buying coffee won’t make you a millionaire, it will allow you to have a substantial amount of money at your disposal that you could use in emergencies or to enjoy on more meaningful aspects of life. Like with all purchasing decisions, look at the tradeoffs and make your decision on how much to save/invest from there. 300k seems like a lot until you realize that you would basically have to give up buying coffee for 30 whole years. Some people reading probably aren’t even 30 yet.

Not buying coffee for years takes a lot of discipline that some people don’t see as being worth it. For some people, the $1,825 of savings from a single year alone is a lot of money that can be put into their student loans, rent, or medical bill. I fall into this category and see the value of not buying coffee every day. For others, $1,825 a year is chump change and they would rather have their nice cup of coffee instead of waiting years for the compounded savings.

So does buying coffee every day keep you poor? It depends on how much you value your morning coffee and the financial situation you are in. If an extra $1,825 a year is significant to you then yes, buying coffee every day will keep you poor.

Disclaimer: I’m not a financial advisor. This article is not financial advice.