Following my highly anticipated* return to blogging, I decided to tackle a classic personal finance topic- a daily cup of coffee shop coffee
Telling people to forego their daily store-bought coffee used to be popular advice. It was the common example used to show how small savings add up over time. You could take $3/day, save it, and have an extra $1095 at the end of the year. Then you can feed it into investments and end up with $103,000 at the end of 30 years. Fun fact- this was one of the first financial subjects that my wife and I talked about when we were dating!
But the pendulum has swung in the other direction. The popular advice now says “Actually you aren’t going to retire on coffee money, you might as well treat yourself.” I see this new take on coffee in mainstream outlets and in FI circles. On the surface level, it makes sense. $103k is not going to be enough to retire, even if it is a significant sum of money. And when you compare the savings in coffee to other, bigger cuts you can make, it’s a pittance! But these well meaning folks miss the point. It’s not really about the coffee.
The Coffee Isn't the Point
Here’s what the new popular advice misses- it’s not really about the coffee. It’s about becoming the kind of person who is willing to forego luxuries to save money. The person who is willing to make their own coffee in the morning is the kind of person who will be able to save for retirement.
Making your own coffee means that you see the long term benefits despite the immediate gratification that a Dunkin iced coffee brings. You practice long term thinking. And you become more able to resist other passing desires to buy things that you don’t really need. The coffee is a head fake. You think that you’re saving $3/day on coffee but you’re actually transforming into a saver.
What's up with the New Advice?
For the most part, I think it’s well meaning. Financial folks that I respect, like Ramit Sethi make the point that the small luxuries don’t add up to all that much compared to bigger line items. But Sethi’s advice only works if you already have a good financial foundation. Watch a couple episodes of his Netflix show (which I highly recommend)- he works with people that need to become home brew drinkers!
And other people use the common refrain of “life is short, you should enjoy yourself.” I wholehearted agree that people should enjoy themselves. But applying this mantra to every single want and dire is a great way to end of broke.
Commit to the Head Fake, then Adjust
It’s obvious that I am on the “don’t buy the daily coffee” end of this argument. But I’m reminded of some advice that author Michael Pollen gives in his book In Defense of Food:
Be the kind of person who buys supplements, but don’t buy the supplements.
I think something similar applies here. If you’re living paycheck to paycheck, you need to start saving somewhere. The little luxuries are the easiest things to cut out. Cut them out. Stop buying daily coffee, don’t buy cocktails when you go out. Commit to cutting out what isn’t necessary. And commit to it for at least a year. Have a separate account where you put that money every week or every month. Watch it grow. Become the person who is willing to give things up to get ahead.
But this doesn’t have to be forever. Over the year, make the big changes that Ramit Sethi is talking about. Pay off debts, get a cheaper car. Become the person who can give up coffee shop coffee to save money. And you’ll wake up one day to find that you don’t have to give up the coffee anymore.
*You can’t prove that it wasn’t highly anticipated
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