I’ve run across a few posts recently dismissing the “latte factor”, the notion that getting coffee at the coffee shop regularly is going to affect retirement. I’m going to be an alternate voice. I understand the comments many are making. I get the scarcity vs. the abundance mindset, the social & mental aspect, etc. It’s all real. But…
- Don’t many of us also subscribe to the “Millionaire Next Door” philosophy?
- This is about a mindset more than the actual cost of the coffee.
- It isn’t just the coffee. It’s the avocado toast or whatever goes with it. It’s about getting an already expensive latte DoorDashed to your house, office or dorm room.
- Attention to costs and expenses can be a meaningful element of building wealth.
- Kevin O’Leary (Mr. Wonderful) thinks it’s stupid to buy expensive coffee and your lunch rather than making and bringing it from home for a tiny fraction of the price. He’s worth a lot more than any of us.
- I’m not talking about cutting out coffee. I have a fantastic bean grinder and espresso machine at home we use every morning that makes fantastic coffee drinks, and another coffee machine at the office that I’m perfectly satisfied with.
- It DOES move the needle. I’ve created a spreadsheet that calculates the future value of an inflation adjusted expense over time at various assumptions:
- Average Starbucks coffee is $5
- 50 years of the S&P 500 (Feb 1976-Feb 2026) is 11.71%
- 50-year US inflation rate has been 3.58%
- 250 coffees a year
- Start in college at age 18 and this grows to $3,401,000 at age 65, $5,968,000 at 70 and $10,442,000 at 75.
- At age 14 (yes, high schoolers are showing up dailey with fancy coffee drinks) the numbers are $5,334,000, $9,338,000and $16,315,000.
- If I cut the growth rate to 8%, it’s still seven figures.
- If I assume it’s a $2.50 cup of plain coffee 100 times a year at 8%, depending on the age, it might “only” be a couple hundred thousand to a half million dollars, but…
I have enough money, but I buy used cars and boats, my Carhartt coats on eBay and my road and mountain bikes on pinkbike, mow my own lawn, buy most of my clothes on sale, do my own car and home projects and repairs when I can, sell what I don’t need anymore on Marketplace if it’s worth anything, etc. I assure you it adds up to a ridiculous amount of money. I actually enjoy it and view as kind of a hobby, but one that makes me money. Sure, I waste money other ways. To each their own.
At 10%, every $2,000/year over 40 years is about another million bucks. It’s roughly $350,000 over 30 years and $2.5 million over 50 years. I know, I know… not every saved dollar is going to be invested, but still…
This can also drive you crazy when you realize that a single $10,000 payment for something at age 30 is going to mean a half million less in your 401(k) at retirement, but… (For the love of goodness, don’t do this calculation if you’re paying for your kid’s tuition. You may not mentally recover.)
Mowing my own lawn is a million or two. When I bought my most recent vehicle, an F150, it was two years old with 30,000 miles. That took twenty grand off the price. I’ve done the same with multiple vehicles, from our first “nice” car, a 1992 Ford Taurus. If a young professional today started at age 30 saving $20,000 on a car and did the same every five years, assuming a 10% return and historical inflation, that’s $3.2 million at age 70 and $5.2 million at age 75.
Regarding a home, if at age 30 a couple finances $800,000 rather than $1,000,000, (depending on where you live, this could be a starter home or a mansion) over 30 years at 6%, that’s $7 million at age 70 at 10%.
The point is, these savings aren’t trivial. In fact, they may add up to more than some people’s initial retirement planning goals.
The mindsets aren’t mutually exclusive. Just be smart and be aware.
