The Bigbucks Coffee Addiction

The fastest way to tighten the belt and fatten the wallet is to cut down on what I like to call "fringe spending." Fringe spending encompasses all the little pleasures in life we choose to spend our money on that go beyond meeting our basic needs and instead fulfill our wants and desires. One of the biggest contributors in this arena is the cup of coffee many people purchase on a daily basis. As an inconsistent (non-daily) coffee drinker, I'm not sure how qualified I am to weigh in on this topic, but with that disclaimer, here it goes.

Once upon a time, life was simple. TV shows were funny, phones were connected to the wall, Al Gore had yet to invent the Internet, and coffee could be purchased with the spare change in your pocket. Gone are the days. Enter the age of "reality" TV, the information superhighway, and premium coffee shops. No longer just a cheap morning pick-me-up, coffee has become a relatively expensive social staple. Unless we are talking about the guy who sounds like a piggy bank every time he takes a step or the gal who gets a shoulder work out carrying around a couple extra pounds of US currency in her purse, nowadays premium coffee will run you a bit more than the change in your pocket.

Depending on where you live, the average price of a coffee drink at places like Starbucks is between $3-$4. That is 5 to 6 times higher than the cost of a "cup of Joe" in the good old days (circa 1990). Now granted, we haven't taken into account the effects of inflation, but I would venture to say that most people's income and cost of living have not increased five fold since the days of New Kids on the Block (aren't they on a reunion tour...bizarre), mall bangs, and neon colored clothing. In short, the cost to feed one's daily caffeine fix has drastically increased over the past decade and a half.

What I'm about to outline here is nothing the daily coffee purchaser hasn't already heard before (at least for those that haven't been living under a rock the last year as home prices have crapped out, the stock market has plunged, and suddenly everyone feels a lot poorer). Cutting out the purchase of a daily cup of coffee can lead to significant savings in the long run. Let's assume that the average coffee drink costs $4.00 (with tax and tip) and that one purchases this drink 5 times a week (every work day). That's an annual cost of $1,040. That adds up to be over $41,000 (in today's dollars adjusted for inflation) in cost over the average 40 year working career. If instead, this money was invested in a diversified index fund (more to come on the specifics of such a fund in the future) that returns around 7% (inflation adjusted) on average a year, one would be sitting on a cool 200 grand after 40 years. These assumptions are all using today's dollars, so that 200,000 would have the same buying power in 40 years as it does today (in reality it would be much larger than 200k because of inflation)... a hefty ransom by most people's standards.

So what should be done to eliminate or at least reduce this drain on our savings? Again, I'm not a coffee expert so please take my opinions with a grain of salt, but I would suggest the following:

• Brew it at home. I know that it is impossible to replicate the same cup of coffee that one gets at a coffee house, but from what I hear, a coffee press is an excellent alternative for that coffee house flavor in the comfort of your own home. Assuming a pound of whole coffee beans cost between $10-$15 and makes around 30-40 cups, the cost of making your own coffee is only around $0.25 - $0.50 per cup (oddly enough, close to the pocket change number it use to cost "back in the day").
• Order the cheap stuff. If you work in an office it is impossible to avoid the occasional (if not frequent) trip to the local coffee house. When you do find yourself at such an establishment, consider the less expensive items on the menu to save some coin. This former Starbucks employee suggests a half coffee half steamed milk concoction know as a Misto (where do they come up with these names?) as a cheaper alternative to a latte, a vanilla iced coffee instead of an iced latte, and a hot chocolate with a shot of espresso instead of a mocha.

Coffee is very much apart of our daily lives. Not only is it a tasty conduit for our daily caffeine fix, but coffee establishments have created a "watering hole" for people to congregate outside of the home and the office. There is nothing wrong with buying an occasional cup of expensive coffee as long as it fits within a budgeted allowance for such expenditures. The spending pecking order should go something like basic needs, then future needs (savings), and finally luxury items/fringe spending.

Ciao,
Franco