The following is a guest post by Bo. Bo writes about personal finance at The Dollar Blogger. When not writing, Bo enjoys traveling and trying out exotic foods with his wife. His dream is to retire at the beaches of Aruba. Enjoy!
How’s it going, everyone? There’s an argument going on in the personal finance realm of the internet about coffee. Expensive coffee, that is.
One side says that spending $5 a day on coffee is costing you a fortune given time and that you should cut this expensive habit out of your daily lives. The other side says that it’s just $5, and you should focus on bigger wins when it comes to savings, such as negotiating bills with your service providers. This crowd usually states that we all have our guilty pleasures, and to deprive ourselves of every single one would drive us mad.
In this post, we’re going to talk about both sides of the argument, and then I’m going to make my case for saving the $5 instead of burning it. Let’s go!
Why we spend money on expensive coffee
Before we can talk about whether or not you should buy expensive coffee, let’s talk about why people feel the need to purchase expensive coffee in the first place.
Let’s face it. For many of us, coffee is the dream. We wake up. We feel horrible. Work is just ahead. What do we need? Coffee. Many of us will then head to the local coffee shop and pick up a large cup of premium coffee – you know, cappuccinos, espressos, caramel macchiatos, and so on. After-tax and tip (if you tip), you could easily burn $5.
Coffee in hand, we take a few sips, and our day suddenly doesn’t seem so horrible. It’s just what we need to pick us up when we’re exhausted.
With that in mind, you’re probably thinking, “Yeah, see? That’s totally worth $5. I want to go to work and function!” Let’s go over the argument that $5 saved per day doesn’t make a huge difference.
The argument that $5 saved a day isn’t much
It’s not entirely that $5 saved isn’t important. It’s the experience you get when you buy your $5 a day coffee that you might not want to miss out on. You go to the coffee shop, chat with the barista, hang out in a social environment while you drink (if you’re not late for work), and generally just feel good because it’s a delicious cup of coffee.
Another way people look at it is, we don’t even realize that we’re spending the money. There are lots of odds-and-ends we spend money on every day. Many people eat lunch at work, and that can add up to $5, if not more, every workday. Mass transit can add up to several dollars a day if that’s something you take. If you’re a smoker, cigarettes can quickly eat up $5 a day. So why is $5 coffee different?
When you’re trying to save money, there are many other ways to save without eliminating your coffee money. That’s what you might be thinking, at least. The truth of the matter is, it’s not about eliminating everything you enjoy (including that coffee!). It’s about finding alternatives.
Before we get into alternatives, let’s talk about how much that $5 a day actually adds up to.
How much is $5 a day over time
But what is $5 a day saved over time? Well, it’s $150 per month or $1,825 per year. You could use that money to pay down debt, or you could even invest it. In fact, if you were to invest $5 a day into an S&P 500 index fund, you would see an average growth of 9.8% per year. So, if you’re 25 years old now, and you were to invest $5 per day for 40 years (assume the entire time you’re working before retirement), you would have almost $920,000 when you retire.
That suddenly makes your coffee sound really expensive, doesn’t it? It’s amazing how what seems like such a small expense every day really adds up.
You could be thinking, “But, that’s in 40 years! I have no idea what the world will be like then.”
You’re right. The world could be a totally different place in 40 years. It probably will be! But would you instead enter that totally different world as you are now, or $920,000 more wealthy (if you choose to invest the money)?
What you can do with the $5 a day saved
Perhaps you’re not in a situation where you can invest. You might be in debt or have a lot of bills to pay. Maybe you’re saving for a new car, new house, or even something simpler like an extravagant weekend away with your significant other. As said earlier, $5 a day is $150 per month. $150 can pay for things such as:
- A month or two of your electric bill
- A fancy dinner and a movie with a significant other
- A new outfit
- Cable TV and internet for a month
- A family cellphone plan
- A week or two of groceries (depending on the size of your household)
- Put the money towards paying down a credit card
As you can see, even if you don’t bank the money for your whole working life, you can do a lot with that saved money.
You might say to me, “But I still need my morning coffee. What do you suggest?”
There are alternatives! Let’s go over some alternatives that still let you have coffee every morning (and afternoon if that’s your thing) but saves you a few bucks every day.
Alternatives to $5 a day coffee
Quite frankly, you don’t need to spend $5 a day on coffee. Most minimarts have coffee for a fraction of the price because you make it yourself. I can get coffee for $1 at my local minimart, and they have a half dozen flavors. For $2, I can get premium coffee. The best part about making it myself is, I can fully customize how I make it without bothering a barista. Even saving $3 a day by making my own coffee at the minimart adds up.
You can also buy coffee grounds and make your own coffee at home. It only takes 5 minutes to make coffee, and you can do it while you get ready to leave your house for the day. When you make your own coffee from home, you’re easily spending less than 50 cents per cup. If you have a premium blend coffee, you might spend a little more, but we’re still talking under $1 for just 5 minutes of your time.
Now you can have your coffee the way you want it and not burn a hole in your wallet.
What’s it going to be?
It really boils down to your preference. We all have our guilty pleasures, and if spending $5 a day on coffee is right for you, then I won’t tell you otherwise. However, the amount you can save by making your own coffee can far outweigh going to an expensive coffee shop. It’s something for you to think about, for sure. I personally make my own coffee and occasionally treat myself to premium coffee once a week when I go to the bookstore as they have a built-in coffee shop.
Wrapping It Up
I imagine the argument over expensive coffee will wage war on the internet until the end of time. Whether you cut out your expensive coffee or not, I’d love to hear in the comments about ways you save little bits of money on a daily basis. Catch you later!
