Millennials and coffee go together like macaroni and cheese. In college I worked at a coffee shop for about three years, and I was constantly amazed at how much people were willing to spend on coffee. Every single day. However, buying coffee from a big coffee chain on a daily basis is a huge waste of money. It doesn’t matter if it’s from Starbucks, Dunkin Donuts, Peet’s, or any other coffee chain. From a financial standpoint coffee is similar to or even more expensive than buying a pack of cigarettes a day.
Let’s do some math. Let’s say on average you spend $5 per coffee, and you get it about 6 times a week. So you spend $30 a week on coffee. This doesn’t sound like a lot, but it adds up quickly. $30 a week x 52 weeks is $1,560 a year. Ok, so this amount of money won’t make you rich. But what if instead of buying coffee from Starbucks you invested that money, what would that do for your financial future?
If you took that money from one year of skipping Starbucks, and invested it at the end of 30 years it could look something like $15,700. Not bad at all. This is at an 8% interest rate, which is the average rate of return of the S&P500. The S&P500 is an American stock market index based on the market size of the 500 largest publicly traded companies in the US. An ETF (exchange traded fund) such as SPY is a great way to invest in the diversity of the SP&500 on the cheap. As long as the American economy continues to grow in the future, the S&P500 is a safe and reliable investment.
But this is only if you “skipped” one year of going out for coffee. What if you cut the habit for 30 years, and instead always invested that money? Assuming an 8% return, it would be over $206,000! I’m not sure about you, but I would take $206,000 over Starbucks any day.
Coffee shops can be a great way to re-connect with a family members / friends, or to spend an afternoon to catch up on work/homework/a great book. Doing so a few times a month is not a big deal. Dropping a single habit like splurging on going out for coffee can have a great impact on your financial future.