Morning Coffee Doesn’t Ruin Your Financial Future.
When you live paycheck to paycheck, everyone (including you) loves to blame the smallest expenses for their financial woes. However, you’ll find it harder than you think to ruin your retirement plans by buying your morning coffee.
As personal finance author Heline Olen explains in her book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry , the idea that you can ruin your budget with small indulgences is tempting because it’s something we can control. The idea, popularized by personal finance consultant David Bach , is that if you just give up coffee every morning and invest that money instead, you’ll be a millionaire by the time you’re ready to retire.
However, as Olen points out, the mathematics of this concept doesn’t add up. For example, check out this Latte Factor Calculator . At $ 5 daily spending, a generous 8% annual return on investing that money, and a 30-year wait, the potential interest is only about $ 171K on top of $ 54K in coffee savings. While this is not a small thing, you also cannot retire.
The broader lesson should be that spending cuts are generally better for your retirement. Of course, you can skip your favorite coffee to save maybe $ 1,500 a year and spend that on a portion of your pension, or you can choose to live somewhere where the rent is $ 200 a month less for the same effect. Or, you can cut your cable TV costs in half by ditching all those useless channels. Or you can campaign for a pay raise from your boss and channel the excess you earn into your savings. Best of all, you can do all of these things to create a great retirement plan. There is nothing wrong with saving the money you would normally spend on coffee, but it is not the only part of your personal financial plan. If you have the rest of the ducks in a row, you don’t have to blame yourself for the little things.