First The Latte Factor, Now The Coffee Factor

First The Latte Factor, Now The Coffee FactorRecently a short video from Suze Orman created a bit of a controversy on social media.  Granted everything is a controversy on social media these days, but I found this one particularly interesting.

Orman recorded a short video called “how your daily coffee habit is costing you $1,000,000”.  Not too click-baity, right?  In her uniquely overconfident and in-your-face way she claimed that if you have a daily habit of purchasing coffee (not a latte), you are forgoing $1 million in 40 years.

I try to avoid social media and minimize my time on all of it as much as possible.  But in the 30 seconds I took to glance at the comments, I was assured that 33-alarm dumpster fires are alive and well on social media.

But let’s look at her argument, its flaws, and run some real, “non-fake-news” numbers.

Firstly, she doesn’t differentiate between purchasing a cup of coffee each day, presumably at a Starbucks or other coffee shop as her video shows, and simply making your coffee each day at home.  So some of the outrage was along the lines of “hell no I’m not giving up my daily coffee!!!”. 

Suze seemed to be saying “stop having you’re daily coffee all together”.  What she should have said was “coffee is great and making it at home is far far cheaper than buying it each day at a coffee shop, let’s run a comparison”

So her analysis pretends you stop drinking coffee all together.  Yes, I would join the camp of “that just ain’t gonna happen.”

But the big hulking problem with Suze’s lecture is that she claims you can get 12% annually over 40 years in a Roth IRA.  Uh…. yeaaahh.

Perhaps she and Dave Ramsey have been colluding err, hanging out.  After all they’re both masters of self promotion and marketing. 

So let’s break this down with real numbers that are more honest and far more realistic.

 

The Daily Coffee Factor

First The Latte Factor, Now The Coffee Factor

Dear coffee – you make me happy too

In general, you can make coffee at home for 15 to 30 cents a cup depending on what you buy and how you run the numbers.  You’ll see analysis below that and above that, but I’ll split those numbers and use 22 cents a cup for my analysis.  I used a mid-level cost of ground coffee at $7 a pound.  Not the cheapest by far but also not the ridiculously priced Starbucks crap.

If you’re a coffee snob and are now screaming “no way I only drink (insert your overpriced coffee brand here)“, then this analysis isn’t going to be for you.  Sorry.  Additionally if you have a Keurig you not only paid tons of money for the machine but you’ve doomed yourself to overpay for coffee anyway, and you might as well just buy it at a shop.

Let’s assume you drink one cup a day every work day for a year and you work 5 days a week.  Also let’s assume you get three weeks off like many Americans do which is two weeks vacation and some paid holidays.

52 weeks X 5 days a week = 260 days.

260 days – 15 holidays = 245 days that you purchase coffee or make it at home.

Making it at home.

245 days X 22¢ = $53.90 for one year.

Buying it at Starbucks

I’ll use Starbucks as a default because even though diversity has become very popular with Americans, they obviously don’t like it in their coffee shops.

Now, a small cup of coffee at Starbucks (which they apparently call tall (?)…) costs $1.85.  

245 days X $1.85 = $453.25 for one year

The difference

$453.25 – $53.90 = $399.35.

So if you make coffee at home your savings per year would be $399.35.

Now here’s the key part.  If you put that in a Roth IRA, over 40 years at 7%which is a realistic expectation of stock market returns – that would give you $91,285.03

That’s far from the million dollar claim of Mrs. Orman, but still a lot of money.  But 40 years is a lot of time too.

 

Bogeyman

First The Latte Factor, Now The Coffee FactorHere’s the deal, it’s unlikely that coffee is the barrier between you and financial independence.  You can save far more money over 40 years by optimizing the big three expenses.  Your housing, transportation, and food costs are where you should focus to get to financial independence faster, plain and simple. 

“Doesn’t coffee fall under food?”.

Well, technically it does.  I drink black coffee which has fewer than 5 calories per cup, so it’s barely food 🙂

Bottom line, enjoy your life.  If your morning coffee shop ritual is joyful and important to you then keep doing it!  You can still achieve financial independence.  But you’ll have to be sure to optimize other things such as your housing and transportation costs. 

I would note however that going into a Starbucks or other coffee shop each day comes with other risks.  Be honest, do you only buy coffee every day?  How often do you cave in and buy one of those horribly unhealthy sugar bomb frappo things for $5.00?  Or that muffin or other pastry staring at you through the glass window?

Newsflash, that’s not a real breakfast and it’s not helping your wallet or your waistline. 

I wrote a post a while ago about how shopping at big box stores is risky because the sheer volume of merchandise makes it very likely you’ll come out with more crap than you intended to get.  And the same goes with coffee shops.

Look, I’m a coffee lover.  I love the smell of it, the taste of it, and rarely miss a day.  But, I usually make it at home.  No I’m not a flawless discipline-machine or a monk, and I do go to a coffee shop every once in a while.  When I do I always support local shops though.  I walk the talk of being pro-diversity, which means coffee shops too 🙂

So keep your coffee shop habit if it brings you joy, and ignore folks like Suze Orman who claim that the money you spend on that habit would get a 12% annual return over 40 years.  Shame on her, she knows the truth but might just be too addicted to her own cult of marketing to help herself. 

Focus on cutting the costs of the big three of housing, transportation, and food to maximize your savings and net worth.  That’s what will get you to financial independence faster.  And enjoy every coffee along the way. 

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Dave @ Accidental FIRE

I reached financial independence and semi-retired in my mid-40's through hard work, smart living, and investing. This blog chronicles my journey and explores many aspects of personal finance including the psychological and behavioral factors that drive our habits.

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28 Responses

  1. xrayvsn says:

    12% returns? Would love to see what she suggests investing in to get that rate over 40 years.

    I’m not a coffee or tea drinker myself. I will occasionally get one when I’m out (and when I do it tends to be the unhealthy kind with lots of sugar etc and blended with ice.

    You can make the argument for pretty much anything. But there’s a point where you have to balance what you enjoy and what you spend. It’s not worth accumulating a pile of money if you have given up every pleasure.

  2. I find great humor in Suze Orman. Sadly, too many people take her seriously. She’s the queen of click-bait. It has been her ticket to success. 12% return is part of that click baity crap.

    If she really wanted to help people, she’d do a side by side analysis like you did here. Of course, that’s not what she’s interested in. The more sensational the opinion, the more eyes on the page she gets.

    Her interview with Paula Pant was brilliant. She got the FIRE community so stirred up that every other blogger wrote or recorded a rebuttal. It played right into her hands. The best way to have counter her would have been to ignore her. But then that’s not how people are wired.

    Oh well, I’m about to go have my second cup of coffee I made at home. Enjoy your day.

    • Dave @ Accidental FIRE says:

      She’s queen sensation of the financial world. Hope that coffee was good, and it didn’t cost ya $2!

  3. man, i really used to love coffee. i gave it up about 5 years ago and switched to green tea. mrs. smidlap made a big pot when we had a house guest so i not only had one cup but a second one and it felt like the filling were about to rattle out of my head from all that delicious goodness.

    a lot of people would consider our wine expense to be shameful but i don’t care. substitute that for coffee if you like. sometimes i think about all the stuff we DON’T BUY. it’s a lot. if things went south in some way we would cut down on those “want” expenses first. you gotta enjoy life.

    • Dave @ Accidental FIRE says:

      Wow you gave up coffee. Can I still trust you?

      😉

      I love tea as well and drink it often, more so in winter. Hey dude, wine is your thing, do it. I love it too but my palette doesn’t care, so 2 buck chuck is fine with me!

  4. Oh man, I love Mocha Frappe!!! I used to drink one venti cup a day. It’s delicious and yeah it’s unhealthy. Although, somehow I stopped going to Starbucks because I eventually realised that it’s expensive especially if you’re living in a third-world country and earning a third-world salary. I still love coffee though and I switched to brewing my own coffee at home.

  5. “Bottom line, enjoy your life. If your morning coffee shop ritual is joyful and important to you then keep doing it!” It’s funny that we’re (meaning Suze) is still talking about this, as if her publicist/SEO manager said, “yeah, say that because it will get a lot of people angry/talking/posting about it on social media!!!” But you’re dead on with the thing about enjoying your life and those little things that make you happy and focusing on how there are other ways to move the needle first. Ugh! Same ol, same ol!

    • Dave @ Accidental FIRE says:

      I hear ya Tonya, by writing this post I’m playing right into her strategy. However, my eentsy-weentsy little blog and minuscule traffic won’t move the needle for her. And she won’t be guest posting for me anytime soon, I’m sure her heart is broken 😉

  6. Tawcan says:

    You’re just asking Suze to block you on Twitter haha!

    If you see coffee as a necessary daily luxury, by all means, spend the damn money! A few dollars here and there aren’t going to kill your reteirement dream in the long run, it’s the big expenses that will kill you. So don’t buy that shiny expensive luxury car at $50k, don’t buy a McMansion that you can’t afford, and don’t go on a luxury vacation that put you in credit card debt helll.

    • Dave @ Accidental FIRE says:

      If Suze blocked little ‘ole me on Twitter I would be HONORED!! But alas, I’m afraid peons like me who do honest analysis just don’t show up on the radar. Suze is proof that sensationalism and hyperbole sell, with a smattering of dishonesty and being misleading.

  7. Simple Money Man says:

    All I wanna know is how I can get a 12% return, lmao! I love coffee….and yes indulge in Starbucks from time to time. Like you said as long as your got your main expenses in check and are on track you’re good.

    • Dave @ Accidental FIRE says:

      Kidnap Warren Buffet and have him tell you what to invest in. You might have a shot at 12% over 40 years. But he’d be like 120 by then…

  8. Do you not drink coffee on your days off or on the weekends? You heathen.

    • Dave @ Accidental FIRE says:

      HA! Firstly I’m already a heathen anyway so this doesn’t change things. I ran my analysis assuming she was targeting the daily coffee as a workday thing. Since folks are already on the move to get to work. But yes the number would be higher if it were calculated for every day. And I do have coffee on weekends too 🙂

      Funny enough, the lady who lives across the street from me is an early bird like me and literally gets in her SUV at 5-something in the morning on weekends and goes to Starbucks, then comes right back. It’s a bout a quarter mile away. So many things wrong with that…..

  9. J says:

    A certain lady I know drinks TWO huge cups of Starbucks something every day, and they run near $8 apiece with all the extras she gets. So $16/day = $112/week (Starbucks addicts do not take days off). $480 a month, $5840 a year, and we ARE talking serious money. Well, she apparently DOES enjoy it, but she is very interested in borrowing and begging money from others for purses, clothes, and vacations! Plus role-modeling this behavior for her adolescent kids! I like to think this is the demographic Suze was trying to reach with her shocking numbers, and she succeeded in this case- one of the kids called Mom out! Everyone in their house is now on a coffee at home, carry Thermoses and non-disposable water bottles around, order water at restaurants program now!

    • Dave @ Accidental FIRE says:

      Holy smokes! What the hell is in it that it costs $8!? That’s insane. Yes, in her case it matters bigly. Almost 6 grand a year for something you can make at home for about a hundred dollars…. yeah, not a choice to me. So cool that the kids called her out!

  10. Katie Camel says:

    Thanks for reminding me that I wasted $4 on the world’s worst iced tea at Starbucks this morning before leaving Dublin. I’m about to go to bed and it’s still waiting to be finished!

  11. Abigail @ipickuppennies.net says:

    I’m not even a coffee drinker and I knew Suze was full of it yet again. The whole 12% return thing that she and Dave keep hyping… I’d love to know where they’re getting that number. Or actually, to be honest I don’t care. It’s just not true, full stop.

    I hope everyone who loves coffee is mainly able to make it at home, but hell even budget for a daily Starbucks if you can swing it and still sock away money for retirement. Just give something else up. Do I understand the allure of coffee? No. But it’s obviously dear to a lot of people and I wouldn’t dream of suggesting that people give it up. Partially because I don’t want a lynch mob like Suze doesn’t seem to mind courting.

    • Dave @ Accidental FIRE says:

      “Full stop”. Yep, indeed.

      And the socials are tailor made to cultivate lynch mobs. Suze must be reveling in the dumpster fires she’s created.

  12. Thanks for writing this venti post! I totally agree that SO has a tendency to amplify topics.
    I am sort of done with this coffee topic all together. You are right that buying coffee is probably not the make it or break it to FI.

  13. If you were Warren Buffett, you’d lose millions if you pay for coffee. He’s an exceptional investor and can get exceptional returns. But we’re not Warren Buffett. So go ahead and enjoy your coffee at home. 🙂
    I also want to point out that if you buy coffee every day, you probably buy a lot of other small things every day too. Like lunch, gum, bagel, snack, cool toys, and other eye catching things. Impulse spending starts with little things.

    • Dave @ Accidental FIRE says:

      So true Joe and that’s why I mentioned it in the post. I do think the coffee shop habit can be dangerous in other ways. Temptation is real and it’s hard to resist the allure of a gooey pastry

  14. Harry Tran says:

    Great examination of it, I would say the cost to savings is slightly skewed though as I make coffee at home but I drink 2-3 cups minimum and it’s daily, not just on work days.

    • Dave @ Accidental FIRE says:

      Yeah I drink more than one cup most days but just stuck to a simple 1-a-day for the analysis. But very true

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