How Coffee Could Cost You a Million Dollars

Suze Orman once said that if you go to Starbucks every day, you’re wasting a million dollars.

Yeah, she said that. Coffee could cost you a million dollars over the long run.

Seriously.

“You are peeing $1 million down the drain as you are drinking that coffee,” she said.

Well there you have it. Another strongly worded claim from our friend Suze Orman.

Let’s break this one down.

The Math Behind the Madness

Okay, let’s do a little math to see whether spending money on takeout coffee will really cost you a million dollars.

How Much You’ll Spend

We’ll assume that a coffee costs $3 today, and that cost increases evenly with inflation. So next year, with 3 percent inflation, that same coffee will cost $3.09.

Let’s say you buy that $3 coffee every single day for 40 years.

Wow, that’s some dedication to Starbucks. Here we go.

Let’s start with the pure dollar cost. How much total will all that coffee cost you over 40 years?

In year one, you’ll spend $3 x 365 = on coffee.

In year two, you’ll spend $3.09 x 365 = $1,128 on coffee.

Over 40 years, you will spend $1095(1.03^40 - 1)/(.03) = $82,564.

Okay, so you’ll spend $82,000 over the course of 40 years. That’s if you buy a takeout coffee every single day for 40 years.

So where is that $1 million coming from?

When You Invest Instead

The $1 million comes from the idea of opportunity cost and the time value of money. If you don’t spend it on coffee, you can use that daily $3 elsewhere.

Most notably, you can invest the money.

So what happens if instead of spending on coffee, you invest the money instead?

Using the same example, let’s find out.

This time, in year one you will invest $1095 in the stock market.

In year 2, you will invest $1128.

You’ll continue those investments for 40 years. Let’s assume you earn a 7 percent annual return on your investment.

Using the future value of an annuity calculator, we find that after 40 years, you’ll have accumulated $320,628.

Okay wow, that’s a good deal of money. It’s four times the $82,000 we just calculated.

But it isn’t a million dollars.

What’s the million all about?

Well, it turns out that the number you calculate varies quite a bit based on your assumptions. The most important assumption is the rate of return, which we put at 7 percent.

Let’s try the calculation again with an annual return of 12 percent instead. Using the future value of an annuity calculator, you’ll see that after 40 years, you’ll have $1.092 million.

So that’s where Suze is getting her million dollars. From a 12 percent return.

I personally think that’s a bit of a stretch.

Historically, the stock market has averaged around 10 percent before inflation. And that’s just stocks. For a mixed investment portfolio, 7 percent is a better bet.

So are you peeing $1 million down the drain when you go to Starbucks?

That’s gonna be a no from me. If you patronize Starbucks every single day for 40 years, you’re more likely to lose out on around $300,000.

Still a really big number though.

So Is Coffee a No-no?

The opportunity cost of daily Starbucks is alarming. But let’s digest this.

What do we make of this? Does this mean every time you get takeout coffee, you’re wasting money like nobody’s business?

I’d say no. But it really depends on how much you value that coffee.

Saving money is a matter of spending less in many areas, so that you have more money for the things you value most.

You save so that you can have more money for the greater pleasures in life.

If for you that pleasure is coffee, then I think that’s okay.

Personally, I’ll never spend $3 on a coffee. I’m not a fan and I just won’t do it.

But if that coffee means a lot to you, then it means a lot to you.

Of course, the better approach would be to get Starbucks in moderation rather than every single day. Could you get by with some homemade coffee instead?

I’m not a coffee person either way. I’ll let you do you.

Saving a Little Means a Lot

I think the main point here is that saving consistently - even a tiny amount - can make a big difference over time. Particularly when you invest those savings.

If you’re consistent, it really adds up over time. Compounding interest works wonders over the long run.

Where to save? It doesn’t have to be on coffee necessarily. Maybe it’s on your lunches or on your rides to work.

Whatever it is, a little can mean a lot. You may be surprised.

Start with Acorns

Investing a little bit on a consistent basis makes a big difference over time.

Putting $3 a day into the stock market could net you a third of a million dollars in 40 years.

Need a way to do that? I’d suggest checking out Acorns.

Acorns helps you invest your spare change. You spend $2.30 on a muffin, then Acorns invests $0.70 for you automatically.

It’s a pretty cool and easy way to get going with investing.

It’s great for getting into the habit of investing in general. A robo-advisor takes care of all the portfolio rebalancing for you. So you hardly have to do anything.