My Cheesy Latte Post

Saving enough to retire, support your children through college, or buy your first house can seem like a daunting task. For a 22-year-old graduating from college with thousands of dollars in student loans, or for a waitress at the local cafe who’s barely scraping by, such a feat must seem nearly impossible.

Random fact: managing your finances and eating an elephant have quite a bit in common.

Both are monstrous tasks, but they can be accomplished by taking one bite at a time.

Let me be honest for a second. I don’t want this to be another cheesy article published on a personal finance blog about how all you have to do to transition from being a broke, starving college student to a multi-millionaire is stop drinking lattes. Someone probably wrote a great post on that subject a decade ago, and then every finance blogger on the world wide web jumped on the bandwagon.

I’m a math guy. Always have been. I look at everything from a numbers perspective. With that in mind, my goal with this post is to help you identify some of the spending habits in your life, do the math, and see what kind of an impact they can have on your long term financial situation. Here we go…


Step 1: Awareness

Almost everyone has some spending habits that they repeat on a daily or weekly basis.

For example, I love grabbing a mid-morning snack at about 11am. Instead of waiting and eating more at lunch, I almost always choose to buy something small. Maybe it’s $5 spent on chips and a bottle of Snapple. Sometimes I’ll go with the $3 chocolate covered cranberries (who could say no to that!). Peanut M&M’s are another weakness of mine.

These spending habits can vary quite a bit.

A common one in American society is coffee. If you’re from up north like my aunt and uncle in Michigan, you’re probably loyal to Caribou Coffee. My friend Chris from Massachusetts is a staunch defender of Dunkin Donuts. Back home in Texas, everyone seems obsessed with Starbucks. Depending on where you go and what you get, this will probably cost you a few bucks a day.

Many of the people I know purchase tobacco products on a regular basis. This is pretty understandable due to the addictive nature of nicotine. Prices vary based on the specific product and due to different regulations across the country, but you’re looking at anywhere from 3 or 4 dollars and up.

This is the first step. Simply look back over your spending records or think about your schedule and figure out what you regularly spend optional money on.

A couple years ago, I heard something interesting. A man said that if he added up the cost of cigarettes for his family over the years, he could probably pay cash for a house.

Hmmm… For a math guy like me, that type of claim arouses my curiosity, so let’s crunch the numbers.


Step 2: Do the Math

Take the stereotypical “pack a day” smoker. According to Fair Reporters, the average cost of a pack of cigarettes in the United States is $5.51. If someone smokes a pack a day for a year, the cost comes out to $5.51 x 365 = $2011.15. That’s quite a bit of money, but suppose the same smoker puts that money into an S&P 500 index fund instead. (The S&P 500 is a collection of stocks from the 500 most valuable US companies, but I’ll explain more about stocks later.)

Historically, the S&P 500 increases by about 7% per year (information courtesy of Investopedia). For the purpose of the calculation, we will assume that our smoker buys a pack a day from college graduation at the age of 22 to retirement at the age of 65. 65 – 22 = 43 years (the calculator will say 42 years, but that’s because the first year is factored into initial amount). The annual cost of $2011.15 split over 12 months is $2011.15 / 12 = $167.60. Using Bankrate’s online savings interest calculator, look at the results:


Granted, an actual investment in the stock market would not return the same amount each year because there would be fluctuations, but in the long run, that is the opportunity cost (what you lose by not taking the next best alternative) of buying a pack of cigarettes every day. The small expenses don’t seem important at all, but they add up to $513,027 during the course of an adult life. THAT’S HALF A MILLION DOLLARS!

Smoking is just one example, and many people do the same thing with snacks or coffee.

There you have it. The math doesn’t lie. Even small expenses in your budget can lead to huge changes over time. What you have to decide is how to apply this information.


Step 3: Re-evaluate Your Habits

I’m not going to say that you should stop buying coffee, chocolate covered cranberries, or peanut M&M’s.

I will say that you should stop smoking… but there are plenty of way more important reasons for that than the $5.51 you spend on a pack.

Honestly, there is no financial difference between spending $720 on rent every month and brewing Folgers at home vs. spending $600 on rent and $120 on Starbucks.

All I ask is that you notice your spending habits and evaluate them.

If your favorite part of the day is going to a coffee shop after work and sipping on a nice cup of joe for an hour while you read a book, then that was probably a great way to spend $3. Just make sure you are aware of the impact those types of expenditures have on your budget and that you still want to spend your money that way.

But, if you get to the end of the month and have no idea where your entire paycheck went, you should probably make some changes.

If you’ve got any credit card debt, cut out the lattes until you pay it off.

The key to this whole personal finance thing is to focus on money now so that you don’t have to worry about it later. Early on, focus on paying off your debt and building an emergency fund. Once you’ve taken care of those things, you are in a great position to relax, go out to eat, and enjoy coffee shops. Just make sure that your expenses are in line with your season of life.

To make sure you don’t think this is another one of those cheesy latte posts, here’s a story about one of my favorite people:


A Quick Case Study:

A man I’ve had the privilege of getting to know pretty well goes to a local cafe for breakfast almost every day.

From the stereotypical personal finance blogger’s perspective, that’s a terrible idea!

Think about it, he probably spends almost $50 a week when you factor in coffee, food, and a tip, which adds up to an incredible amount over time. But, it’s one of the coolest things I’ve ever seen someone spend money on.

The man’s name is Brian, and since he goes to the same cafe at the same time every morning, people can count on him being there. He’s also extremely respected, so because people know he’ll be there, they stop by to talk and hear some wise advice. There’s even a name for it now: the Oracle of Brian.

Because Brian goes to the cafe for breakfast every morning, he has been able to have a remarkable impact on a number of lives in the community.

So, learn a lesson from the Oracle of Brian and spend your paycheck on things that matter.

Know where your money is going every month, evaluate how those expenditures line up with your priorities, and make an educated decision. Just remember that when seemingly small costs are repeated on a regular basis, they can have a powerful impact on your bottom line.

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