Recently, personal finance expert and TV personality Suze Orman drew criticism for scolding millennials over their coffee habits. Specifically, she likened the habit of purchasing coffee to throwing away $1 million — money that could otherwise be used to fund a retirement.
Now the underlying idea Orman was perhaps trying to convey isn’t a terrible one: spend less now, and you’ll be able to save more money for the future. That concept is not only logical, but reasonable. But if you’re in the habit of indulging in a daily latte, you should rest easy knowing that you’re not wrecking your finances in the process.
Small indulgence make life worth living
It’s true that the money you currently spend on coffee could otherwise be saved for the future, and perhaps even grown into a substantial sum. Imagine you currently spend $5 a day on your store-bought caffeinated beverage of choice. At 365 days a year, you’re looking at $1,825 in annual coffee spending. And that is, arguably, quite a bit of money. If you were to instead sock that cash away in an IRA or 401(k), and invest it at an average annual 7% return, which is a bit below the stock market’s average, you’d wind up with about $364,000 over a 40-year period.
That’s a decent retirement nest egg right there. But there are plenty of other things you can do to accumulate a similar total over time that don’t involve giving up the morning beverage you look forward to every day.
For example, if you’re willing to live in a slightly less expensive home than one that’s at the top of your budget, you can easily shave $152 off of your monthly housing costs, thereby accumulating the same $1,825 your coffee is costing you annually. Similarly, you can lease a less expensive car, and save yourself an extra $150 and change each month that way.
Or, you can play around with a bunch of smaller expenses if you’re looking to free up cash for your retirement plan. For example, downgrading your cable package (or cutting the cord in favor of streaming services) might save you $60 or $70 a month, while canceling your gym membership might do the same.
The point is that your coffee habit alone won’t keep you from retiring as long as you make an effort to save money in other ways. But it doesn’t actually matter where that money comes from, so if your morning lattes make you happy and help you power through the day, keep drinking them, even if it’s possible to make substantially cheaper coffee at home.
For many people, it’s life’s little indulgences that make more of a difference than big ones, so if you’re willing to rent a smaller apartment or buy a less spacious house to give yourself the leeway to do things like order in dinner once a week, attend concerts, and, yes, buy coffee, then go for it. As long as you’re not neglecting your savings, you shouldn’t feel bad about indulging.
Incidentally, this advice applies to non-millennials, too. Younger workers tend to get a bad rap, but buying coffee and indulging in similar modest luxuries is a habit people of all ages uphold. And again, it’s OK — as long as a reasonable amount of money is being saved along the way.
It’s easy to pick on coffee as a wasteful expense given how cheap it can be to brew it at home. But if you love your store-bought caffeine, and it’s one of the highlights of your day, don’t stop purchasing it. Just make an effort to save in other ways, and don’t buy into the guilt.
