About once a week, Susan and I will stop for a latté at Stoked Coffee. Each one costs a little more than $3.00. Some people stop far more often. Will a daily latté result in a million dollar coffee habit? We’ll talk about it in today’s episode of Monday Morning Money.
Video: A Million Dollar Coffee Habit?
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Time for Some Math
So Suze Orman says the daily coffee habit equates to a million dollars over 40 years. Is that accurate?
Three dollars per day is roughly $100 per month. If you compound $100 per month for 40 years, how much will you have? We used 6%, 8%, and 10%. The 90-year average annual return for stocks is about 10% per year.
What did we get?
Not Quite A Million Dollars
To accumulate a million dollars saving $100 per month, you would have to earn nearly 12% per year.
The Real Topic: Opportunity Cost
Every dollar we spend costs what we pay today, plus the lost growth if it were saved. It’s called opportunity cost. Most people don’t consider it when they make any kind of purchase.
For most of us, money is a finite resource. We make what we make. We have to balance what we spend for the things we need and want today, with what we need to save for the future.
Ms Orman simply took something common, I see the cars lined up at Stoked…to exaggerate her point. The opportunity cost of some these little things add up to big amounts over a lifetime. I mean $350,000 isn’t chump change.
Does that mean you should give up your daily latte’? Not necessarily. If you are saving enough to gain financial independence and be able to retire the way you want, have your coffee. Things will be fine.
But if you’re saving is out of balance with your spending, start looking at the little things. You may find they end up making a big difference in the long run.