Save a “Latte” Money!

I happened to catch a news segment about how Starbucks is being affected by the recession and it got me thinking. First, I love Starbucks and if I could have a dream office, I’d place a desk in the middle of my Starbucks and work happily. Second, I admire their business model and branding (my favorite book about this is The Starbucks Experience). Therefore, I found it surprising that even Starbucks’ sales were down.

2600559012_340c7fbb3e_mEver since we got a Starbucks next door to my office, I’ve gone through periods of going way too often. As someone who is conscious of making smart financial decisions, my Starbucks addiction doesn’t really match up. We’ve all heard Oprah, Jean Chatzky and Suze Orman tell us how much we could save if we cut lattes out of our daily routine. Apparently people are starting to listen.

Since I like numbers and facts, I wanted to do some math to find out how much Starbucks can really hit your wallet. Here is what I discovered:

· There is an 11.5% tax on food and beverages in Chicago…um, where have I been? I had never looked at my Starbucks receipt before today (oops). Why the need for an 11.5% tax, Chicago? Have we been financing Blagojevich’s corrupt schemes, or maybe paying for his newest wig (sorry, had to say it).

· If you buy a grande latte every work day, you will spend $74.80 per month. ($3.74 * 20 business days per month)

· You could do the following with $75: pay your monthly car insurance bill, buy new shoes, go out to dinner and drinks with your girlfriends twice, or save for a rainy day.

· Your daily “addiction” will cost you $897.60 over the course of 1 year.

Now what if you decided to give up your daily Starbucks visits and direct deposit that $75/month into a retirement account?

Despite the current economic condition, the average expected return for retirement accounts is still 10%. If you put that $75/month into your 401(k) plan, your contribution will grow to $5,931.18 after 5 years.

I assume you are not retiring in your thirties. Therefore, check out how much your $75 monthly contribution can grow over the years:

· After 10 years the value of your investment will be $15,566.40

· 20 years, $57,502.27

· 30 years, $171,024.40

· 40 years, $478,333.52

Wow, now I’m impressed. Who knew that your cup of joe was so expensive in the long run! I hope this inspires you to take a look at your 401(k) contributions today and make sure you are putting at least this much away for your future. For other scenarios, check out this easy to use calculator.

Even if you think that you can’t possibly afford to save right now, try to cut something small out of your day and remember that it will lead you to big things in the future. And in the meantime, you’ll be acting as a smart, savvy and sexy woman!

8 responses to “Save a “Latte” Money!

  1. Nice article Nicole. While I’ve never been an addict to Starbucks, I agree that little mundane purchases we make and justify on a daily/weekly basis are quite staggering when computed on a monthly or yearly level. And I guess for those people addicted to coffee – even brewing your own coffee at home daily is much cheaper.

  2. I’m going to play devils advocate here. Don’t hate me.

    After seeing that you could save $15k over 10 years, are you going to cut out your Starbucks consumption for the next year and put that into a savings account? People do this type of math with smoking too and for those smoking a $5 pack a day, wow! It is analogous to going on a diet; cutting costs–>cutting weight. While the chocolate bar from time to time isn’t great for you, it really is the content, and proportion of your other meals that drive the bulk of the results.

    I’d also say that getting a daily drink from Starbucks has side benefits; taking a break from work, clearing your mind, and getting the energy from the caffeine and the walk. Bottom line: daily serenity and peace of mind. That is why I’d say most people aren’t going to cut out Starbucks entirely even though it means $15k after 10 years.

    I think many financially savvy people look beyond their Starbucks fixes to cut corners. Let’s assume a salary of $40,ooo. If that person set’s aside 5% for their 401(k) that comes to $167 a month while 10% comes to $333. Once that money is taken out, you never see it and learn to live within the reoccurring paycheck. (Disclaimer: I contribute 8% to 401(k) and get my Caribou fix regularly).

    I also believe in the “60% Solution”. Essentially it comes down to the gap between lifestyle and income. MSN’s article is pretty straight forward regarding the 60% solution without getting technical.

    I definitely agree with you in concept; don’t make “necessary” purchases which are actually “luxury” purchases. Find out what are true necessities and luxuries and cut the luxuries. I kept an old 19″ TV for years before I decided to purchase a fancy 32″ HDTV. It was a luxury that I put off for a very long time, recognizing it as a luxury and not a necessity.

  3. Josh,

    Thanks for your detailed comment! I agree with many things you are saying.

    By no means was I trying to tell people to boycott Starbucks- I went there today, and spend many of my lunch breaks drinking tea and doing work/reading there.

    Like you, I also contribute a fair amount to my 401(k) each month and am still able to have my occasional fix. I do this for the same reasons as you: to re-charge, get fresh air and a bit of caffeine to keep me focused at work. Also, since I have my own business I use Starbucks as a place to do work and save my receipts for my accountant at tax time.

    The point of this post was to show how little things become big things over time. It was also to demonstrate (especially to women) the importance of contributing to a 401(k) at a young age. Living in Chicago, it is SO easy to spend way too much money on cabs, $10 drinks and lattes then wonder where your money went. My point was just to be aware of where things are going.

    I agree on the TV too- I waited a few years before I got mine and was able to pay for it in cash.

  4. Great reminder, Nicole – it’s so easy to forget how little spendings can affect the big picture. When I was out of high school, I remember I just went out and bought food, without thinking – and that several days a week. I just bought whatever I felt like – and my paycheck just kept going away, without any major financial savings accomplishment. I actually ended up driving myself into debt at a point, because I wasn’t really consciously planning my spendings.

    After getting my accounts straightened out, I had learned to be much more conscious. I started shopping only once a week, with a clear idea in mind what I needed, and with an eye on good deals (as opposed to whatever looked good). That made a HUGE difference.

    I also learned that when we have a clear goal, we can save more money than we may think is possible. It all goes into the direction of THE SIMPLE LIVING GUIDE, a book that inspires me to this day.

    Thanks again for the reminder,
    happy holidays everyone! And don’t be too hard on yourself if you drink a latte with friends every now and then – we’re supposed to live life too 🙂

  5. hi! i like the idea of paying attention to “the little things”… how interesting that it impacts our outlook as well as our financial situation!

  6. Great post Nicole-

    Never thought that Starbucks could add up so much! I don’t drink Starbucks that often, but after reading your post I think I will try and cut certain ‘unnecessary’ things and invest that money into something that will bring me back better return.

    Happy Holidays!

  7. Hey Nicole…you should check out Dave Ramsey…he actually talks about this once I think!

  8. Hey Nichole!

    I listen to Dave Ramsey a lot on my way home from work since he has a show on XM radio. He is so great!

    Nicole

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