6 Things I Could Have Done With All The Money I Spent On Coffee In 2015

coffee-shop

We’ve all heard of the ~latte factor~, or the notion that if we just quit drinking our fancy coffee and suffered through stale office coffee instead, we’d be well on our way to funding our savings goals and building that emergency fund. I think we all have, at some point or another, rolled our eyes at the notion that simply cutting coffee out of our budget would solve our problems; it may be one of the steps we take, but what kind of impact would it really have? I decided to find out.

I would classify myself as a moderate coffee purchaser. I love coffee, and I live in Portland where good coffee is taken very seriously. Still, as a budget-conscious millennial who spent several months unemployed last year, I did my best to choke down the office coffee or brew it at home whenever possible. After adding up my Starbucks, Dunkin Donuts, and local artisanal coffee purchases for all of 2015, I learned that I spent $410 on coffee in those 12 months. That’s about $8 — or two coffee purchases — per week, on average.

That seems fairly reasonable to me, but let’s explore some other scenarios. What would have happened if I had taken that $410 and allocated it differently at the beginning of the year? Instead of funding my caffeine addiction, here are six things I could have done with my $410:

1. Invested it in Netflix (NFLX) stock. I could have bought 8.22 shares of Netflix stock at its closing price of $49.85 when the markets opened for the first time on January 2, 2015. If I sold those shares on December 31, 2015 at its closing price of $114.38, I would have realized a profit of $530.73, a return of 129% on my initial investment. Netflix and chill is right.

2. Invested it in Twitter (TWTR) stock. I could have taken that same $410 and put my faith in my favorite social network by buying 11.21 shares of Twitter stock at $36.56. If I sold it on December 31, 2015 at its closing price of $23.14, I would have ended up with just $259.50 of my original investment, representing a loss of 36.71%. You win some, you lose some.

3. Stashed it in a high yield savings account. I have a savings account with a 0.10% variable interest rate, which is competitive as far as these types of accounts go (many savings accounts offer a 0.03% variable interest rate). If I had put $410 in that account at the beginning of 2015 and never made another deposit, I would have ended the year with $410.41. It’s not the greatest return, but it is 41 cents more than I started the year with.

4. Tracked the market with an index fund. Index funds are portfolios designed to match the performance of a market index, such as the Standard & Poor’s 500 index. Index funds can either be mutual funds, or ETFs. ETFs, or exchange-traded funds, are funds that are traded on stock exchanges just like individual company stocks. Index funds can provide broad market exposure, low operating expenses and low portfolio turnover, insulating you from some of the volatility in the market and saving you money with lower fees. I’m a big fan of index funds and ETFs, and Vanguard’s S&P 500 tracking ETF (VOO) is currently highly rated. If I had bought $410 of VOO at the beginning of 2015, I would have ended the year with $415.42, a 1.32% return on the year.

5. Bought a ticket to my best friend’s bachelorette party. I’m a bridesmaid in a wedding this April, and the bachelorette party is next weekend in New Orleans. Though cross-country plane tickets are never cheap, my 2015 coffee spending would have easily covered the $323 round-trip flight, with plenty leftover for some adult beverages on Bourbon Street.

6. Contributed to my employer-sponsored 401k plan. My previous company matched my 401k contributions at 50 cents on the dollar, for up to 3% of my salary. In order to “max out” my employer’s contribution, I needed to contribute a minimum of 6% of my annual salary. They would add their 3% on top of that, and I would end up with an annual 401k contribution of 9% of my salary. By contributing my $410 coffee spending to my 401k instead, I would automatically see a 50% return with my employer’s $205 match. That money would then have been invested for me in a Vanguard Target Retirement Fund (in my case, it was the 2050 fund), which ended the year slightly lower than it began. This means my $410 would have become $615, which then would have become $606.06 at the end of the year. My return would have been $196.06, or 31.88% at the end of the year. 

My last option is the most obvious: I could have spent my $410 coffee budget on coffee, which is exactly what I did in 2015. While it’s important to put my coffee expense in perspective, I also think there is inherent value in occasionally spending money on the things that bring us joy. I love coffee in the morning, and some days I’m willing to drink free office coffee, but other days I want to treat myself to something small and delicious. Maybe coffee isn’t your thing, but spending extra money to care for a pet or learn to play an instrument is important to you. It’s necessary to acknowledge what is a “need” and what is a “want,” and then responsibly make room for our “wants” in our budget by lowering costs in areas that aren’t as important to us. I incorporated my affinity for coffee into my budget every month and didn’t allow it to detract from other goals I had. In 2015, I contributed to my 401k, put money in a Roth IRA, saved for my best friend’s wedding expenses, invested in some index funds, fattened up my emergency fund, and also spent $410 on coffee. While I am glad I went through this exercise and discovered that I could’ve funded my round-trip ticket to my friend’s bachelorette, or done very well investing in Netflix, I’m also proud that I budgeted well enough to not allow my coffee expense to hinder any other part of my financial life.

*The sources used in this article can be found here, here, here, and here. 

Jenn is a marketing professional living with her boyfriend and cat in Portland, Oregon. You can find her gallery of excessive cat photos on Instagram and Twitter.

Image via Unsplash

  • Summer

    I like this article, largely because of the way you concluded it. These “silly” little purchases sometimes do have enough impact on our general quality of life that they are worth the cost, even in comparison to more practical uses of the money. Very few things surpass a good cup of coffee when it comes to enjoy life’s simple pleasures.

    • Thanks Summer, & I agree! Helaine Olen is one of my favorite financial writers and she makes that exact point, taking it so far as to say that we spend so much time worrying about the little things like coffee when we should be looking at bigger things like lowering our mortgage rate, paying off debt, choosing investments with lower fees, etc. I’m currently drinking my favorite iced coffee from Starbucks right now & enjoying every sip!

  • Mary Harman

    I really appreciate the message of this piece. There are so many articles on the internet telling me to stop buying $5 lattes every day and then sit back and watch my savings grow.

    There is obviously some truth to this theory—when I brew coffee at home for my commute, I am saving much more money than when I spend $12/week on Americanos at the drive-thru Starbucks en route to my job every morning.

    But the other truth is that maybe spending $48/month on fresh, hot coffee being handed to me through my car window is worth that much money [to me] during certain seasons of my life. It sure wasn’t when I was in school and barely cracking $100 in my checking account, but it was TOTALLY worth it when I was working my first job, had discretionary income, and was my only splurge while I threw the rest of my paycheck at my student loans.

    I’m very thankful Jenn has defended both sides here—yes there are other ways to spend your money, but are they the better choice for you? Maybe. Maybe not.

    • You’re *so right* about the seasons of life, Mary. When I was working from home this summer & knew my job was ending in August, you better believe that I relied on a Keurig & Trader Joe’s Cold Brew Concentrate. But now that I have a new job in an office with terrible coffee, sometimes stopping by Starbucks on my way to the train brightens up my whole day.

  • rebelwithaplan

    Considering the average american spend around $1,100 per year on coffee, I’d say your $410 isn’t so bad!

    • Whoa, seriously?! I didn’t think my $410 was that bad either (though I’m on track to surpass that in 2016 lol) but $1,100 is a lot!

  • Shu

    2 comments:
    1) $410 for coffee for a year sounds pretty normal, and if it honestly made you that much happier than $410 of some other spending or $X amount of future spending, then it was worth it. I think a lot of the articles talking about the latte factor are really about the fact that mindless spending can add up quickly, which is something that The Financial Diet seems to tackle as well.
    2) The math is wrong on the 401K. Since you’re buying coffee with after-tax income, the amount you could have stashed in a 401k would have been even higher. Assuming your income taxes (state + federal) are around 25%, that $410 would have been around $550 in pretax that you could have saved. My rec is that you definitely take advantage of the employer match and immediately up your 401k contributions to 6%, if not higher.

    • Great point about the pre-tax income for the 401k contributions; I was doing the math as though it was a lump sum deposit but there is definitely a huge advantage with pre-tax contributions that people should take advantage of.

      These scenarios are all hypothetical so I’m not sure which part of the article led you to believe I wasn’t contributing to my 401k, but rest assured that I contribute 10% in addition to maxing out my Roth IRA every year. The last paragraph of the article addresses that but doesn’t go into specific numbers.

  • Suzie Burk Weaver

    Great article! I love the humor mixed with very informative insight.

  • This is so on point. I rarely buy coffee at shops but bought a bunch recently because I had alot of meetings with people at coffeeshops. For some reason coffee is one of those things I feel really guilty spending on and i’ve managed to not need it everyday so I don’t even drink spend much on it grocery-wise. But I need to chill about my coffee guilt.

  • Lauren

    As an NYC writer with an day job, I have such an odd relationship with coffee. I always think of the cost of coffee in coffee shops as an office or coworking space rental bill. It really does impact my life. I need a place to work on my lunch hour or before work.

  • Lava Yuki

    I really love going to cafes and sitting down with a nice coffee. I find that no matter what, the coffee I make is pretty rubbish compared to the nice ones you can get in cafes. The atmosphere is another thing I like. I think it’s the one thing I could never cut out as it would feel like an empty hole in my life.