It’s a bit of a cliche to say that all you need to do to become a millionaire is cut out your daily latte and unused gym memberships, invest it in the stock market and sit back for 30 years. Saving for retirement, like most things in life, takes hard work and discipline. But there are two important nuggets of truth in that old cliché. It’s usually the simple changes to your habits that are the most long lasting, and compound interest is an amazing tool.
So in honor of National Coffee Day, let’s take a look at how brewing coffee at home might help you get closer to your million dollar savings goal.
How does buying coffee tie into your spending for joy?
The first thing to ask yourself is how much joy does coffee bring to your life. Then you can give some thought to what it is about coffee that you enjoy. Is it the energy from the caffeine? A specific flavor or experience? The act of being social with others? That will help you decide
- If you like to have the caffeine but you don’t need a fancy cup of coffee to bring joy to your day, consider brewing it at home or cutting it out of your life
- If it’s medium, maybe you can find ways to balance how you treat yourself vs. how frequently you pick up a latte. You could cut the habit back to twice a week – perhaps reward yourself on Mondays for kicking off the week and on Fridays for closing it!
- If coffee brings you a lot of joy, maybe it’s better to cut back on other things. After all, the whole point of a budget is to save money on things you don’t find important so you still have money left to spend on the things that are important to you.
Mint has worksheets that allow you to compare your spending in various categories to the level of joy you feel you got from that spending. That can help you decide if your budget is calibrated towards the things that bring you the most overall happiness.
How to turn your daily cup of coffee into micro investments
Could you turn your coffee habit into a savings habit? Auto-invest debit cards and micro investing might help you get the best of both worlds. Micro investing allows you to invest in super small increments by buying fractions of shares. This form of investing helps to maximize your money’s growth potential, so rather than your money sitting in a bank account with no return to lose value over time, micro investing can help give your money a chance to increase with inflation and retain or grow in value. Recently, micro-investing apps like Acorns have been growing in popularity by allowing users to easily invest and save starting with their spare change.
One feature of Acorns is the ability to round up your purchases to the next whole dollar and invest the difference. When you sign up to the Acorns Round-Ups® feature, your spare change gets automatically invested into a diversified, ETF portfolio. This can be a great way to invest a small amount on a consistent basis and help build good financial habits. Acorns also gives additional bonus investments when you shop with one of their brand partners, including Bulletproof coffee, Peet’s and Coffee Bean, so you can save and invest more. Sign up for Acorns here to get a $10 bonus investment when you start.
How much could you get from investing your coffee money?
So, what does the actual math look like of compounding your coffee money in the stock market until you retire? While there are a lot of different variables involved, here are two examples.
Example 1: Ditching your fancy latte
- $4 daily coffee — replacing it with nothing (drink water instead)
- 20 coffees per month
- 8% average annual return on investment
After 40 years, your coffee money has turned into $248,694.26! Not quite enough to make you a millionaire, but you’re well on your way.
Example 2: Rounding up
- 30 debit card transactions per month
- Average of 50 cents of roundup per transaction, invested.
- 8% average annual return on investment
After 40 years, rounding up all of your transactions each month has netted you $46,630.17. Not bad for your spare change that you probably didn’t even miss.
While neither of these scenarios are likely to solve all of your retirement needs, that’s not what their intent is. Instead, plans like this allow you to be more focused on where your money goes and where you want it to go.
The Bottom Line
Coffee is something that many people drink on a daily basis and there are a large variety of different ways (and costs) to drink your coffee. Even if you don’t drink coffee, you may have other similar habits in your life — tea, soda, a daily afternoon snack or regular lunches out. None of these things are necessarily bad — instead, you just want to make sure that your spending is matching up with your overall life priorities. Using an app like Mint can help you regularly review your spending and make sure it’s helping you get where you want to go.
Dan Miller (76 Posts)
Dan Miller is a freelance writer and founder of PointsWithACrew.com, a site that helps families to travel for free / cheap. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 kids.