facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Why Cutting Out Starbucks Won't Make You Rich Thumbnail

Why Cutting Out Starbucks Won't Make You Rich

We saw a meme the other day that had us ROFL (that’s text code for “rolling on floor laughing”). It was truly too good not to share, so here it is.

Nice one, meme-creator Andy, but unless your lunch and coffees total a couple hundred thousand a piece, you may as keep buying your Sweetgreen and Starbucks.

If you liked that one, you’re going to love this one:


So, where’s your plane?

Are you surprised that we find these funny? Shouldn’t we be encouraging people to spend less, save more, and invest more often?

Well, of course. But…the thing is this. Cutting out Starbucks isn’t going to make you wealthy. Not even close. But we know what will.


The Latte Factor: Myth or Reality?

About 3 years ago, New York Times Bestselling Author David Bach wrote The Latte Factor. In this book, he explains how ditching a small luxury like a $5 latte can save you a considerable amount of money that can then be invested into something with an actual return (not just a caffeine boost).

But you know what we say to giving up Starbucks? Over our dead bodies!

Well, not exactly. All the caffeine in the world can’t revive a corpse, but on days when we do feel dead inside, our warm cup of brew seems worth every non-interest-earning penny.

Interestingly, former CNBC editor and current Deputy editor at Forbes, Shawn M. Carter, felt the same way in 2018 when he wrote the article, “My daily Starbucks habit costs me $2,300 a year—here’s why I refuse to stop.”

In his article, Shawn explained how despite not having much in his savings account (on top of student loan bills and credit card balances), he wasn’t going to give up his caffeine habit to get ahead.

He concluded that if he “skipped a year of Starbucks and opted to invest the money, with compound interest, it could grow to $4,551 in 10 years assuming a 7 percent annual return, according to CNBC calculations. In 20 years, it could hit $8,952 and, in 30 years, it could reach a whopping $17,611.”

I don’t know about you, but $17K over 30 years hardly seems worth the sacrifice.

Do you have any idea how many lunches and lattes you’d have to forego to save for a 20% down payment on a house? Thousands!

 

You Can’t Cut Your Way to Growth

While eliminating these small pleasures might marginally improve your situation, it’s not the solution that those in their accumulation years should be focusing on. Save your energy and focus on actions that will matter more in the long run.


1) Invest first, spend second

 We have said this before and we’ll say it again. Pay your future-self first, then use what you have leftover to buy the whole Starbucks franchise if you want to.

Co-founder Jarret Morris adds, “This sounds simple. So simple. Even seeing the words typed out, I’m tempted not to give this lesson much weight. But, it’s sometimes the simplest lessons that can be the hardest. Saving first ensures that your financial goals of tomorrow take precedence over the changing or impulsive wants or needs of today. 

One of the best ways to make sure this happens is to automate your savings. If you schedule your retirement contributions or 529 contributions to come out as soon as you receive your monthly income, you will have less chance of spending those contributions on less important expenses throughout the month. Plus, investing feels good and helps keep you on track to continue with other positive financial behaviors throughout the month.”


 2) Increase Your Income

 There is a limit to how much you can cut, but there is no limit on how much you can earn.

We know what you’re thinking: “Easier said than done. Wouldn’t we all increase our income if we could? Isn’t that what we, as entrepreneurs, do every day?” But before you roll your eyes, hear us out.

When you focus on what you can grow, your mindset aligns your actions with growth. When you focus on what you can cut, your mindset aligns your actions with restriction. If what you focus on expands, you don’t want to focus on minimization, but maximization.

Becoming increasingly growth-minded is typically good for business, as well, forcing you as a business owner to think outside the box and question the way things have always been done. Maybe this means some creative marketing, maybe this means altering a service or product to be more lucrative. See where being growth-minded can take you.


3) Ban the Word “Budget” and Cash in on “Cash Flow”

 Never budget… in the traditional sense anyway. Everyone hates the “b” word—so much so that you’d probably respond more favorably if I brought up the other “b” word instead. We prefer instead to focus on monitoring cash flow.

Whatever your stance on the latte factor, I think we can all agree that it is imperative to have some sense of how you spend your money. What is coming in? What is going out? And are you ok with HOW it is going out? In Shawn’s article, he explains how a colleague discovered she was spending over $700 a month on ride-sharing apps like Uber and Lyft. She didn’t quit using them, but instead used this knowledge to “adjust both her thinking and spending.”


Developing Good Financial Habits > Making Your Own Coffee 

 Even though it turns out that building wealth isn’t as easy as making your own coffee at home, there is some good news.

Building good financial habits is like building muscle. The more often you practice the good habits, the easier they get to perform. It becomes second nature. You grow as a better, more financially informed, and rational decision-making human and your portfolio grows. It’s a win-win.

But, before we go, here’s one more meme to send you off with:

You can enjoy life and still save for later. Focus less on eliminating and more on making positive financial decisions overall. After all, it’s your investments (not the Dyson Airwrap) that will be buying your lattes when you’re 89.