Latte Wars

Bill Parrott |

A high-profile financial battle is brewing over coffee. Suze Orman has said that a daily coffee habit can cost you $1 million.[1] Her comments were called into question by Ben Carlson, blogger at “A Wealth of Common Sense.” He said, “This advice sounds good because the latte factor is catchy but it’s not useful advice.”[2]

Coffee, and other household items have long been at the center of the wealth debate. Financial professionals have encouraged clients to reduce their expenses by eliminating fast food, alcohol, cigarettes, donuts, etc. Reducing your expenses to improve your financial health is always recommended. However, eliminating these items from your daily routine will have a larger impact on your physical health than it will on your financial health.

Let’s ground up some numbers to find out if it makes sense to eliminate coffee from your budget.

Today, a cup of coffee costs about $2.50. If you work for forty years (25 to 65), you’d spend about $41,000 on coffee.

The average starting salary for college graduates is about $50,000. During a 40-year career they might earn $3.3 million.[3]  Their coffee habit will cost them 1.2% of their lifetime income.

How does this expense compare to other household items? According to the recent Consumer Expenditure Survey, the average household income is about $60,000. Housing is the biggest expense at 33% of income, or $19,884 per year. Food is next at 20%, followed by 15.9% for transportation. Healthcare is 8.2%. Entertainment is 5.3%.[4]

Consumers spend about 1.4% of their income on fruits and vegetables, about the same amount as they spend on coffee.  Should you eliminate fruits and vegetables from your diet to create wealth?

What if you ditched your coffee habit and invested the money in the stock market? A monthly coffee habit costs $50 ($2.50 x 20).  Investing $50 per month into Vanguard’s S&P 500 index fund (VFINX) from April 1979 to April 2019 would have grown to $1.14 million. The fund has generated an average annual return of 11.33% for the past 40 years.[5]

Of course, your numbers may differ, so here are a few ideas to help you with your spending habits.

  • Develop a budget or spending plan. and other websites can help you improve your budgeting results. After taking stock of your revenue streams and expenses, identify items to reduce or eliminate. Look to big ticket items like housing, transportation or healthcare to make major changes to your budget.
  • Establish an emergency fund. Your emergency fund will help pay for unexpected expenses. Your fund balance should equal 3 to 6 months of your household expenses. It can be invested conservatively in a money market fund, savings account, CD, or T-Bill.
  • Invest for growth. Owning stocks for the long-haul is a great way to increase your wealth. Stocks have generated an average annual return of 10% since 1926 while U.S. T-Bills have returned 3.4%. A dollar invested in stocks is now worth $7,025. The same dollar invested in T-Bills grew to $21.[6] An investor of stocks can drink all the coffee they want!
  • Buy what you know. Peter Lynch, the former portfolio manager for the Fidelity Magellan fund, suggested investors buy what they understand. If you’re a coffee drinker, then Starbuck’s is an obvious investment choice. A $10,000 investment in Starbuck’s in June 1992 is now worth $2.6 million.[7] A quick inventory of the products in your house can be the foundation for a solid investment portfolio. Do you own any Apple products?
  • Review your spending and investment accounts. Reviewing your financial data daily, monthly, annually, or as needed is recommended to make sure you’re on the right path. At a minimum, it should be done annually.  

It’s okay to spend money on things you enjoy so long as they don’t bust your budget. Living within your means is the preferred way to increase your wealth and enjoy the fruits of your labor, so drink and invest wisely!

As a note, Starbuck’s is adding a S’mores Frappuccino® this month. I’m not a coffee drinker, but I will purchase their S’mores drink because I want to and it’s in my budget!  

I put instant coffee in a microwave oven and almost went back in time. ~ Steven Wright


May 2, 2019

Bill Parrott, CFP®, CKA® is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. The investments highlighted are for informational purposes only and not recommendation to buy or sell. I’m not a coffee drinker, so my coffee expense numbers may be low.




[5] Morningstar Office Hypothetical Tool, website accessed 5/2/2019

[6] Dimensional Matrix Book 2019. Historical Returns Data – US Dollars.

[7] Morningstar Office Hypothetical Tool, website accessed 5/2/2019