Let’s think about the “latte factor” of our budgets.
Are your coffee habit costs worth it? Is watching other people on their laptops the highlight of your day? Does scoring the big, comfy seat with the least repulsive stains make you feel like a winner? Do you curate a collection of cups with your name misspelled? Perhaps the mere thought of giving up extra-caffeinated Starbucks favorites leaves you whimpering for hours in the fetal position.
If the convenience and/or experience of your cafe visit truly improves your life, don’t worry about reducing coffee habit costs. Perhaps your daily coffee stop really is a special place, or you use the opportunity to meet with someone special.
On the other hand, if your daily cafe visit feels like an “I’m still alive tax,” and you just want your caffeinated treat, think about how you can reduce coffee habit costs. This post explores your cumulative coffee habit costs and offers solutions for trimming coffee costs by making great coffee, espresso, cappuccino, etc. at home.
Cumulative coffee habit costs
Some personal finance gurus use the term “latte factor” in reference to recurring, trivial, voluntary expenses. This is an apt term, since cafe spending is habitual and seemingly low cost. These coffee habit costs are not trivial when examined closely.
Crunching the numbers of coffee habit costs
According to ABC news, the average American worker spends $14.40 on coffee outside the home. For younger workers, the average is even higher.
Let’s follow a hypothetical example where an individual spends an average of $20 a week ($2.86 a day) on their coffee habit. This is slightly less than the price of one Starbucks latte per day (the smallest size).
In this example the person switches to making their own caffeinated treat at a cost of $5 a week, for a net savings of $15 a week. This is quite conservative since the cost of the ingredients (coffee beans, milk, sugar, cinnamon, ice, etc.) is extremely low.
How much might this person amass after ten years of reducing coffee habit costs?
Burying saved coffee habit costs in the back yard: $7,800
Simply stashing the money away for ten years would result in $7,800. Since you are not earning any interest and the purchasing power of your money is falling due to inflation, you might be better off spending the money as you go. Fancy weekend getaways, concerts, generous gifts, etc. are more memorable than convenient lattes.
Putting your saved coffee habit costs in a savings account (Barclay Online 1.15%): $8,216.28
You are not quit keeping pace with historical inflation (so the purchasing power is falling), but your $15 a week has grown to over eight grand in ten years.
Investing saved coffee habit costs in a low-fee index fund (9%): $11,850.49
Note: 9% is slightly lower than the S&P 500 historical average since its inception in 1928. This chart does not account for fees or capital gains tax. On the other hand, it does not include dividend payments offered by many companies.
Investing is always a risk, but index funds diversify your investment so that you are essentially investing in the economy as a whole. They also have minuscule fees since no highfalutin, “market-beating” managers are taking a cut.
Just by reducing coffee habit costs to five dollars a week, our hypothetical coffee lover has amassed almost twelve grand. This really shows the power of investing as little as $15 a week.
Now, let’s see what reducing coffee habit costs could do in the long term.
If you saved the same $15 a week by reducing coffee habit costs for thirty years, it is likely that you will have about $106,319.88 (according to historical averages). The chart below illustrates just how much of this total comes from the interest. Of course, this projection is based on historical averages, and investing always includes risk.
If you are planning to put away money for the long (as per our example) consider starting an IRA to minimize tax liability. I bet that you will enjoy watching your money grow more than you will dislike making your own caffeinated treats.
Related link: “Many millennials spend more on coffee than they save for retirement” from Business Insider
Reducing coffee habit costs without sacrifice.
Cutting your latte factor does not mean accepting sub-par coffee (Heaven forbid!). To make great tasting cafe treats at home, look to the past. Forget about big, expensive machines; you don’t even need electricity. With a little practice, you may discover that you are your favorite barista.
Freshly-ground is better
I can taste the difference when I grind the beans fresh. As an added bonus, you can save by buying in bulk. Whole bean coffee does not oxidize (and become stale) nearly as fast as grounds, so you can stock up.
I keep it old-school by using a manual mill; I just like it. A manual mill really doesn’t take too long if it is properly adjusted.
Whatever type of grinder you are using, make sure that the grind is adjusted for the brewing method that you employ. For example, espresso beans should be very fine whereas a French press works better with a courser grind.
Use a French press to keep standards high when reducing coffee habit costs.
French presses are fast (4 minutes of heating and 4 minutes of brewing), cheap, small, easy, durable, and make great coffee. I microwave the water in a big Pyrex cup for speed. I keep a larger French press around for company and Sunday mornings.
Since there is no heating element (like on a drip coffee maker), I recommend getting French presses that are vacuum insulated. The presses shown (one glass and one steel) are both vacuum insulated and keep coffee hot for an hour or so without scorching the precious contents.
Reduce coffee habit costs by making espresso / cappuccino the way Nonna did.
Stove-top espresso makers are great; they take up very little space and come in a variety of sizes. Make sure that you are using beans that are roasted specifically for espresso to get the authentic taste.
If you want to make cappuccino, heat up some milk while the espresso maker is working. Put the milk in the microwave until it starts to bubble. Hit the milk with an inexpensive whipper thingy, and spoon on the foamy goodness. You can add all of the steamed milk to make it latte style.
Making it to go
If you need your treat to go, you can’t beat vacuum insulated containers. Pre-treat your container with cold or hot water for best results. Also, the larger the volume the longer it will maintain temperature, so you have a good excuse for over-caffeinating.
Using your own travel cups means that you are not paying for disposable. It also means that you are reducing your impact on the environment. If the person in our hypothetical example switched to reusable containers, they would eliminate the environmental impact of 3,650 cups, lids, and stirrers.
Conclusion on reducing coffee habit costs
There is nothing at Starbucks that you cannot make cheaply at home. You may need ice, syrups, spices, etc. to make your favorites, but a little research and experimentation go a long way. There are many websites explaining how to make all the cafe treats that you crave.
Reducing coffee habit costs takes a bit of time and effort. However, it is fun to engage in this culinary alchemy and the savings can literally change your life.
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Any hot Starbucks hacks to share?
What is your coffee system?