That Cup of Coffee Just Cost You $67

If You Always Spend What You Earn, You Will Always Need to Earn What You Spend

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The cost of a regular coffee is more than you think
The cost of a regular coffee is more than you think

If I were to offer you a cup of coffee for $67.41, would you buy it? Well, if you go for a Grande Caffe Latte today, that is what it is going to cost you. How?

Let’s say you are a diligent saver, and you invest your money in a simple S&P 500 stock tracker. Imagine you keep up this good habit every year until 2045, a full 30 years! But today, instead of saving & investing you decide to buy a Grande Caffe Latte for the princely sum of $3.45.

Had you in fact saved that money, the $3.45 would have compounded and turned into $67.41 by 2045. When you think of spending as ‘borrowing from your future’ the reality is shocking.

That Coffee Could Even Cost You More

For this model I make some assumptions:

√ You earn an average income ($31,653 annually for 2015, according to CPS)
√ Diligently, you save 10% of your income every year for the next 30 years
√ You invest those savings in an S&P 500 Index Tracker
√ Your annual salary & stock market gains mirrored the last 30 years performance

We can’t predict what the stock market will do. Looking at over 100 years the S&P 500 has always generated an inflation-beating, positive compound annual growth rate over any 30 year period, even during the great depression!

In essence if the S&P 500 performs better than it has in the past then your coffee will have cost you even more than $67.41 since you have missed out on an even higher rate of return.

Based on the model discussed, here are some other examples of how  much you are borrowing from your future to pay for today:

  • A Big Mac meal for $5.69? $111 of your 2045 savings
  • That new iPhone 7: $649 today, $12,681 of your future dollars
  • $3000 for that used pickup truck? $58,618!

Stop Borrowing from Future You

The $67 coffee shows that if you always spend what you earn, you will always need to earn what you spend.

Granted, in 2045 a cup of coffee will cost more than $3.45 (due to inflation). In fact, if past inflation is any guide we could expect our Grande Caffe Latte to cost $7.59 in 2045. But that still leaves you out of pocket almost 60 bucks!

Saving and investing your money creates passive income

Nobody is saying you shouldn’t drink coffee, or get the latest iPhone, or even buy that truck. But you should understand the real impact of your spending, and adjust accordingly. Saving and investing your money creates passive income. While you are sound asleep your money keeps working for you, earning so you don’t have to.


Calculations

For those who are interested, the first table below shows the calculations from past into future:
(Income source: census.gov)

Original Projection

                 
PAST Per capita income Saved S&P 500 Total savings   FUTURE Per capita income Saved Total savings
Current
dollars
10% Annual Ret   Current
dollars
10%
2015 31,653 3,165 1.30% 265,531   2045 90,056 9,006 749,450
2014 30,176 3,018 13.81% 258,958   2044 85,854 8,585 730,826
2013 30,027 3,003 32.43% 224,518   2043 81,848 8,185 633,560
2012 28,281 2,828 15.88% 166,534   2042 81,443 8,144 470,227
2011 27,554 2,755 2.07% 140,884   2041 76,708 7,671 397,643
2010 26,558 2,656 14.87% 135,272   2040 74,736 7,474 381,908
2009 26,530 2,653 27.11% 115,105   2039 72,034 7,203 324,996
2008 26,964 2,696 -37.22% 87,902   2038 71,958 7,196 248,478
2007 26,804 2,680 5.46% 137,320   2037 73,136 7,314 388,596
2006 26,352 2,635 15.74% 127,530   2036 72,702 7,270 361,163
2005 25,036 2,504 4.79% 107,552   2035 71,476 7,148 304,777
2004 23,857 2,386 10.82% 100,132   2034 67,906 6,791 283,698
2003 23,276 2,328 28.72% 87,970   2033 64,708 6,471 249,208
2002 22,794 2,279 -22.27% 66,014   2032 63,132 6,313 187,134
2001 22,851 2,285 -11.98% 82,648   2031 61,825 6,183 234,435
2000 22,346 2,235 -9.11% 91,612   2030 61,980 6,198 260,161
1999 21,239 2,124 21.11% 98,560   2029 60,610 6,061 280,039
1998 20,120 2,012 28.73% 79,257   2028 57,607 5,761 225,166
1997 19,241 1,924 33.67% 59,556   2027 54,572 5,457 169,153
1996 18,136 1,814 23.06% 42,630   2026 52,188 5,219 121,088
1995 17,227 1,723 38.02% 32,828   2025 49,191 4,919 93,179
1994 16,555 1,656 1.19% 22,063   2024 46,725 4,673 62,592
1993 15,777 1,578 10.17% 20,148   2023 44,903 4,490 57,183
1992 14,847 1,485 7.60% 16,710   2022 42,793 4,279 47,414
1991 14,617 1,462 30.95% 14,045   2021 40,270 4,027 39,786
1990 14,387 1,439 -3.42% 9,264   2020 39,646 3,965 26,356
1989 14,056 1,406 32.00% 8,153   2019 39,022 3,902 23,324
1988 13,123 1,312 16.64% 4,771   2018 38,125 3,812 13,768
1987 12,391 1,239 5.69% 2,778   2017 35,594 3,559 7,991
1986 11,670 1,167 19.06% 1,389   2016 33,609 3,361 4,001
  644,445 64,445       2015 31,653 180,636  
              1,806,356    
    CAGR 10.42%            

 

Adjusted Projection

This table shows the adjusted returns based on purchasing a $3.45 coffee today:

FUTURE Per capita income Saved Total savings    
Current
dollars
     
2045 90,056 9,006 749,382 Bef: $749,449.52
2044 85,854 8,585 730,760 Aft: $749,382.11
2043 81,848 8,185 633,502 Dif: $67.41
2042 81,443 8,144 470,183    
2041 76,708 7,671 397,605    
2040 74,736 7,474 381,871    
2039 72,034 7,203 324,964    
2038 71,958 7,196 248,452    
2037 73,136 7,314 388,555    
2036 72,702 7,270 361,125    
2035 71,476 7,148 304,743    
2034 67,906 6,791 283,666    
2033 64,708 6,471 249,179    
2032 63,132 6,313 187,112    
2031 61,825 6,183 234,407    
2030 61,980 6,198 260,128    
2029 60,610 6,061 280,003    
2028 57,607 5,761 225,136    
2027 54,572 5,457 169,130    
2026 52,188 5,219 121,071    
2025 49,191 4,919 93,165    
2024 46,725 4,673 62,582    
2023 44,903 4,490 57,173    
2022 42,793 4,279 47,405    
2021 40,270 4,027 39,778    
2020 39,646 3,965 26,349    
2019 39,022 3,902 23,318    
2018 38,125 3,812 13,763    
2017 35,594 3,559 7,987    
2016 33,609 3,357 3,997 Purchase $3.45
2015 31,653 180,632      
  1,806,356        

15 COMMENTS

  1. Nice numbers, and a nice reminder Paulie (especially the big picture of borrowing from your future self. I’ve always loved that).

    But I still cringe whenever I see comparisons with 30 years or more. I recognize it’s still super important to plan, save, etc…but I think there’s a balance to find in paying for experiences during the prime years of one’s life.

    /justrantingtomyself

    Good reminder this morning though 🙂

    • Pete,
      I definitely agree with you that there is balance to be found. I have been lucky (?) enough to be able to improve my earnings and cut my expenditure to the point where I haven’t felt that I missed out on anything while saving. I realize this is a luxury not afforded to everyone though.

      While 30 years is really a long time, I think the point is that you have to live within your means all the time. If you get in the mindset of saving over 30 years or longer (which I am), then hopefully your saving efforts will be significantly enhanced regardless of how long you manage to save for. As a wise man said, “Those who understand compound interest earn it. Those who don’t, pay it”!

      Cheers,
      Paulie

  2. Great article and way of explaining future value and the real value of things. I bet if more people took this valuation into consideration when making some extra purchases, they might end up with more money in the bank!

    • Thanks Steve! As someone who didn’t start saving till I was over 30, I can only look back at those youthful years with a tinge of regret at all that wasted compounding time!

  3. Post like this make my barely passable work coffee taste so much better 🙂

    If more people thought about purchases like this we would see big spending drops (or at least I hope we would)

    Keep spreading the good word!

  4. I am so bad at calculations!! Thankfully I have you and this community to set me straight. Can you please tell me what a $10 glass of wine would be in 30 years…my BF wants to know so he can remind me when we go out. 😉 Ha – but seriously, it is important to know the costs but also not to dwell on them as Pete said. When I first started my FI push I was worried about every little cent. A year in and I’m waaaaay more relaxed. I have made some major switches (Aldi in place of Whole Foods and boxed wine in place of bottles) but I still relax once in a while…mainly with food and the occasional bloody mary (take that, crappy wine by the glass!). 🙂

    • Hi Miss Mazuma! Welcome to droppedcoin!!
      Using the sums in this post, a $10.00 glass of wine today would mean you have $195.39 less in 30 years time. Amazing huh?! By the way, you could still do worse…I remember paying something like $26 for a bog-standard glass of wine at Sirocco in Bangkok!!!
      Cheers,
      Paulie

      • Sucker!! 😉 In Bangkok that’s insane but I’m sure the meal and ambiance was worth it. And I get it – I paid $500 for dinner at Alinea and we didn’t even do the wine pairings! Either way, I think Thailand just has expensive wine…I went to the grocery store in Chiang Mai to buy a bottle and almost fell over from sticker shock. I decided to suck it up and drink Chang instead. I suppose the sacrifice was worth the $6 massages I got daily!

        And thanks for doing the math – at $195/glass there better be gold floating in it. 🙂

  5. I love this! It’s a great reminder of how our spending choices today affect our future. My husband and I estimate we wasted around $85000 buying, trading, financing and paying off vehicles before we wised up. I would really hate to run the math on that…we’d be retired by now, I’m certain. Once again, it’s that hindsight…

    • Thanks Amanda! I totally understand, I have also wasted an unbelievable amount of money in my time. Still, no regrets, we move onwards and upwards!

  6. Damn I had a coffee today as well 😉 haha.. It’s a funny one isn’t it how we convince ourselves that it’s just $4, little do we know as you say that we’re borrowing from our futures.. It’s a balance though as it’s often easier to earn more than spend less (depends on each individuals situation)..

    Nice article man! 🙂

    • 🙂 Thanks Jef. I think I am in your camp: spending less is the hardest bit! I am not too big on frugality, but I do appreciate the need to exercise some self-control! I know my coffee example is a bit extreme on its own, but it serves to highlight the mentality needed for the accumulation of wealth!

  7. I think about this stuff too. When you’re young, you should be planting all the seeds you can in the investment soil so that your dollars multiply. Enjoy those coffees when you’re older, when all that money has grown into more money, and they’ll really only cost you $5. I get so much of my wealth-building inspiration from nature. Plant now. Harvest when you have more than enough. Bill @ Wealth Well Done

    • Glad to hear it Bill! Some people are not in the mindset to understand it, and get ‘incredulous’ when I produce such statistics. But it really is as simple as you say, we reap what we sow!

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