Your Coffee-Buying Habit Could Hamper Your Retirement

Today, half of the Millennials you talk to will buy a cup of coffee at a store.

The other half will take the first step to becoming a millionaire by saving that three dollars per day -- $21 per week -- $1,100 per year – and, if invested at the average 11 percent rate of return in the stock market, over $88,000 when a high school senior turns 60 years old.

The financial potential of not drinking coffee or making it at home instead of going to Starbucks or Peets is so powerful that skipping a cup of coffee for 42 years and instead investing the money will result in $879,000 for your nest egg, according to the official investment calculator of the U.S. government.

Not too shabby. And that’s based upon skipping the average cup of coffee, not the expensive gourmet coffee which Millennials prefer.

So, how can the average teenager become a millionaire? Simple. By using the rules of 72, 64, and 20. 

Rule of 72

Since its inception, the stock market has averaged about an 11 percent gain in any 25-year period – including the time periods during and after the Great Depression and the Great Recession. By dividing 72 by 11 per the investor’s standard, the high school senior’s single investment of $1,100 doubles every 6.5 years.  

That’s how you turn three dollars a day into almost $90,000 of passive income.

Rule of 64

The rule of 64 is simple. Based upon a conservative application of the Rule of 72, everything you do in your twenties is magnified 64 times as much 42 years later. Every dollar a high-schooler invests now becomes $64 in 42 years – and every dollar blown costs you $64 that same 42 years later.

The Rule of 64 is an excellent guide to considering the future impact of today’s decisions. Let’s look at the $1,100 that an average American spent in a single year on coffee using the conservative Rule of 64.

18 years old: $1,100

25 years old: $2,200

32 years old: $4,400

39 years old: $8,800

46 years old: $17,600

53 years old: $35,200

60 years old: $70,400

Seventy thousand is less than $88,000. But it’s still an impressive amount of money to come from making coffee at home for a year.

Likewise, the Rule of 64 reduces your investment potential from $879,000 if three dollars a day is invested for each of 42 years. You’re left with a still-impressive $708,000.

If nearly three-quarters of a million dollars won’t satisfy your retirement, no problem! Leave the money until you’re 67 years old, and your $708,000 will double to over $1.4 million – and if that’s not enough, it’ll be worth $2.8 million when you’re 74 years old.

And remember: that’s the conservative investment projection. It accounts for taxes and inflation, and the small cost of making coffee at home. The long-term investment potential of a Millennial not buying coffee every day is actually much higher since Millennials spend more on coffee and many coffee drinkers buy an additional food item concurrent with their coffee.

The 20-Minute Rule

This Rule has both financial and time implications. Americans waste four billion dollars of economic productivity waiting in line for coffee. That doesn’t include the time spent traveling to and from the coffee store.

The 20-Minute Rule looks at the value of your time. Spending just 20 minutes per day on any one aspect of your life will make you proficient at it. If you run 20 minutes per day, you’ll get more fit. If you read the news 20 minutes per day, you’ll be up to date on current events. If you practice martial arts 20 minutes per day, you’ll be proficient at self-defense.

Now apply this to coffee and investing. Instead of wasting time getting into, and waiting in, line – you could spend 90 seconds making home-brewed coffee and have a thermos that lasts you all day virtually free. Instead of being impatient with the barista, you could be chatting with your spouse while making the coffee – or taking a shower while it’s being brewed, or brushing your teeth, or watching New England Patriots reruns.  

And remember: That’s in addition to becoming a millionaire!

Your life can change by investing coffee money

While making coffee at home isn’t free, its cost is a tiny fraction of purchasing the hot cup at Starbucks or Dunkin’ Donuts. This small sacrifice creates new opportunities for wealth creation, improves quality of life, and opens the drinker’s eyes to a much larger world of life choices. 

What if you made your own lunch – perhaps five minutes and a couple of dollars – instead of leaving your work to travel to a store, wait in line, spend $10 or $15, and travel back to work? What if you used that time for work, or to call your grandmother, or to take a nap – and you invested the money? If you spend $10 twice per week eating out for lunch for a year, you’ve spent $1,000. That’s over $61,000 in investible dollars 42 years later, according to the Rule of 64.

The implications for college attendance are even more significant. If a teenager goes to a four-year school that is $10,000 cheaper per year than his or her classmates, that teenager will have over two million dollars at 60 years old.

Money and life are meant to be enjoyed and appreciated. Go on vacation, enjoy a cup of brew, go to your favorite sports game or theater production. The Rules of 72, 64, and 20 are simply meant to open your mind to appreciating the costs and benefits of financial choices.

Whatever choice you make, just remember: millionaires make their own coffee.