Saving What You Drink
Ric Werme's Finances for Young Adults

Back when smoking was socially acceptable, we'd often hear suggestions that if you put the money you spent on cigarettes into the bank you could afford all sorts of good stuff. These days, saving yourself a coronary bypass operation probably outweighs the financial savings. No one with any sense smokes these days, so there's little reward in picking on smoking for potential savings.

However, coffee is a good substitute. Next year I might edit this to refer to energy drinks, but coffee will be a drink of choice for decades to come. I was having some trouble choosing whether I should pick on Dunkin' Donuts or Starbucks. "DD" is a bigger company with many stores outside of the US, but has no presence in several US states. "SBUX" has bigger mindshare and a fiercely loyal clientele, but overpriced, impractical drinks that are known as much for fashion as for the overroasted coffee.

While poking around the web I came across this comment:

"I don't mind the price increase at all, am I am a broke college kid. However, I only get Starbucks about 3 times a week due to my circumstances. In my opinion, it is still an affordable luxury. I think the company still retains a lot of what it once stood for; romance, sophistication, and coffee."

So, Starbucks is it! Gee, wasn't smoking as much about romance and sophistication as it was about a nicotine high? We'll call our broke college kid Patrick, in large part because that seems to be his name. Patrick does see his habit as a luxury. Let's see how affordable it is.

With the 2007 price increase, I saw some price references of about $4.00 for a venti latte so we'll stick with that. At only three days a week, that's $12 a week, or $624.00 a year. At five days a week, that would be just about $1,000 a year, and the second table in the Magic of Compound Interest would be perfect!

Most of the lessons like this come with a lecture that says "if you didn't do X but saved the money instead...," and I suspect that reached just about no smokers. I doubt it reaches many Starbucks fans. So here's a short alternative lecture.

I know you're not going to stop visiting Starbucks (or DD or that cooler with the energy drinks). Certainly Patrick will keep going three days a week, because he is convinced it's an affordable luxury. If you claim you can afford Starbucks' lattes, then I claim you can afford to invest the exact same amount. Buy a latte for $4, put $4 in your investment plan. If you use a debit or credit card for your purchases, then when the statement arrives, just add up the coffee bill and transfer that amount to savings. (And pay off the credit card!) Whenever you have enough to be worthwhile, buy Starbucks stock. Over the last ten years the stock has gone from $5.13 to $27.20, more than 18% per year, though don't expect that rate to continue for the next ten. However, if it did, Patrick would wind up with $17,000 in ten years, $104,000 in twenty, and $561,000 in thirty. This won't be enough to retire on later, but it will keep you and friends in lattes through your retirement! Even at a more achievable 10% rate of return, the $109,000 will let you buy a latte five days a week.

Buy a latte, invest $4.00. Skip a latte, invest $8.00. Tempting. Unless you enjoy being a broke college kid.

Contact Ric Werme or return to his home page.

Last updated 2007 Aug 1.