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The $11,900 Cup of Coffee

The $11,900 Cup of Coffee

September 23, 2020
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The $11,900 Cup of Coffee

 

“Beware of little expenses; a small leak will sink a great ship.”  - Benjamin Franklin

 

Have you ever paid $11,912.79 for a cup of coffee?  I realize that sounds ridiculous, but it’s not as silly as it seems.  Before we talk about that, let me digress.

One of the critical components to succeeding in an investment plan is to live beneath your means and have a surplus every month.  This allows you to invest that surplus on a regular basis.  If you don’t keep a handle on your expenditures, you’re likely to spend too much and you simply won’t be saving enough each month to meet your future goals.

One common objection I get from people who don’t regularly invest is “I just don’t have anything extra each month.”  I’m sure that’s true in some cases (we really felt the budget pinch when the kids were small), but you can get started in an investment plan with just a small commitment of $50 each month.  That $50 each month can add up.

Now, back to that cup of coffee.  There’s a very popular coffee franchise around the world that charges an average of $2.45 for a large cup of coffee (they call it something fancier than a “large,” but that’s a BLOG post for another day).  Some of their fancier coffees are twice that amount, but let’s focus on the regular coffee. 

Let’s assume you’re one of the millions of people that purchase one “large” coffee from them each day.  If you purchase that $2.45 cup of coffee each business day of the month, it amounts to just under $50.  Even when you look at it that way, $50 doesn’t seem ridiculous.  We all know coffee is essential.

But let’s assume that, instead of spending that $50 on coffee, you had put it into the Standard & Poor’s 500 Index each month[1] from September, 2010, to September, 2020.  Just $50.  The result?  By September of 2020 you would have accumulated $11,912.79.[2] 

Of course, it doesn’t have to be cutting out coffee that gets you the $50 (or more) each month.  I’m just using this as an example.  I personally love my daily coffee, but I make it at home.  The last thing we would want is for people to be running around every day without their coffee!  

My suggestion is to review your monthly budget and see where you can comfortably shave a few dollars off here and there.  Do you have the best cell phone plan?  Do you need the complete cable TV package?  Try to identify at least $50 you can invest each month, then get started right away. 

In short, take Ben Franklin’s advice.  Keep the ship afloat.

[1] You can’t invest directly into an index.  This is a hypothetical example.  Your results will vary.

[2] Source:  S&P 500 Periodic Investment Calculator (with Dividends), https://dqydj.com/sp-500-periodic-reinvestment-calculator-dividends/ .  The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.