Habitual Spending: The Starbucks Mentality

We all have bad habits. They may annoy our family, friends and co-workers, but many are fairly innocent. Others can severely impact your quality of life as well as those around you. Today, I'm going to talk about habitual spending and how it's an absolute killer to long-term financial success. While it takes many forms, I'm going to pick on Starbucks. Don't get me wrong, I love a good cup of coffee. I visit Starbucks once a month on average, typically because I got a gift card from someone! What absolutely drives me nuts is the proliferation of the Starbucks mentality - that everyone can afford premium coffee on a regular basis. The sad fact is, no, not the case. People become so brainwashed into thinking they can buy something because they see everyone else spending money on it. As a result, they develop these bad habits, and all of the sudden it becomes a hidden expenditure that prevents people from reaching their long-term financial goals. Since people don't really think about how these habits can add up, I will break down the true costs over time using Starbucks as an example.

If you haven't seen Nathan For You, and find me mildly funny, please check it out.

Assumptions

I have done some research on what the ATP (Average Ticket Price) of a Starbucks order is, and since this a well-guarded statistic in retail, the best estimates I could find average around $4.00. That does not include tips. I will also assume some costs of alternatives. I used a convenience store cost of $2.00, which may even be high for the run-of-the-mill cup of joe from the local store. For home brew, I got pretty nuanced. I assumed a coffee maker cost of $50, coffee grinder cost of $100, and coffee mug cost of $20, all with a life cycle of 1,000 uses. I then used the Starbucks beans (about $0.15/serving), filter ($0.02/ea) and water/electricity ($0.01/serving). I know, pretty ridiculous, but it's important to consider all costs!

Results

In the chart below, I compared these costs of a year, decade and forty years (career) as well as frequency.

Now, step back and think about this. If you went to Starbucks every day, spent $4, over a forty-year span, you spend $58,400. This is more than some people's annual income! Comparatively, if you had the exact same coffee, but brewed it at home, you'd save over $53,000. Do you see why this drives me nuts? Even going the convenience store route, you save $29,200.

Don't Beat Yourself, Treat Yourself

So let's say this is just your guilty pleasure. You can't live without your fancy-pants coffee. Or, perhaps you leave the house in a rush and don't make time to brew coffee at home. Is it okay to go to Starbucks or a similar coffee shop once in a while? Of course! Look at the difference between going once a day to once a week - over $50,000 over forty years. It's all about the habitual spend. Don't make it a routine and you will be fine.

Wrong kind of vice, but it would be too explicit to post what I found for other vices!

Other Vices

I took aim at coffee because it is the most dramatic in my mind. You can replicate a cup of coffee at home pretty closely resembling a coffee shop and save tens of thousands of dollars over time. But there are certainly other temptations we have in life that can suck us into bad spending habits. For example, I love a good craft beer (bourbon-barrel imperial stouts are my weakness), and I will spend good money to enjoy some once in a while. But I don't make it a daily habit! I could have just as easily picked smoking, drinking or eating out as examples of habitual spending. While all of these have varying health consequences, and I'm not Slim Goodbody myself, I'm not here to judge. Just be aware of the financial consequences.

If you can see through the beer, it's too light for me!

The $300,000 Haircut

While he's certainly had his misses, one of my favorite financial minds is Warren Buffett. Like all good investors, he understands how compounding interest and time value of money (topics for future Dough-Nuts blogs) make a huge difference. When he was young, he often debated about the value of getting a haircut. As the anecdote goes, he looked at the cost of a haircut compared to investing the money spent. He was often quoted as saying the few dollars for a haircut would eventually cost him $300,000! I don't know that the average person could flip a few dollars into six figures, even over the course of a few decades, but looking at expenditures in a future context makes you reconsider you spending today.

Can I Have Any Fun?

If you are a Dough-Nuts aficionado, you know my approach. But for those that may be reading me for the first time, my approach is you live your life. I'm simply here to help. If you make $17/hour and want to go to Starbucks every day, I think you're making a mistake, but ultimately you live with that decision. My only hope is you educate you on harsh reality of these small, but frequent, costs. Over time, if you can make small sacrifices, the payoff can be substantial!

Taking a step back, this is more of a philosophical question than anything. Short-term pain for long-term gain? What are you willing to cut out of your life to build something for the future? I'm certainly not suggesting becoming a miser and suffering short-term for the sake of amassing a small fortune. What I'm proposing is playing the long game, forgoing frivolous conveniences to realize major benefits. Knowing what's important to you is the key. If that Venti Salted Caramel Macchiato every day is more important than, say, going on a dozen long vacations in retirement, that's your call. Just understand the consequences of your actions.