How much does that Starbucks habit REALLY cost you?

[Mark F.]

I just finished Money: Master the Game by Tony Robbins. Great book! 

One part that really hit me in the book was the long-term opportunity cost of "little" splurges like regularly hitting Starbucks or eating out. Relatively small monthly expenses may not seem like a lot of money, but they can represent a huge opportunity cost from the standpoint of retirement savings.  

For example, let's assume a guy named Joe spends just $5 every morning at Starbucks. Assuming 30 days in the month (to keep it simple), that adds up to $150 a month spent on coffee.   

What if Joe trimmed his Starbucks habit back to a max of $50/month and faithfully invested the $100 savings in his IRA? Assuming just a 5% rate of return on the money, this is what his former Starbucks money would turn into decades down the line:

• 20 years: $41,103.37
• 30 years: $83,225.86
• 40 years: $152,602.02

Wow. Assuming Joe is in his 20s or 30s, he could potentially add well over $100K to his retirement net worth simply by trimming back his Starbucks habit. 

Robbins makes the point that there's nothing wrong with spending money on things you enjoy, but keep it within reason. It's important to remember the long-term cost of overspending on little indulgences. 

Even if you can't give up the Starbucks or eating out habit, it's probably worth it to see if you can get a better deal on your cable package, car insurance, cell phone plan, etc., then invest the difference into your retirement savings. As you can see (and as Robbins points out), a little discipline today can go a long ways toward a better future in retirement.

[Scott Trench]

It's my opinion that this is a ridiculous premise. Yes, any small expense, repeated regularly, can compound over time. By definition, if it is repeated frequently so as to represent a significant cumulative result, it is a large expense. 

However, to claim that your latte is keeping you poor is a silly and ineffective approach to developing a plan. If you are on this site, your goal likely isn't to save an additional 1-2% of your income. It is likely that your goal is to attain financial independence with significant ($1M+?) assets and significant cash flow ($3,000 - $5,000 - $10,000+?) and to do this far earlier in life than 40 years down the line in our 60s and 70s.

 To move towards that goal, a strategy of cutting out lattes is going to be laughably ineffective. Assuming that you are attempting to cut out spending, there are likely to be only three categories in which you can make a material (decades faster in achieving your goal) difference.

Note, this does not take into account what you can do on the income front.

These three categories are:

* Your Housing Costs

* Your Transportation Costs

* Your food costs 

See this graph of average american household spending from the Bureau of Labor Statistics:

Where are lattes in that graph? Maybe a percentage of food? Maybe entertainment?

Ridiculous. 

Obviously, if you analyze your own spending and find lattes to be a chunk large enough for it to have it's own piece of the pie, fix that personal problem. 

But, the rest of us would do better to focus heavily on fixing huge problems, like cutting our housing and transportation budgets in half.

Of course, cutting out spending in general on unnecessary things like lattes does help a little bit. 

I think that a smarter way to interpret the point about lattes is in thinking through every small decision of similar size, and making it a default to reject them out of hand, and plan around them. This includes coffess, snacks from vending machines, drinks or food at local restaurants when the same value could be had at home for 1/10th the cost, etc.