How Much Does That Coffee Really Cost?

by Scott Falls on April 11, 2011

As one of the administrators of a 401k plan for a fairly large company I’m noticing more and more that people are either drastically reducing or completely eliminating their contributions.

There’s a couple problems with this:

  1. People aren’t saving nearly enough for retirement. With more and more companies eliminating their pension plans, self invested retirement plans (like 401k’s, 457’s and 403b’s) and Individual Retirement Accounts (like traditional and Roth IRA’s) are becoming the only viable choices for investing for retirement.  
  2.  The indirect problem with this is by taking 100% of your income (not deferring anything or very little for retirement) you are living on 100% of your net earning. Typically, “Your Number” needed from most retirement calculator has been about 80% of your income. My theory here is that if you live on less during your working life (by deferring 15% of your income into a 401k and saving money in an IRA) then your life style already reflects living on less. So as you approach retirement you don’t need to do any drastic lifestyle changes.

So have you ever really thought of the cost of a cup of coffee?

Over a lifetime that $5/day Venti Caramel Latte habit can cost you a small fortune!

Let’s explore a $5 per day reduction in your cost of living. The following spreadsheet shows what $5 per day would add up to over time at various interest rates. (for this example I used $5 per day x 30 days in an average month to equal investing $150 per month).

I looked at it over 4 different durations (10, 20, 30 & 40 years). Also, I’m looking at it from five different interest rates (4, 6, 8, 10 & 12%). Is it realistic to assume a 12% rate of return? Probably not in in this day and age, but over the past 70-80 years the S&P has gained around 12% on average.

Let’s say that your in your 20’s and invest in a growth stock mutual fund, with a good track record and it returns on average 8% for 40 years. That’s over a half MILLION dollars in 40 years! Saving only a $150 dollars a month ($1,800 a YEAR). Now imagine if you saved 15% of your salary for that same forty years?

Retirement Saving Tips

Now, I know what you’re thinking. With times so tight these days how where can I save $5 a day (or $150 a month)

Here are ten simple tips that you can use to help you save at least $150 month. Start with the most obvious ones (this will be different for everyone) and then start to combine them until you reach $150. By all means DON’T stop at $150 if you can save more.

  1. Kick the Coffee Habit.
  2. Going to a coffee shop is a nice luxury but it doesn’t taste so good when you realize it’s costing you a half million dollars!

    Tip – Get some good drip coffee and make it at home, use a thermos to take it on the road.

  3. Save a Tree, Cancel your Newspaper
  4. With the internet spitting out real-time news left and right on so many different devices (Pc’s and Mac, laptops, iPads, Kindles & phones – and most of us own more than one of these devices) is there any reason to get the daily newspaper delivered? Barring Sunday’s paper (See Tip # 9)

    Tip – If you don’t have some sort of computer currently, pick up a refurbished iPad for news and ditch the daily newspaper  delivery.

  5. Brown Bag it
  6. Going out to lunch every day costs at least $5 a day (and probably a lot more if you want to eat somewhat healthy), for a few dollars a day you can make a salad or a sandwich. Add a drink and a snack and your probably eating a decent lunch for about $3 a day.

    Tip – Make you own lunch, it can be much healthier, plus if you have leftovers you can save even more!

  7. Quit Driving around Aimlessly
  8. With gas prices skyrocketing, limiting your driving will save the $5/day pretty fast. Outside of necessities try not to drive.

    Tip – Take a walk

  9. Lower the Cable Bill
  10. Do you really need 147 movie channels? Now the answer may be a resounding YES! But if you are having a hard time saving $150/month you may want to trim back on the premium channels.

    Another option is to have basic cable and get a Netflix subscription. For like 8.99 a month you can stream movies right to your TV. (Also see Tip # 7)

    Tip – If your having trouble saving, trim the fat of your cable bill. Don’t let the cable company retire on your dime, YOU retire on your money!

  11. Mow your own Lawn
  12. For those of you who don’t own a lawn mower, I had to buy one last year and calculated the break even, it me 14 weeks to break even. Let me back up, yes I was lazy for a few years and had a landscaper cut my lawn. It started out at $20/week, then $22/week then $25/week and finally last year he wanted $29/week plus he started charging me tax. That was it, I ran down to Home Depot bought a mower and an edger. it cost me around $400 so it took 14 weeks (including all gas and everything) to break even. Now every time I cut my lawn it’s like pure profit.

    Tip – Don’t pay for things that you can easily do yourself.

  13. Take Advantage of some Freebies
  14. There are plenty of nice things to do in your spare time that do not cost money. Go to the park, ride a bicycle, take your dog for a walk (or borrow someone else’s dog).

    The other great free thing that a lot of people don’t take advantage of is going to the library, not only do they have tons of books and magazines to read, but my library has tons of CD’s and movies.

    Tip – Utilize every available “free” service. You do realize you pay for the privilege with your taxes so TAKE ADVANTAGE !

  15. Exercise Outside NOT Inside the Gym
  16. Going to the gym can cost anywhere from $10 a month to as high as $50 a month. Instead of going to gym to run on a treadmill or ride a stationary bike just go outside and run or ride a bicycle, throw in some push -ups and sit-ups and you can avoid the monthly fee altogether.

    Tip – If you have to Zumba go to the library borrow a DVD (or spend $10 for a copy)

  17. Clip Coupons
  18. I realize earlier I alluded to the idea that the internet is making newspapers sort of obsolete, well Sunday’s paper is still a must have. Most local papers have at least triple their value in coupons. Now, I’m not saying you need to become a coupon king or queen spending the equivalent of a full time job to get free groceries, but if you can keep your coupons somewhat organized (by category) look at what’s on sale, a by those items you can save 10 or 20 bucks a trip pretty easy.

    Tip – Save a few bucks a week on groceries (try to find a place that double coupons).

  19. Eat at home more often
  20. Some people eat dinner out (or bring in take out) more often than they eat at home. Think about how much you spend on an average meal at a restaurant. If you skip going out to eat once a week think of how much you save.

    Tip – If these previous nine tips don’t allow you to save $150 a month to invest for your future then I suggest having a weekly “spaghetti” night to save money. Your stomach might ask why but your retirement account will thank you.

Hopefully you see the value in saving for your future. You can see that even a small amount, like $150 a month really adds up over time.

Please let me know how if this helps you and what tips that you have to save money, so we can all benefit from them.


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