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Buy Yourself a Latte

ritholtz.com

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Re: Buy Yourself a Latte

#51

Post by dsfyu404ed »

falcolas wrote: post #43
AdmiralAsshat wrote: post #27

Counterpoint: The debate is framed as "$5 a day is a waste--put it into your piggy bank every day and drink office sludge instead". I instead say that yes, the office coffee still tastes like fertilizer, but I still think $5 a day for a latte is waste because I can make some excellent coffee at my desk for about a dollar a day using an inexpensive French Press, a hand-grinder (or grinding the beans that morning at ho…

You're exchanging time for money. It's a highly common tradeoff. Prep, brewing, and cleanup amounts can work up to around $3-4 of opportunity cost for a tech professional. Not to mention, french press coffee is not quite equivalent to a latte. Also, I recommend 5 minutes steeping, personally. ;)

>Prep, brewing, and cleanup amounts can work up to around $3-4 of opportunity cost for a tech professional.

I disagree. The average tech professional is salaried, not billing hourly. It takes about the same amount of time to fill and plug in the percolator or operate a kurig as it does to stand in line and get coffee made for you. Likewise the opportunity cost is nearly $0 There is no economic rationalization for the overwhelming majority of prepared coffee bought by white collar professionals. It is a pure luxury expense.

Re: Buy Yourself a Latte

#52

Post by esotericn »

nytesky wrote: post #9
ChrisRR wrote: post #3

I think this article misses the point. The daily coffee isn't the only problem with people's spending, but is representative of all the small daily spends that add up without people realising. It's the petrol in your car when you could've walked, it's the extra bar of chocolate that you add to your lunch, it's the daily newspaper you buy. Everything adds up very quickly and the coffee is just one example

That’s the authors point. Unless you are an extreme outlier and buying a LOT of small purchase (like to the point you don’t have time to work), they really are meaningless. The big fixed items in your budget really drive everything, housing, medical, education, which have all far outstripped inflation. And the income has remained flat for most people (save tech workers who get great coffee for free).

Unclear to me that this is the case.

Here in London, at least at the low end, it is extremely easy to spend more on entertainment than it is on basic living costs.

That goes double if you're sharing a flat rather than renting alone.

A room might be 600pm.

Spending 20 quid a day just means a coffee, lunch, dinner out or takeaway. You can double your expenditure by just not preparing your own food.

Re: Buy Yourself a Latte

#54

Post by esotericn »

ineedasername wrote: post #46

If part of your audience consists of people living without much a safety net, that $5 a day adds up. Also, the author's point that saving that much isn't going to be $1 million, but "only" as much as $500,000 then that point rather falls flat. Sure, inflation may decrease the utility of that amount of money, but it will also increase the cost of that latte, so you'll be saving more than just the $5 over time. Finally…

Right.

$5 a day is a significant amount of money to a huge number of people.

In the UK, if you're on minimum wage, a 3 quid coffee represents approximately 5% of your daily income.

If such an individual (someone who earned minwage for a lifetime) were to end up with even "merely" 100K in today's money at age 60 that would actually be an enormous amount relative to their cohort.

Re: Buy Yourself a Latte

#55

Post by fwip »

esotericn wrote: post #40
ebg13 wrote: post #32

So far people in the thread seem to be focusing on whether the use of inflation is appropriate and whether coffee is specific or merely representative or whether small costs add up. But they've all missed what I think is the true takeaway: > Please excuse my lack of enthusiasm for discussing 4-dollar lattes while we ignore 30-plus years of zero real wage gains.

As an individual, this is almost a philosophical statement, though. I can actually choose not to spend $5 (just as I can attempt to enter a certain career path). I can't change the median wage significantly. It's not actionable.

You can't change wages directly on your own, no. But the systems that set the wages are not immune to public opinion. (Whether you consider wages to be set by companies, government, or other forces, this holds true.)

Re: Buy Yourself a Latte

#56

Post by esotericn »

fwip wrote: post #50
esotericn wrote: post #6

The article seems a bit all over the place WRT inflation. If you're inflation adjusting, then you're not socking $100 a month away, because towards the end of that 40 years coffee will cost way more than that. As others have said though, it's not really about the $5 coffee. It's about whether you save or not. If you have $50K a year after expenses, then yeah, a $5 coffee probably is irrelevant. If you have $5K or $10…

33% is a hard bar to hit for a whole lot of people.

If you take the average person, the situation they find themselves in at the present time, including locked in expenditure such as lease agreements/mortgages/car loans, I agree. They have already committed to spending more than 66%.

Choosing to intentionally limit your expenditure to 66% is different.

In the limiting case it simply means living like you earn minimum wage whilst earning more than it.

Of course, if you are at the absolute bottom of the income spectrum and have no means to change that, you are buggered. We should probably fix that.

Re: Buy Yourself a Latte

#57

Post by CompelTechnic »

yellowstuff wrote: post #44
CompelTechnic wrote: post #14

To give this conversation a more concrete example, here is (linked below) a calculation of saving $5 a day over 40 years, in real (inflation adjusted) dollars, assuming returns on invested assets are 7% per year. This is a realistic number based on >100 years of U.S. real (inflation adjusted) stock performance. You end up with $377k after 40 years. In my opinion, a lot of Americans and people around the first world l…

7% real return is a relatively high assumption. In the article Ritholtz assumes 8% nominal returns and 2-3% inflation, so 5-6% real returns. Even assuming 5% real returns is somewhat optimistic. Developed countries in the last 100 years or so have achieved that, but most places in most time periods have not.

It is true that the U.S. over the last ~150 years has outperformed a lot of the world, but it maintained 7% real over that period of time. Ritholtz was all over the damn place in his article, and attacks the strawman of 12% growth. In comparison 7% has some backing.

Due to volatility, it is unsafe to retire on a planned drawdown rate of 7% (4% is a good rule), but it isn't unrealistic to expect 7% growth.

Re: Buy Yourself a Latte

#58

Post by asark »

duxup wrote: post #29
huffmsa wrote: post #22

Say you make the US average $56k, you're spending 3.2% of your income on coffee. 3.2% on bean water. But who with a latte addiction just buys the latte? Kick in one of AOCs $7 croissants a day (extreme for the sake of example) and you're up to $12/day => $4380 a year, or 7.8% of your annual income on one meal a day. So maybe consider buying a latte machine instead.

>So maybe consider buying a latte machine instead. I changed careers and my workplace went from big corporate office to small company small office. I was surprised by how much I spend on coffee now that it isn't free at the office. Bought myself a keurig... not happy about the kcup waste, but way cheaper.

I've found the cheapest possible automatic drip machine (small, the only interface is an "on" switch, probably one at your local Goodwill right now for like $5) with middling grounds (something available at Costco, not your fancy local roaster at 3-∞x that price per ounce) produces significantly better coffee than Keurig. Used grounds can go in the garden, and the filter's paper. Less counter space than a Keurig. Can smash one on the ground in a fit of rage every couple months, replace it, and not notice it in your bank account. Bag of coffee and box of filters take up less space than enough kcups to make the same amount of coffee.

Unless you're into the flavored stuff. It's no help for that. Maybe look into cold brew? Cheap, low-equipment, tastes great with a splash of milk. Or keep Keuriging if it's making you happy, obviously. I'm just some asshole with an opinion, on the Internet.

Re: Buy Yourself a Latte

#59

Post by vonseel »

falcolas wrote: post #43
AdmiralAsshat wrote: post #27

Counterpoint: The debate is framed as "$5 a day is a waste--put it into your piggy bank every day and drink office sludge instead". I instead say that yes, the office coffee still tastes like fertilizer, but I still think $5 a day for a latte is waste because I can make some excellent coffee at my desk for about a dollar a day using an inexpensive French Press, a hand-grinder (or grinding the beans that morning at ho…

You're exchanging time for money. It's a highly common tradeoff. Prep, brewing, and cleanup amounts can work up to around $3-4 of opportunity cost for a tech professional. Not to mention, french press coffee is not quite equivalent to a latte. Also, I recommend 5 minutes steeping, personally. ;)

I prefer a clever dripper to a french press. Much less cleanup... toss filter and grounds in the trash in one fell swoop, rinse once or twice under some water in the sink, done.

On the other hand, I much prefer a latte to any pour-over or french press coffee, maybe it's the steamed milk, I'm not sure. I don't mess with latte's at home anymore. I've had two <$200 machines wear out on me and it's too much work for something not nearly as good as a local shop.

Re: Buy Yourself a Latte

#60

Post by GuB-42 »

nytesky wrote: post #9
ChrisRR wrote: post #3

I think this article misses the point. The daily coffee isn't the only problem with people's spending, but is representative of all the small daily spends that add up without people realising. It's the petrol in your car when you could've walked, it's the extra bar of chocolate that you add to your lunch, it's the daily newspaper you buy. Everything adds up very quickly and the coffee is just one example

That’s the authors point. Unless you are an extreme outlier and buying a LOT of small purchase (like to the point you don’t have time to work), they really are meaningless. The big fixed items in your budget really drive everything, housing, medical, education, which have all far outstripped inflation. And the income has remained flat for most people (save tech workers who get great coffee for free).

Sure, the big fixed items drive everything, but they are the baseline.

Saving on housing is hard, and saving on medical and education is more or less impossible. If you have, say, a $3000/month income, resulting in a $2000/month budget and you need $1000/month expense just to survive, that's $1000/month expendable. A $5/day latte ends up as 15% of that budget, that it is 5% of your income is irrelevant because you don't have access to these $2000.

7 of these "small" expenses and you are left with nothing. No extra money for a nice car, a more comfortable home, holiday trips, etc...

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