Buy Yourself a Latte
ritholtz.com
Buy Yourself a Latte
1–10 of 351 posts
Re: Buy Yourself a Latte
#2Great article. I never understand why "financial advisors", when making pitches for consumer frugality, invent a wildly optimistic interest rate (12%?!) and say things like "you could have had $X million dollars, IF ONLY. Well, sure... you could have. Or you could have had no dollars, and also no coffee, since return rates from the type of investments that have any chance of making 12% are anything but guaranteed.
Re: Buy Yourself a Latte
#3I 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
Re: Buy Yourself a Latte
#4I 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
I've recently stopped buying takeaway coffee. This led me also to think about non-essential Amazon/eBay purchases, how frequently I pop to the shops without planning etc. I also refreshed my monthly budget spreadsheet and cut some other expenses I didn't need.
Re: Buy Yourself a Latte
#5Great article. I never understand why "financial advisors", when making pitches for consumer frugality, invent a wildly optimistic interest rate (12%?!) and say things like "you could have had $X million dollars, IF ONLY. Well, sure... you could have. Or you could have had no dollars, and also no coffee, since return rates from the type of investments that have any chance of making 12% are anything but guaranteed.
https://en.wikipedia.org/wiki/S%26P_500_Index#Annual_returns
> Total Annual Return Including Dividends
10.53%
> 25 Year Annualized Return
11.93%
Re: Buy Yourself a Latte
#6The 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 $10K, then a significant percentage of your discretionary expenditure has gone on a hot liquid.
Ultimately though this just comes down to saving enough, which I think is intuitively obvious to anyone who sits down and thinks about it without invoking some sort of "magic beans" lens.
If you have a 40 year working life, and 20 years in retirement, saving 33% of your income and investing it in something that tracks inflation should be enough for you to maintain your average standard of living.
I don't think that 33% is a hard bar to hit for most people that aren't on minimum wage. I also don't think most people actually consider it that way, they think of pensions or other schemes as wizardry that will return them vastly in excess of inflation.
Re: Buy Yourself a Latte
#7When I met with a financial planner, he stressed the importance of setting aside enough money to spend on myself every month that I would feel confident to start investing.
The latte scare is a great way to make sure people who are apprehensive about investing never even consider it. Starting incrementally is way better than criticizing people for just trying to live their lives.
Re: Buy Yourself a Latte
#8Great article. I never understand why "financial advisors", when making pitches for consumer frugality, invent a wildly optimistic interest rate (12%?!) and say things like "you could have had $X million dollars, IF ONLY. Well, sure... you could have. Or you could have had no dollars, and also no coffee, since return rates from the type of investments that have any chance of making 12% are anything but guaranteed.
https://en.wikipedia.org/wiki/S%26P_500_Index#Annual_returns > Total Annual Return Including Dividends 10.53% > 25 Year Annualized Return 11.93%
Entirely dependent on when you get in and out of the market.
http://archive.nytimes.com/www.nytimes.com/interactive/2011/... (archive.nytimes.com: In Investing, It’s When You Start And When You Finish)
"Investors often have expectations of real annual returns greater than 7 percent — the areas in green. But over 20 years or longer, rates that high are rare."
"After accounting for dividends, inflation, taxes and fees, $10,000 invested at the end of 1961 would have shrunk to $6,600 by 1981. From the end of 1979 to 1999, $10,000 would have grown to $48,000."
“Market returns are more volatile than most people realize,” Mr. Easterling said, “even over periods as long as 20 years.”
Re: Buy Yourself a Latte
#9I 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).
Re: Buy Yourself a Latte
#10If you're entrepreneurial, I fully believe it's a better use of your time and mental energy to make an additional $5k/yr than to scrimp to save an extra $5k/yr. For the HN crowd, this could mean building a side project that generates income, negotiating a higher salary, etc.
That being said, the type of people who have the luxury to focus on those types of things are in the minority. For those who aren't entrepreneurial, don't work in tech, etc. sticking to a strict budget can be the difference between having money for retirement and not having it.