Why Buying Coffee Makes You Poor

What's up, you guys? It's Graham here. So let's dive into one of the most controversial and debated topics of financial advice in 2019, and that would be whether or not this cup of coffee is making you poor. That's right! Today we're gonna be talking about coffee. This is a highly argued topic between two completely opposite ends of the spectrum.

In one corner, you have financial gurus blaming Millennials' poor financial decisions on the purchase of avocado toast and the daily habits of buying coffee. In the other corner, we have the mindset that you should just go and buy it and enjoy life because $3 is not going to make that big of a difference in your lifestyle. Instead, you should focus on the bigger picture. And smash the like button if you haven't done that already!

So, given all of this conflicting advice, who is right? Is buying a cup of coffee really that detrimental to your financial future as they want you to think? Well, let's take a look at some of the research to find out. But first, where did all of this start? Well, we can look no further than self-made millionaire, entrepreneur, and real estate investor Tim Gerner. In 2017, he was interviewed by Australia's version of 60 Minutes, where much of that interview was overshadowed by a few choice words he had to say about avocado toast.

But you think that young people have now got the prospect of never owning a home? Absolutely! When you're spending $40 a day on smashed avocado and coffees and not working? Oh yeah, of course! Absolutely. Needless to say, people were outraged and not afraid to speak out against the millionaire entrepreneur. "Oh, so avocados are why I can't afford a house? Thank God I thought it was because your country was a corporate-run trash fire."

"Relief, bTW. I'm poor because I spread avocado on my iPhone before I eat." "I was going to put a down payment on a house last year, but then I spent $44,000 on avocado toast." But despite the heavy criticism, other financial gurus have not been quiet about shaming millennial spending habits and blaming that as the reason that they're broke. The latest coming from none other than Suze Orman.

"You go in every single day, it's a ritual, it's part of your day, and you spend $1 to $3 on a cup of coffee, which is approximately $100 a month. An example: $100 a month in a Roth IRA over 40 years is a million dollars. So you need to think about it as you are paying a million dollars down the drain after you're drinking that coffee. Do you really want to do that? No! Can you just make coffee at home? Every single penny counts. It's not a need; it is a want."

And just like with Tim Gerner, people were very quick to defend their $3-a-day coffee habits. Beginning, of course, with The New York Times, "Here's some money advice: just buy the coffee. No, skipping your morning caffeine boost will not make you a millionaire." Not to mention many other people who had their choice words to say about Suze Orman: "Having my morning coffee? Oops, there goes another million dollars! I don't waste money on coffee; I spend money on coffee. Wasting implies I don't really want it or haven't thought it through. But I have; I like coffee, that's why I buy it."

But given this, how true is the notion that buying coffee is actually what's making you poor? Well, regardless of what your opinion is on the cost of coffee, the research doesn't lie. According to the investment app Acorns, they found that more than 45% of 18 to 23-year-olds have spent more money on coffee than investing in their retirement. And 35% of 24 to 35-year-olds have done the same. I think it's safe to say that regardless of wage inequality, inflation, the rising cost of housing, and the skyrocketing cost of education, spending more money on coffee than you do on retirement is ridiculous.

This is the single most disappointing statistic I have heard this entire month. My day is ruined, and my disappointment is immeasurable. And this is a big problem, especially when you combine that with some of these other statistics. Sixty percent of Americans do not have enough saved to cover a $1,000 emergency, and nearly 70% of Americans save less than 10% of their income. When it comes to the topic in question of coffee, these statistics don't lie.

The average American is spending $20 a week, or nearly $1,100 a year, on coffee. And even worse than that is that those between the ages of 18 and 34 spend $10 more per week on coffee than the 45-and-older demographic. So from this perspective, it's very clear that we have an issue. However, I don't think the problem necessarily lies in the cup of coffee. I think there's something much deeper that we should really bring up and discuss.

Here's the thing: a five-dollar coffee every now and then is not gonna make you poor. It isn't gonna make a big difference in your budget, and it's not gonna prevent you from going and buying a property. However, I think the bigger issue isn't so much the small purchases every now and then; instead, it's the accumulation of many small purchases throughout your entire budget spread throughout the entire day that you don't even realize you make. They can really wreak havoc on your budget.

Like, I find it very interesting that nearly every single self-made multi-millionaire financial guru all say the same thing: that buying coffee is a waste of money and you should avoid it. "I never buy a frappe latte, bebebe. I will forth for $2.50; that's such a waste of money. I drink coffee one cup every morning; it costs about 18 cents to make it, and I invest the rest."

And this is where I believe most people get lost. They take the "don't buy coffee" advice way too literally without understanding the deeper metaphor of what they're really saying. And all it is, is just this: that you cannot be frivolously spending money you cannot afford without being able to justify its value. And when you take a step back and you see the bigger picture, you can really begin to understand just how prevalent this is throughout everything that we do.

The $3 cup of coffee at Starbucks is absurdly expensive when you compare it to making coffee at home for 20 cents. The $30,000 car you bought to commute one mile to work every day is no more efficient than a $5,000 car that accomplishes the exact same thing. The $30 meal at work fills you up just the same as the $5 meal you can make from home.

This is something all of the self-made millionaires understand very well. They all place an emphasis on value and putting their money to its best use. And even though it's very easy to say, "Well, it's only three dollars; what's the big deal?" that's a lot like saying, "It's only a few cookies; what's the big deal?" to a bodybuilder who's getting ready for a competition.

What gets results in fine, much like in bodybuilding, is discipline and consistency. Sure, it's okay to have one cheat meal every now and then just to keep your sanity, but it's not okay to have a cheat meal every single day because it's not a big deal. The exact same thing also applies to coffee, to avocado toast, or pretty much anywhere you spend your money that doesn't make your life any more meaningful.

And when it comes to me, I think the exact same way. I refuse to go anywhere and buy coffee; I very rarely eat out, and I'm very strict about keeping my budget at about $1,500 a month regardless of how much money I make. And sure, people could argue that spending a little bit more isn't really going to affect you. You may as well just go and spend a little bit more, but just like the bodybuilding example, I know if I allow myself to slack off a little bit, that is going to carry over into other areas of my life as well.

Just like making your bed every morning carries out throughout your entire day, me saving on these little tiny small purchases really snowballs into other areas of my life as well that do end up saving me a lot more money. So, for everyone watching, will a coffee make you poor? The answer is, it's debatable.

While on the one hand, if you just invested that $5.00 coffee every single day over the next 45 years and you got a 7% return adjusted for inflation, after that time period you would have nearly $557,000 left over at your disposal. That's the power of meticulously tracking your spending and realizing how much your money is worth in the long term. And also that a five-dollar coffee is a splurge and should really be treated as such.

But of course, on the other hand, life is to be enjoyed. Life isn't just about looking at numbers on a computer screen and then later realizing that you've never enjoyed yourself or experienced everything that life has to offer. And if a five-dollar cup of coffee is going to make your life that much more fulfilling, then I am all for it. But you cannot get that five-dollar cup of coffee and then go and complain that you don't have any money left over in savings or being in credit card debt or not making enough money at your job.

Just as it's important to focus on the things that add value and meaning to your life, it's also just as important to budget appropriately and focus on your long-term financial goals in a smart, effective manner. And it all starts with your small, non-essential day-to-day expenditures. The whole point of this video is just to make you realize where your money is being spent, then determining if that's a good use of your money compared to other alternatives, like making coffee at home, and then applying that to every other purchase you make.

It's not just about the coffee; it's about your rent payment, your car payments, your insurance payments, your everything payment. The coffee might just be a very small mindset that then bleeds into other areas of your life that then cost you more money than you originally anticipated.

And with all of that, I think we can have a healthy balance between the two. Like, it's okay to splurge every now and then if you can afford it and if it's going to add that equivalent amount of value to your life. But be aware of your spending, and understand how much this money is going to be worth to you in the long term had you just chosen the cheaper alternative and invested the difference.

And of course, smash the like button! So with that said, you guys, thank you so much for watching. I really appreciate it. If you guys enjoyed videos like this, make sure to subscribe. I post three videos a week: every Monday, Wednesday, and Friday. Also, make sure to add me on Instagram; I post it pretty much daily. So if you want to be a part of it there, feel free to add me there.

And also, add me on my second channel, The Graham Stephan Show. I just posted my recipe to make 20-cent iced coffee, which is perfect that it's perfectly on topic with this video. So you'll definitely want to check that out. The link to that is in the description. Make sure to subscribe to the second channel and learn how to make 20-cent iced coffees.

So again, thank you for watching, and until next time!