Don’t get me wrong, I love coffee, and I would never tell other people what to drink (or eat for that matter). Coffee is the protagonist of our story because it is such a ubiquitous thing. Most of us can’t live without a cup of the old jitter-juice to tempt us out of our hovels in the morning. Additionally, many of us don’t mind spending a few bucks for someone else to brew us a cup on our way to work, or while catching up with a friend.
Using coffee as an example of an expense common to so many of us, here are two stories to illustrate how small amounts of money (like the cost of a latte) compound over time, against you or in your favour.
Fran - Motto: Live for today, tomorrow might not come!
Fran has a good income and likes the convenience of take-away coffee, so spends €5 on a mocha-frappa-choca-ccino coconut latte with reindeer milk from Starbucks EVERY SINGLE DAY, even on work days even though his office has a free machine, which almost unbelievably 👀 serves the same coffee. But Fran just really loves Starbucks..
He starts this habit when he is 25. Incredibly committed to his special Starbucks lattes, he sustains this habit, without exception, every day for 40 years until he retires.
By the time Fran retires from work, he has spent €73,000 🤯 just on this coffee habit.
Living for today sounds great, but burying your head in the sand about your financial future guarantees that you will never be wealthy.
Kev - Motto: Small sacrifices today, great wealth tomorrow
Kev was going for coffee with his best friend, Fran, every single day. But after a while, he read about the FIRE movement and instead decided he would use the €5 he had been spending daily on coffee for his new goal of becoming financially free.
From age 25, he starts saving €5 everyday (instead of spending it), and at the end of each year he invests it: €1.825,00.
Kev keeps this up for 40 years, investing €1.825,00 annually. His investment has an average annual return of 8%* over that period.
By the time Kev is 65, he has €512.425,40🤯. MORE THAN HALF A MILLION EUROS!
Simply by directing €5 a day to building wealth rather than buying a coffee!
Conscious changes (even tiny ‘sacrifices’ like in this story) today can set you on the path to real, lifechanging wealth. If you save and invest, generating substantial wealth over time is surprisingly easy.
** The average stock market return is about 10% per year (8% adjusted for inflation) for nearly the last century, as measured by the S&P 500 index.*
Reflections
Small savings like the daily coffee in the story above have been a significant lever for me in my own financial independence journey. Before I started redirecting many of these expenses to saving and investing, I spent A LOT on junk food, coffee and beers outside. Of course, I like all of these things and still do them, but to a lesser extent, and now I definitely enjoy it more intensely. A lot of my overspending on these types of things was out of laziness, and not realising how much the costs stack up over time!
I was Fran, but I became Kev… But, you know.. Uh, I’m still Bjarni, obviously..
Imagine if you applied this scenario to a €5 coffee and a €10 lunch every day (I was spending easily this much on these items during my earlier years of financial obliviousness). That would come to more than €1.5 million!
Once you realise the power of what your money could be doing for you over time, you become more conscious of the existence and movement of money in your life. Looking at your money through the lens of the above stories will make you conscious of some of your more frivolous spending habits. You will begin to view your Euros, Quids and Crowns as little workers you can put to work to build your future riches. An easy opportunity not to be squandered. Be like Kev.. Don’t be like Fran.
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