You’ve probably heard the advice countless times: stop buying daily coffee to save money. It’s become a common theme, often jokingly blamed for financial woes by claiming people are poor because they spend too much on soy lattes. The truth is, you won’t become wealthy overnight simply by skipping a cup of coffee. However, understanding how saving money by not buying coffee can add up — and investing those savings — might surprise you. In this article, we’ll explore how much you can truly save by making coffee at home, why it might be worth it, and how to invest those savings wisely.
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Why Consider Saving Money by Not Buying Coffee?
If you drink coffee outside your home regularly, you’re likely spending far more than necessary. Coffee is extremely cheap to make at home, and brand-name coffee shops often charge high prices for something that costs just pennies to brew yourself. Making coffee at home can cost as little as a few cents per cup. Meanwhile, buying a coffee shop latte can easily run between $3 to $5 per cup, depending on your location and the type of drink. Over the course of a year, this difference can really add up.
You might think that the equipment needed to make great coffee at home costs a fortune, but it’s relatively inexpensive compared to the cumulative cost of regularly buying coffee out. Even a decent coffee machine, if you decide to purchase one, will likely pay for itself within a few months of skipped coffee shop visits. With a bit of preparation, like using a thermos or reusable travel cup, you can enjoy your home-brewed coffee on the go, saving not just money but also the time you might spend in line at a café.
Making Fancy Coffee Drinks at Home
If you’re a fan of fancy coffee drinks, sometimes referred to as “dessert coffee,” you can still enjoy these indulgent beverages at home for a fraction of the price. The secret behind many coffee shop specialties is flavored syrups such as caramel, vanilla, or almond. These syrups are easy to find in grocery stores or online. By adding a splash to your home-brewed coffee along with milk or cream, you can replicate your favorite coffee shop flavors.
You can also achieve the foamy milk texture of a café latte with an inexpensive handheld milk frother. These tools are often less than $20 and can create the perfect foam for your drinks. There’s a wide variety of coffee beans, brewing methods, and flavor add-ins available, so you may find that creating your own signature coffee drinks at home is both fun and cost-effective, giving you the freedom to customize your drinks exactly to your liking.
Investing in a Coffee Machine
If you drink several cups of coffee each day or week, investing in a coffee machine might be a worthwhile decision. A simple, budget-friendly coffee maker can brew a pot of coffee quickly and easily. Pairing it with a reusable cup or travel mug allows you to take your coffee with you on the go.
For those serious about espresso-based drinks, an affordable espresso machine might be a good investment. You don’t need a $1,000 machine to make decent espresso; many good models are available for under $200. Just be mindful of capsule-based machines. While they’re convenient, they can be more expensive in the long run due to the high cost of pods and they often limit the variety of coffee you can use. By choosing a machine that lets you use your own coffee beans or grounds, you’ll have more control over your drink and your budget.
Calculating the Savings: How Significant Could They Be?
Let’s crunch the numbers to see how much you can save by not buying coffee and making it at home instead. For this example, we’ll assume you buy two coffees per week, at a cost of about $5 each. Of course, you can adjust these numbers if you drink more or less coffee, or if the cost of coffee in your area differs.
Based on this assumption, you’d spend $10 per week on coffee. Over the course of a year, that adds up to $520 spent on coffee alone. Over 10 years, this totals $5,200 spent just on coffee. While you might not notice the expense of $10 each week, the cumulative amount over the years can be quite significant.
The Importance of Actually Saving That Money
It’s essential to note that to genuinely save money by not buying coffee, you have to actually put that money aside — either into a savings account or an investment — rather than spending it on something else. If you stop buying coffee but start spending $10 more on eating out each week, you won’t be making any real progress in increasing your savings.
By disciplining yourself to set aside the $10 you would have spent on coffee each week, you can grow your savings substantially over time. Whether you put it into a piggy bank, a savings account, or an investment vehicle, the key is consistency and ensuring that you are genuinely rerouting the money into saving or investing it.
Investing Your Coffee Savings
Let’s assume you decide to take the money you save from not buying coffee and invest it at the end of each year. This will ensure that your savings are growing rather than just sitting idle. Below, we explore a few different investment scenarios to understand the potential growth of your savings. We assume that you have invested the money for the last five years, starting on November 14, 2019:
1. Investing in an ETF (S&P 500)
An ETF (Exchange Traded Fund) is a bundle of stocks or other financial instruments that track a specific market index. One of the most popular ETFs is the S&P 500, which includes 500 of the largest U.S. companies. This form of investment is considered a relatively safe and diversified choice because it spreads your money across a broad range of companies and industries.
During the ups and downs of the market (including the COVID-19 crisis), an initial investment of $2,600 over five years could have grown by more than 50%. While past performance doesn’t guarantee future results, this example shows how investing regularly can yield significant returns over time.
2. Investing in Physical Gold
Gold often behaves differently than stocks. While stock prices generally increase when the economy grows, gold is typically considered a “safe haven” asset that can maintain or increase its value during economic downturns. If you invest $520 in gold annually, you might see stable, albeit sometimes slower, growth in your investment compared to stocks.
Physical gold has historically appreciated over time, but not as dramatically or as quickly as stocks during strong economic periods. However, it can provide stability to your investment portfolio during periods of market volatility. If you’ve invested your coffee money in gold in the last five years, it would have grown by 47%.
3. Investing in Cryptocurrencies
Cryptocurrencies, such as Bitcoin and Ethereum, have been highly volatile but have also experienced significant growth over the past decade. If you were to divide your $520 saved from coffee equally among the top three cryptocurrencies each year, your returns could vary widely.
For example, some investors who got into cryptocurrencies early have experienced substantial gains, while others have faced significant losses due to market volatility. Cryptocurrency values can fluctuate wildly in short periods, so while the potential for high returns is there, the risk is also much higher compared to more traditional investments like ETFs or gold. That being said, if you invested equally in the top three cryptocurrencies every year from 2019, you’d be up around 1059%.
4. Investing in Starbucks Stocks
Another somewhat humorous but logical investment option might be to invest in the very company from which you are no longer buying coffee. If you decided to invest your $520 coffee savings each year in Starbucks stocks, you could see returns on your investment over time – $24 from the stock price and around $150 in dividends, gaining you 6.7%.
It is essential to research any individual stock before investing. Investing in a single company carries more risk than investing in a diversified portfolio of stocks, such as an ETF. That’s why a diversified approach (such as buying several coffee-related companies) would be better. However, this example illustrates how you could potentially profit from not buying coffee at a major coffee chain and instead investing in their stock. Although Starbucks stock might provide modest returns and dividends compared to other options, minor profits are still better than no savings at all.
Diversification: The Key to Successful Investing
We know what you might be thinking: “Since this is a cryptocurrency site, they’re going to brag that cryptocurrencies have been the best investment.” But that’s not what we’re aiming to do. In our opinion, the best strategy for investing the money you save by not buying coffee is to diversify your investments across various asset classes.
Diversifying your investments might mean placing some of your savings in an S&P 500 ETF, some in gold, some in cryptocurrencies, and perhaps some in more stable investment vehicles like bonds or savings accounts. This approach spreads risk and gives you exposure to different types of returns. For example, if the stock market performs poorly, the value of gold might rise, offsetting some losses. Similarly, if cryptocurrencies see a new rally, you’ll benefit by having some exposure to that market, all while not risking your entire savings in a single, highly volatile asset.
This diversified approach also has additional advantages, such as the benefit of something known as dollar-cost averaging. By consistently investing the same amount across various assets over time, you naturally buy more of an asset when its price is low and less when its price is high. Assuming these assets grow in value over the long term due to factors like inflation or economic expansion, this strategy can lead to more cost-effective investments.
As Warren Buffett famously said, “Be fearful when others are greedy and greedy when others are fearful.” This principle aligns well with investing a fixed amount regularly, as it helps ensure you’re buying assets more cheaply during market dips and limiting your purchases when prices are high.
The Magic of Compound Interest
Even small, regular savings can grow substantially over time, thanks to the power of compound interest. Compound interest means you earn interest on both the money you initially invested and the interest that money has already accrued. Over a long period, this can lead to exponential growth of your investments.
Let’s assume a modest 8% annual return on investments to see how your coffee savings could grow if you invest $520 at the end of each year:
After 5 years, your savings would grow to about $3,050. After 10 years, you’d have around $7,533. After 20 years, the investment could be worth approximately $23,796, which is more than double what you initially invested over that time. After 40 years, that number could grow to around $134,709, more than six times what you initially invested.
These calculations assume an 8% annual compound return on a yearly investment of $520. Actual results may vary based on actual investment performance and taxes, but the illustration shows how consistent, small investments can grow into a substantial amount over time. This is the magic of compound interest: the longer you keep your money invested, the more potential it has to grow exponentially.
It’s Not Really About the Coffee
While we began this article focusing on coffee, the principle behind it applies to any small, regular expense that can be trimmed or eliminated. You don’t have to give up coffee entirely if it’s something you truly enjoy, but recognizing how small daily expenditures can add up to a significant amount over time can help you identify other areas where you might save and invest instead.
The most important lesson is that if you consistently save and invest even small amounts, compound interest will do much of the heavy lifting for you over time. The investments in our examples aren’t complicated; they involve simply putting aside money regularly and investing it in a few different instruments to spread out risk and potential returns.
We understand that saving a small amount like $10 per week won’t make you extremely rich by itself, and you won’t be buying private jets or funding space projects with these savings alone. However, if you start investing a small amount now and let it grow over the years, you will be in a much more comfortable financial position. We’ve shown how investing $10 a week can result in significant savings and growth over time when invested wisely.
Conclusion
Saving money by not buying coffee won’t instantly make you a millionaire, but if you consistently save and invest the amount you would have spent on coffee, you could accumulate a substantial sum over time. Whether you choose to invest in ETFs, gold, cryptocurrencies, Starbucks stock, or a diversified portfolio of various assets, the key is to start investing as soon as possible and to remain consistent.
By redirecting the small daily expenses of something like a cup of coffee into investments, you allow compound interest to grow your money significantly over the years. This strategy can help you build a more secure and comfortable financial situation for yourself in the future. Even if you decide coffee is worth the cost for you personally, applying this principle to other unnecessary expenditures in your life can still be a financial game-changer.
