Day 1 – Stop buying coffee

As you start to read through my blog I hope that you will start to get an understanding on how I think and make my personal financial decisions. Money spending habits is a big one. If you want to achieve financial freedom you are going to have to make these types of sacrifices. Saving on daily routine type items are at the top of my list. When people talk about coffee it is always something they say they “need” or they won’t be able to start the day and in the afternoon they “need” it to finish the day. Not to bore you all with statistics but in the United States the average person drinks just about 3 cups of coffee per day. Over 50% of Americans over 18 years of age drink coffee every day.

Average Espresso Price

The average price for an espresso based drink is $3.45

Average Coffee Price

The average price for brewed coffee is $2.38.

If you are purchasing these types of coffees prices can range up to $5-6 depending on where you live and the coffee shop you are buying them from.

Getting to the point

Now that you have some numbers laid out there I want to share with you my thinking and what prevents me from buying a cup of coffee. As I mentioned before the takeaway I want you to get from the start saving section of my blog is pick up the way I think about making purchases. Almost every post that I will make around my buying decisions will almost always lead back to this type of thinking.

  1. The first one is always asking do I really “Need” this?
  2. Is there another way to get this same thing or satisfaction for less?
  3. Take the amount of times you purchase the item and find out the yearly cost and divide that into your yearly discretionary income to find out the percentage of it you spend on this item.

If you ask these two questions and use this one process approach. I promise you will start to think differently about how you make your purchases. Now onto the how to stop buying coffee guide.

How to Stop Buying Coffee 

The first is to estimate how much of your discretionary income you are spending per year on coffee by purchasing it from coffee shops. The keywords here are discretionary income which is income remaining after the deduction of taxes and basic living costs. Money that you could use to pay off debt or invest. I want to get into the importance of this because you should not be thinking of your salary as how much you are earning each year.

Calculate your yearly discretionary income (Get a pen and paper out)

Let me break it down for you using this Federal Income Tax Calculator (You try it with me):

Click on this link to pull up the Federal Income Tax Calculator. Enter your yearly household income, the city you live in and filing status. This will calculate your income after taxes both state and federal. The example I have used below is based off of this same calculator.

Say that you are earning $45,000 per year. Your taxes in 2018 if you are living in Los Angeles, California for Federal & State taxes will be $8,578. This leaves your discretionary income with $36,422 ($45,000 – $8,578 = $36,422). This is if you don’t pay rent, pay a mortgage, have a car, eat or drink. ALWAYS think of what you make by what you have AFTER taxes not by what your being paid on paper. I will repeat this throughout all my savings posts.

So what do you do with your $36,422? Assuming that you are paying rent if I take the average cost that a person pays for rent at the low end of $1,300 per month in Los Angeles ($1,300 x 12 months = $15,600) this leaves you with only $20,822 ($36,422 – $15,600 = $20,822). Also assuming you own a car and not paying any type of loan against it the insurance costs & gas on average is running you about $200 per month ($200 x 12 months = $2,400) and is costing you $2,400 per year. So that leaves you now with $18,422 ($20,822 – $2,400 = $18,422). Now assuming that you eat food and drink that you buy from the grocery store. If you are on the average side of spending $150 per month on groceries ($150 x 12 months = $1,800) you spend $1,800 a year on groceries. That leaves you with $16,622 ($18,422 – $1,800 = $16,622).

$16,622

That is the amount you are left with assuming you don’t have any monthly student loans, no car loan or lease payment, no credit card bills, no personal loans and no fun. The amount of $16,622 will decrease fairly quickly if you do have these types of bills. So the next time you think you make a certain amount do a yearly calculation of everything to find out what your discretionary income is. Hopefully you are not depressed after doing this exercise. This should be the first exercise you do so you get an understanding on how much money you actually have to spend/save/pay off debt/invest.

Simple Coffee Calculation

After you calculate your yearly discretionary income you can see how much the cost of coffee is really costing you. Lets say for an example you are not the average american that drinks 3 cups of coffee per day and you only purchase 3 times per week at $2.50 per cup.

The weekly spend on coffee:

3 cups of coffee at $2.50 per cup per week = $7.50 per week

Per year spend on coffee:

52 weeks x $7.50 per week = $390 per year

As a percentage of discretionary income your spending 2.34% of your entire income on coffee ($390 / $16,622 = 2.34%). Think about that and let that sit in for a moment and ask the question do you really “Need” to be buying coffee each day. So you can really see how dramatically this can add up over time especially if you are a big coffee drinker. This is money that you could be using to pay off debt or investing.

If you are not able to get a free cup of coffee like myself at work then I suggest making it at home before work or drinking tea which is also a cheaper alternative.

Final Thoughts

You must be thinking. Well easy for you to say you must not like coffee. Some people need the coffee to wake up in the morning and it makes me more productive. Both statements would be further from the truth. I do drink coffee roughly 3 times per week and I do it for free by using the coffee machine at work. I also always find ways to minimize my spending costs before making a purchase.  

I personally prefer instant coffee as it does not require a machine and only hot water. The cost per cup of coffee ends up being around 15 cents if I use the Nescafe instant coffee sticks. If you want to cut costs down to around 8 cents a cup then I would recommend the second option. I get the same caffeine kick and it tastes better to me knowing I am saving money.

If after reading and your still not convinced. Here is Why ‘Shark Tank’ investor Kevin O’Leary refuses to spend $2.50 on a cup of coffee.

If you are interested in learning more about fun coffee statistics by the The National Coffee Association you can find them here.

“Never spend your money before you have earned it.”
– Thomas Jefferson –

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