It's Not the $3 Cup of Coffee

by Jeffrey Yeager


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If you've kept up on your personal finance reading, you'll know that countless pundits in recent years have advised that getting your financial house in order is as simple as giving up a few of life's little luxuries. The $3 cup of designer coffee you buy every morning. The occasional sushi dinner that costs more than your first car. The pair of this-year's-shoes that look surprisingly like the must have pair from two years ago that are sitting in the unopened box in your closet.

I'm not defending the wisdom, or lack there of, of spending good money on frivolous things, but nearly everyone has an inexplicable yearning for some small pleasure they could clearly do without. However, I would like to question the wisdom of the so-called financial experts who have been advising us that this type of subtle lifestyle change is a practical and relatively painless path to financial freedom. Inevitably, their analyses of such savings plans are based on multi-year projections showing how these small savings add up over time and, when you factor in theoretical earnings on these theoretical savings, forgoing that daily cup of coffee over a long enough period of time will put you on easy street by retirement age. Well, theoretically.

The math is valid enough I suppose, but the question is whether this is really practical, and even if it is, is this truly the best or even least painful way to accumulate future wealth? To be clear, my answers are no, no and no. It's not that it's bad to be generally frugal and spend less on the small things in life, but it's just unrealistic and indeed irresponsible to think that this strategy alone will provide for your long term financial security.

Insomuch as financial gurus have been preaching this version of a fad-savings-diet for the last several years now, during which time savings rates among Americans have dropped to all time lows and Starbuck sales have risen to all time highs, I could just rest my case at this point. It's clearly not working. But, let me explain just why these flavor-of-the-month savings plans don't work and, more importantly, offer some strategies that really do.

Why It Doesn't Work That Way

  • Easy Come, Easy Go - If it's not an amount of money you think twice about spending in the first place, it's not an amount of money you'll think twice about saving either. In other words, while theoretically small, single-expense savings over a long enough period of time really add up. In practice, each transaction lacks critical mass (sufficient dollar volume to be meaningful) and will most likely be absorbed and spent on other equally trivial items. Even if you do cut out that daily cup of Joe, I'll bet that your $3 daily savings will simply morph into an additional pizza topping or an extra video rental on the weekend.

  • It'll Never See the Inside of a Bank Vault - Who banks and invests $3 at a time? Again, the critical mass isn't there to make this approach pragmatic. Even if you manage to actually squirrel away that $3 savings each and every day, few have the discipline to continually invest it until the end of time. What happens the next time you're caught short and need twenty bucks to pay the paper boy on a Saturday morning? Most of us will dive into the coffee savings piggy bank on the kitchen counter without giving it a second thought. Get real!

  • Denial Is Denial - Not only is the cup-o-coffee savings plan impractical, but this type of approach is sometimes more painful than a realistic approach, particularly if you deny yourself one of life's little pleasures day in and day out, only to find, as I contend, that you have nothing to show for it in the end. Psychologically, each act of denial (each instance of doing without) makes its mark, regardless of the size of the sacrifice. In this way, a daily sacrifice might in fact be more painful, not less, than making a single, fundamental lifestyle decision. If nothing else, reminding yourself every day that you're sacrificing something greatly increases the chance that you won't stick with it for the long haul. Ever been on a diet?

Three Things that Really Work

In the interest of not simply spilling the coffee but offering some practical alternatives as well, I encourage you to consider fundamental, lifestyle-based savings strategies that involve the critical mass necessary to actually result in significant lifetime savings. Specifically, there are three major expenditures in modern American society, which, over the course of recent generations, have commanded a larger and larger portion of our incomes, thereby reducing our capacity for saving. Focus on making a few decisions in these key areas, particularly if you're wise enough to do so early in life, and wealth accumulation becomes virtually automatic.

  • Buy a House, Not a Castle - While the pundits have been busy telling you that everything will be okay if you just cut out the coffee, Americans have been going insane when it comes to spending on their homes. Few of us grew up in a mansion, but now everyone seems to feel that it's a necessity to live in one. It's simple. Get your expectations right early in life and leave them there. Buy a nice home if that's important to you, but one that you can afford at the beginning of your career, then maintain it and stay there. If you can afford it when you're just starting out, think of how much excess income you'll be able to save as your salary grows throughout your career but your housing cost remains constant. The continual-cash-out-and-upgrade approach to home ownership is something that only recent generations of Americans have bought into, which is one of the primary reasons why our parents and grandparents were able to save far more (proportionately) during their lives than we are. The fact that most Americans now go to their graves still owing on a home mortgage is something that is no doubt making our grandparents roll over in theirs.

  • All in the Family - The cost of raising a family is also something that has increased disproportionately to household incomes over recent generations, even as the size of families has decreased. Child care and the cost of educating children are huge slices of this increase, but discretionary spending on children (in many families, the cost of spoiling a child) is right up there. While the decision of how large a family to have, or whether to have children at all, is a highly personal one, and one that is rightfully driven by spiritual and emotional reflections more than economic considerations alone, once this most fundamental decision in life has been made, a whole string of subsequent economic decisions must follow. Who will care for your children, and how will that decision affect both your family's income and expense? Where will your children go to school? What will you teach your children about money and what's truly important in life? Each of these decisions in and of themselves has the potential to make or break your prospects for eventual financial freedom.

  • Drive Expenses Down - While America's love affair with the car dates back to the Model-T, just like with spending on housing, recent generations of Americans have turned that love affair into an orgy. Personally, I've never understood the importance of the automobile to the American ego. To me, a big, fancy car is a waste of money, gasoline, and clean air. Nevertheless, my financial advice is the same as with housing. Buy a nice vehicle if that's important to you, but one that you can afford at the onset, and then maintain it and keep it. Continuing to drive the same set of wheels beyond the point that they're paid for is another fundamental choice in life that has the critical mass to rack up huge savings down the road.

So, why not pour yourself a cup of coffee, or even spring for one at Starbucks, and commit to one or two fundamental life choices that will truly provide for long term financial security and peace of mind?


Jeffrey Yeager has spent his career of more than 20 years in senior management positions with various national nonprofit organizations based in Washington, DC. "When you work for a nonprofit organization, you're frugal for a living, so it's easy to be frugal in your personal life." Yeager is an honors graduate of Bowling Green State University in Ohio and was a Rhodes Scholar nominee.

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