Your coffee habit could cost you $450,000—and that’s OK

Financial luminaries will tell you your coffee habit is getting in the way of building wealth. They're wrong.

VIEW IN BROWSER | SUBSCRIBE WED, FEB 8, 2023 This week's newsletter was written by Ryan Ermey, a senior reporter covering money and investing for CNBC Make It. You can follow him on Twitter @RyanErmey.   Last week, I wrote a story that was nominally about coffee. "People in this city spend the most on coffee—it's not New York or LA," the headline read.   In case you're curious, if you're going by the outright cost of a cappuccino, that city is Virginia Beach, Virginia, where espresso with steamed milk will run you $5.75, according to data from real estate firm Clever. As a percentage of city dwellers' average income, Las Vegas comes in as the most expensive, with daily cappuccino drinkers spending 2.29% of what they make.   But the story wasn't really about coffee so much as what you're potentially giving up on a daily basis by buying it.   We've all heard that our daily caffeine fix is getting in the way of building long-term wealth. So let's do some math.   Say you're a 22-year-old daily cappuccino drinker in Virginia Beach. Assuming you only swing by the coffee shop on weekdays, you're spending $28.75 a week on coffee, before tipping. That's $1,495 a year.   Play around with CNBC Make It's compound interest calculator, and you'll see how that money could add up over time. Were you to invest your coffee money each year between now and retirement at age 67, and earn a 7% annualized return, you'd end up with more than $450,000.   This is the part where the financial influencer looks into the camera and says something like, "Is your daily coffee habit really worth almost half a million dollars in retirement?"   And from a pure, mathematical standpoint, the answer is obviously not. But you don't live your life on a spreadsheet. You're a person who needs to be alert for early meetings. Or one who wants something warm to sip on in the morning. Or one who can't stand the muddy water they call coffee in your office.   Whatever your reasons, you have small, regular expenses that make your life a little more livable. And cutting them out of guilt over what you could be saving is likely to make you miserable — and unlikely to make much headway on your savings rate.   If you're looking to put away money for a long-term goal, "people in their 20s or 30s should be aiming to save at least 20%," Rachael Camp, a certified financial planner and owner of Camp Wealth, told CNBC Make It.   But even in the most expensive coffee city relative to income, residents are spending a little more than 2% of their income on their caffeine fix. If you want to work up to 20% by cutting out coffee runs, you're working at the wrong end of your budget.   Instead, focus on "needle movers," says Camp. The most impactful ways to up your savings rate, she says, are to minimize fixed costs, such as living expenses and car payments, and to up your income by negotiating higher pay or picking up side hustles.   And if you have the means, try so-called reverse budgeting. Take your 20% right off the top of your paycheck and put it toward goals such as paying down debt, building an emergency fund and saving for retirement. Then pay your bills. Whatever's left over is yours to spend guilt-free on as much cappuccino as your heart desires. Trending articles from CNBC Make It 3 ways to make money off things you already own—one of them brings in up to $39,000 a month Chiefs coach Andy Reid uses 1 simple tactic to build trust with his players—and anyone can do it Why the IRS says to hold off filing your tax return if you received a relief check in 2022 Should you buy bonds right now? Here's what investing experts say More companies say they're giving bigger raises this year—here's how much to expect Unsubscribe Manage Newsletters Digital Products Join the CNBC Panel Feedback Terms of Service Privacy Policy   © 2021 CNBC LLC. All rights reserved. A property of NBC Universal. 900 Sylvan Avenue, Englewood Cliffs, NJ 07632 Data is a real-time snapshot *Data is delayed at least 15 minutes. Global Business and Financial News, Stock Quotes and Market Data and Analysis. Data also provided by THOMSON REUTERS