## How much money you may be wasting on coffee shops?

We have all heard about the importance of savings. But what if we look at savings from another perspective? What if we look at how much potential earning excessive spending could cost each of us?

Take coffee consumption as an example. All credit to this Twitter user for inspiration to use coffee as an example. Many of us love to drink coffee every day, but a coffee from a branded or local indie shop can cost around \$5-6 per cup. Depending on the consumption level, one person can spend a lot of money on drinking coffee outside per year.

What if we substitute drinking coffee at a shop for drinking coffee at home? We all know that drinking coffee at home will save us a lot of money, but let’s run an experiment and find out approximately how much money can be saved. Here are two combos A) one 12oz bag of ground coffee that is in the cheap range and a French Press from IKEA that costs \$9 and B) a slightly more expensive bag of coffee and a Metallisk at \$20.

Either of these combos should be enough for a cup of coffee at home every day. For the sake of argument, let’s say every year a person needs 18 of these bags to have one cup of coffee a day. Combined, 18 bags of Dunkin Ground Coffee and the French Press will cost \$120/year. Since we like to drink coffee with some milk, let’s throw in another \$30 of milk and round it to \$150/year. Here is how much drinking coffee at home would save a person:

Over a long period of time, the compound interest will make these savings much more valuable in the future. Let’s look at four scenarios where the annual interest rate we can earn from these savings, whether it’s from a bank or investment in stocks or from dividends, is 3% to 10%

Essentially, what the table above means is that drinking coffee at home using Combo A would save a person on a 3-cup-a-week routine more than \$300,000 after 40 years at the annual rate of 10%. Even at a more moderate rate of 5%, it would still be around \$100,000, a significant sum for most of us.

Here is what the savings would look like with Combo B and the same criteria

From this example, there are two lessons. 1/ the compound interest is a powerful tool to learn and have in our favor. The sooner a person learns about it, the better and 2/ If a person is even only decent at maths and knows the power of compound interest, explaining savings in this manner could be more powerful than just talking about it. Personally, I wish my parents or teachers in Vietnam had taught me this when I was 15. I would have saved so much money from all the shenanigans and earned some from putting the money into an index fund or a high dividend yield stock.

You may argue that the scenarios are a bit extreme and that each of us should enjoy what life has to offer. Well, that may be right, but coffee isn’t our only sin, is it? How about regular food from Chipotle, the 5th streaming service of the month, the 20th bottle of perfume or the 15th pair of shoes? The point of this exercise isn’t to arrive at the exact figure, but to look at the opportunity cost of excessive current spending. A moderate control of spending and savings will help each of us save a lot of money, even after we enjoy the occasional delicacies.

FYI, here is a Future Value calculation I made, using Financial Calculators

## Compounding Effect

Even though there are still 12 days or something left in September, it is the busiest month so far in this little project’s history. It is mainly due to my commitment to write more. The target is 100 posts by the end of the year and even though I don’t write every day (try to), I do as often as I can.

It’s nice to see some appreciate what I have to say, but the biggest benefit is that the more I write, the more I want to write. Before, it took quite an effort for me to sit down, have an agenda, start writing, edit, have a friend edit again for me and decide whether I should publish the piece or not. But mostly it was due to my lack of commitment to do it often. Nowadays, it became significantly easier for me to finish an entry. The compounding effect starts to show some impact on my personal progress as well as on the number of interactions with this blog.

I am not the first to notice it, but apparently compounding effect is the secret. Put some effort in something every day and let it compound. Study, career, side projects, writing, love, friendship, gym. Anything can be greater when compounded. The hard part is to avoid distractions, make it a routine and be patient. It’s exceedingly difficult. But like someone wise said: difficult choices, easy life. Easy choices, difficult life.