What does Starbucks mean to your retirement?
Starbucks, you ask? Okay, it doesn’t have to be Starbucks. How about TiVo? Or cigars? Or the four plasma TV screens hanging in your home? Or cell phone overcharges? Or the six different motorcycle jackets you own? Or the 35 pairs of Bruno Magli shoes?
This being the beginning of the year, we hear a lot about New Year’s resolutions. How about this one: I will look at the way I waste money and peel off just a teeny bit of that to save for my retirement.
Think of all the little things that day in, day out, suck money out of your pocket—the double mocha latte every day at Starbucks or Caribou Coffee. Before the advent of the ubiquitous coffee shop, people didn’t spend $4 a day on coffee—for one cup. Or the cell phone bills for your kids, not to mention all the times they go over on their minutes, or send 6,200 text messages to their significant others, or download a new custom ring tone once a week.
Aw, that’s not so much, you protest. On the contrary. All of it—all of the little “necessities” that our parents couldn’t have imagined, one on top of another—can make for a pretty big mountain of spending when you total it all up.
I have a friend who stops at Starbucks every single day for some variation on a double latte that costs $4 a pop. That’s $28 per week, without putting any money in the tip jar. Monthly total: $112, or—are you ready for this?—$1,344 a year in after-tax dollars! Okay, let’s assume a two-week vacation. That takes it down to $1,288, but my guess is that he stops at a coffee shop when he’s on vacation, too.
Still think the dollars are trivial? For illustrative purposes, let’s say you’re 40 years old and you save that $1,288 per year in a well-diversified portfolio returning a hypothetical 10 percent annually until you retire 20 years later. That simple cup of coffee translates into $126,671 at retirement. Back out capital-gains taxes and you have nearly $105,000 in retirement funds. For some, that cup of coffee a day might cost upwards of a year of retirement funding. Still sound trivial?
You don’t have to stop enjoying life along the way, but be an optimist about your prospects for a great retirement, and find a balance between the not-so-necessary “necessities” and the financial freedom of funding your own retirement.
Whether it’s a Starbucks or Caribou habit, or a cigar habit, or a shoe-buying habit, take a moment to add that spending up, and it soon becomes clear how much slips through our fingers, why there’s nothing left at the end of a pay period and we just can’t seem to set anything aside. Not this month, you say, maybe next. Maybe.
Look around your home. Most of us have accumulated an incredible amount of “stuff.” A cell phone in every pocket. Digital cable with premium channels. Toys everywhere, whether for adults (exactly how many sets of golf clubs did you say you have?) or for the kids. Clothes. Shoes. We shop as a recreational pursuit.
Here we stand at the beginning of a new year, fortunate to be living in the wealthiest country on the planet and in a wonderful part of that nation. So as we all begin to dig through our files to get ready for tax time, perhaps it’s also time to take a good look at what we have and what we really need to have, and to resolve, perhaps, to save a little more and consume a little less.
