When I was working as a corporate trainer, I used to buy Starbucks (decaffeinated) frappuccino at least once or twice a month. Like all millenials, I viewed my tall cup of sweet, whipped-cream beverage as ‘reward’ for all the hard work that I was doing.
This was way before I knew about financial planning. Budgeting was a foreign word then. Oh, youth.
The Philippines is ranked 49th globally in terms of consuming coffee. It is estimated that we Pinoy drink about 0.608 cups of coffee a day. That’s about 221.92 cups a year or around 4.28 cups per week.
That got me thinking. What would it be like if I buy brewed coffee from a posh cafe 4 times a week? How will such spending affect me financially in, say, until I retire at age 65?
I rolled up my sleeves and hunkered down to work on the math.
Tall, Grande, Venti
Let’s start with price. A brewed coffee of size Tall at Starbucks costs P105 pesos (size Grande costs P120 and size Venti P135). I am going to use size Tall for our comparison.
In contrast, a sachet of coffee is retailed at P6 pesos.
(I’m not claiming that someone will make the choice of buying sachet as alternative to the one from coffee shop, and vice-versa. The comparison is solely on price, with all other things being equal. It also does not include the true cost of coffee in sachets such as including the cost of hot water and time spent for preparing your cup.)
In a year, a Starbucks-sipping person will spend P23,302 pesos. On the other hand, someone who picks the sachet will spend P1,332.
|Cups in a year||221.92||221.92|
|Total amount per year||23,302||1,332|
Until age 65
I then looked at the total cost of coffee consumption of someone who is 25 years old until age 65. I have to take inflation into account. Assuming both raise their prices at 3% per year, then we have the following table:
In the second column, you will have spent P1.8 million pesos while if you chose to make your own coffee you will have spent only P104,742. On the last column, I computed the price difference for someone who had money to buy from Starbucks but didn’t and instead chose to make her/his own coffee.
You would have been a millionaire when you retire for drinking a different kind of coffee.
Numbers like the ones above make us really think hard and long about the choices we make every day. But I am not making you feel guilty about the choices you already have made. And I am not even saying that it’s morally wrong to buy, drink and stay at a cafe.
Far from it. Instead, my goal is to let you understand that financial planning is not about sacrifices all the time, although it involves that. It’s about knowing what options you have, balancing them, and picking the ones that will be good to you financially both in the short-term and long-term.
Saving versus drinking coffee
As I’m big about saving and investing, I imagined two scenarios. One, the money that you earmarked for cafe is invested entirely to a managed fund. That means, you choose to not drink coffee anymore. Two, you choose to make your own cup by buying sachet and invested the difference.
Let’s assume that the investment grows 5% interested compounded annually. This is how the numbers will play out until you hit retirement.
|Age||Investing coffee-money||Investing the difference|
By taking advantage of compound interest, your savings can actually grow significantly. Investing all of the money for coffee will give you around P2.9 million pesos at age 65, while investing the difference will give you about P2.7 million pesos.Tags