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Should I Be Spending $6 on a Coffee?

Nothing gets personal-finance busybodies foaming quite like gourmet coffee. Whether you view it as a need or a want, what matters is whether it fits into your budget.
Dec. 6, 2019
Managing Money, Personal Finance
Should I Be Spending $6 on a Coffee?
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Hey, America: Is coffee a need or a want?

Some personal-finance experts will tell you it’s definitely a want, but we’ve been looking at the numbers and, frankly, there’s room for doubt.

Seeing that Americans drink an estimated 146 billion cups per year, it’s safe to say coffee is our stimulant of choice. And why not? Some historians say it helped kick-start the Enlightenment. It’s warm, and it wakes you up. It smells nice. What’s not to love? Maybe the work involved in making it — but there’s a coffee shop on every corner prepared to whip up a cup to your exact specifications for a few bucks.

And, boy, does that set some people off …

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Cue the finger-waggers

Like all the best habits, gourmet coffee has its killjoys. Some money gurus work themselves into a rich, foamy lather on the subject with the oft-repeated claim that people who buy takeout coffee — and they’re (predictably) pointing at you, millennials — cost themselves $1 million in retirement savings with their diabolical caffeine habits.

Others take strenuous issue with java-shaming. Young workers face genuine societal challenges when it comes to money, from college debt to wage stagnation to the decline of full-time employment. Shaming them over a daily latte isn’t just missing the point. It’s willful misdirection.

In a recent NerdWallet study, 18% of respondents said they find all the coffee-related financial nagging “annoying” (though 72% said they do believe coffee habits can have an effect on retirement savings).

We’ll get practical in a minute, but first let’s acknowledge that your investment in the coffee drink of your choice is often about more than just what’s in the cup. It can be about catching up with an old friend or a potential job connection. Maybe that Americano gives you the social cover you need to park at a booth and grab an hour or three of free Wi-Fi. Maybe you need a jolt to get you through finals week.

Coffee is a social lubricant and a pick-me-up. If you’re like me, you want it and need it. And yes, somehow, we’ve got to pay for it.

Counting beans

On the surface, building a budget is a pretty simple concept. You have money coming in and money going out. In an ideal world, there’s something left at the end of the month you can save or use to pay off debt.

Real life is messier, but a spending plan is still a great idea, and we recommend the 50/30/20 budget. Of your after-tax income:

  • 50% is earmarked for needs (like housing, food, and basic utilities).
  • 30% is designated for wants (like entertainment, travel and meals out).
  • 20% is for debt repayment and savings.

Which circles us back to the original question: Is coffee a need or a want? Let’s just say the lines are fuzzy. The only important thing is that the stuff you buy is accounted for. One idea: The money you spend on coffee for making at home could be part of your food budget (need), and the money you shell out at your local coffeehouse could be part of “meals out” (want).

Even if you’re not ready to go the whole budget route, track what you spend on coffee for a month. You may be surprised. Acorns, an investing app, did a 2017 survey in which respondents said they spent about $1,100 a year on coffee. And yes, for 34% of them, that was more than they invested.

If you find that you’re spending more than you can really afford, there are ways to cut back while still meeting your daily minimum caffeine requirements. Make more at home and take advantage of that free coffee at work if it’s an option. When you do buy a cup out, remember that the general quality of coffee has been rising since Starbucks commoditized “gourmet coffee,” and you can even get a decent cup at McDonald’s.

So, um, about that $6 coffee

The average price of a “typical” cup of coffee in New York City is $3.14, but it’s very easy to spend more than that, upward of $6, especially if you go for something fancy like those frozen blended drinks (which, let’s face it, are really milkshakes) and add a tip. So, is that OK?

Look, we’re not your mom. But we do provide financial guidance, so we’d be remiss if we didn’t say: When you spend, do it mindfully. Carve out a coffee allowance. Enforce it with a prepaid card or app, if that helps you put a lid on your spending. When money is tight, make sure the lattes out are a treat and not the thing that’s sinking your budget. The goal is to enjoy life now while laying the groundwork for the future you want.

And when you do decide to treat yourself to a coffee drink out — savor it, and leave the guilt at home.

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