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  • Can a cup of coffee make you rich?

  • That's what we will find out in this video!

  • We talk a lot about money and investing in this channel but here is a question that struck me recently.

  • Can you really get rich by saving on a cup of coffee?

  • The answer is both yes and no.

  • Let me explain.

  • Those 4 bucks that you spend on a fancy cup of hot drink do not seem to make a difference.

  • At the end of the day, we work hard to earn money so that we can afford a more luxuries life.

  • What is the point of denying yourself that pleasure if it's not going to make any difference at the end of the day?

  • 4 dollars a day is just 120 bucks a month and 1440 a year.

  • Which is a lot of money but still isn't really a deal maker since you are getting instant daily pleasure.

  • Even if you look at it from a long term perspective like 30 years.

  • it's just $43,200, which is not even enough to get your house, maybe a downpayment.

  • But by then, you will be an old man.

  • And secondly, if you do not buy that morning coffee, you will probably spend that money elsewhere.

  • Let's be honest, chances that you will put aside every morning 4 dollars aren't high.

  • There are a ton of people who do not buy a coffee every morning and yet they are in no better financial position than you!

  • However, there is a different side to that story!

  • Let's try to look at everything from a completely opposite angle where that cup of coffee could be a deal maker between you becoming a millionaire or not!

  • What is the opportunity cost of that daily coffee?

  • What if you do not just save that 120 bucks but invest it every single month over the course of 30 years.

  • If you take the historical average rate of return adjusted to inflation, that would be 141,127 dollars which is a decent amount of money, it's way more than $43,200, but it still isn't going to make you rich, especially after 30 years.

  • However, when you start looking at it from that perspective, you start counting the opportunity cost of everything else.

  • The avocado toast that you buy together with your coffee, your iPhone that you update every September, every time you eat outside instead of home, all the clothes that you buy but don't wear, all the money that you spend on alcohol and the list goes on and on.

  • And if you take the total sum, it starts making a difference, you realize that your chances to become a millionaire are way higher if you chose to live frugally.

  • But, you may say, what is the point of sacrificing my entire life so that when I am 70, I can sit on a pile of cash.

  • And you are absolutely right, It does not worth it.

  • That is really dumb.

  • So does that mean buying a coffee every morning is the right thing to do?

  • Not really.

  • You see, the point is to reach to a position where your investments are much higher than your expenses and you will keep getting richer every year regardless if you buy that coffee or not because your investments are growing faster.

  • A 7 percent annual return on a million-dollar in sp500 on average adjusted to inflation is 70K which is higher than median US household income.

  • And if you take a look at any self-made millionaire or a billionaire, for some period of their lives they lived extremely frugally.

  • Take Elon Musk who kept his food budget to a dollar a day so that he could invest most of his time into his startup and not work 9 to 5.

  • Of course a dollar back then use to worth much more, but it still under 50 dollars a month by today's standards.

  • This is the worlds richest man's office back when his company already use to worth hundreds of millions of dollars, even the reporter was shocked seeing him drive a Honda.

  • Most Americans can't pull out even a thousand dollars in case of an emergency, in fact, most Americans save almost nothing, primarily because their expenses are too high.

  • And these expenses aren't usually the basic needs that you can't live without but wants.

  • So you either live frugally and save every damn penny you can by working in 2 jobs or cut your expenses so that you will have to earn as less as possible and will have the time to work on your startup.

  • And that's when skipping that cup of coffee can make you rich!

Can a cup of coffee make you rich?

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