Saturday , March 2 2024
Ironically, the best time to start saving for your old age is when you start your first job, because interest compounds exponentially over time.

Coffee Today vs. Financial Security Tomorrow

The $500 Cup of CoffeeHow much would you pay for a cup of your favorite brew? $3, maybe $5, but not much more. That’s nothing compared to the $500 price tag for a cup of Diamond, the ultra-luxury coffee made from beans passed through the digestive system of a small Indonesian feline.

Like me, you may be wondering who’s paying such a ridiculous price for a single cup of joe. According to Richard Hardwick, CEO of Bespoke Beverages, Russian oligarchs are, but not cash-strapped European monarchs. After more than a half-century of deferred maintenance, Queen Elizabeth is now bogged down with home renovations at Buckingham Palace.

If the queen can’t afford such an extravagance, how can you?

“Who me?” you’re thinking, “paying $500 for a cup of coffee? You must be crazy. I can barely pay my rent.”

Well, if you’re my age, you’re probably not overspending on coffee. But if you’re in your late teens or early 20s, the value of the $4–$5 you’re spending for a gourmet blend could be several hundred dollars when you retire in another 45 years.

Yes, thanks to the power of compound interest, if you invest your coffee money today and let it grow, you could have $42.50 four decades from now assuming an average rate of return of 5%; $254 at 9%; and $497 at 10%.

If you’re young, retirement may be one of the last things on your mind, especially if you’re looking for a job or working hard to establish a career. Retirement is decades away – past student loans, saving for a home and the kids’ education – so why think about it now? There will be plenty of time to save. Right?

Not necessarily.

Ironically, the best time to start saving for your old age is when you start your first job, because interest compounds exponentially over time. If you wait till you’re 35 to invest your coffee money, you’ll earn $104 at 9% (compared to $254 had you started 10 years earlier.)  If you wait till you’re 45, you’ll earn $27. And if you wait till you’re 55, you’ll earn $11.

compound interestObviously, the later you start the less you earn. As this chart demonstrates, due to the exponential growth of compound interest, earnings are significantly less the longer you wait, so it pays to start early. If you’re fortunate enough to work for a company that offers a 401(k) retirement plan, it’s easy to get started. Automatic paycheck contributions to your plan will grow tax-free until you withdraw them at retirement age. And because contributions are automatic, you won’t miss the money after you adjust to the lower take-home pay.

We plan to write more more about tax-free retirement accounts and other investment opportunities in future posts, but for now, the main point is that you don’t need to make a lot of money or know much about investing to lay down the tracks to a financially secure future.

Even if you don’t have access to a 401(k), you can start by setting aside your coffee money in an investment account. If you start when you’re 25 years old, a monthly investment of $100 at 9% will be worth a whopping $468,000 by the time you’re ready to retire.

But 40 years is a long time to delay gratification, so it may take more than math to convince you to kick your caffeine habit. Rather than quit cold turkey, you may consider switching to a less expensive brand or to brewing your own at home.

If you’re not a coffee drinker, there are lots of other ways to save. Starting with the obvious, you can eat in more often and limit your drinking on your nights out.

If you’re past your 20s, compound interest has less time to work its magic, so planning for future financial security may require additional thought and effort.

Spending, savings and retirement strategies will all be topics for another day. The important thing today is for you to realize that a future free from money worries is within your reach, especially if you start thinking differently about money and wealth accumulation when you’re young.

You don’t need to be born rich, win the lotto, become the next American Idol or earn a six-figure salary to achieve financial freedom. Some people happen to be at the right place at the right time. Others succeed through a combination of luck and talent, but most slowly accumulate wealth by saving a little at a time.

As we’ve just demonstrated, small amounts can add up to huge returns when you consistently invest and remain patient over the long haul. You may never have enough to easily afford a $500 cup of Diamond, but you’ll have plenty to feather your nest.


About the authors

Dave Kramer and Steve Lome started “The $500 Cup of Coffee” as a motivational savings program for millennials, especially those who hate to budget. More than providing investment advice, we offer a lifestyle approach to personal enrichment and eventual financial freedom.

We are not certified financial planners, but we know a lot about finances from both professional and personal life experience. A mortgage broker for more than 20 years, Dave has seen the personal finances of thousands of individuals and households. As a former developer of affordable housing, Steve learned it was easier to build a house than a customer, because sloppy money habits prevented far too many people from qualifying for home loans.

When one of Dave’s friends confessed that he wasn’t doing a good job of managing his money and probably never would, David conceived of “The $500 Cup of Coffee” as a sure path to financial freedom that anyone could follow. Ten years later, he asked Steve to help him write the book and promote the program.

We recently met Barbara Barnett, co-owner and publisher of, who generously offered us an opportunity to contribute to this magazine. We plan to honor this opportunity by taking a close look at both the “personal” and “financial” sides of “personal finances,” because more important than money is how you use it to improve your life and the lives of others.

We look forward to your questions and comments, which we’ll use as a basis for future posts. You can comment here or visit us at

Compound Interest

Simple interest is the money you earn for use of your money. Compound interest is the money you earn on your money and interest.

What is a reasonable rate of return on your investment?

In today’s market, most investments are returning under 5%, so 9% seems unreasonably optimistic. Is it realistic?

Based on historic data, the S&P 500 (also know as the Standard & Poor’s 500) has had an average annual rate of return of 11.75% since its inception in 1975.

The S&P 500 is an American stock market index, which measures the value of 500 large companies listed on the New York Stock Exchange (NYSE) or the NASDAQ, another American exchange. Many consider it one of the best representations of the U.S. stock market, and a bellwether for the U.S. economy.

You can invest in the S&P Index Fund, which is a mutual fund that owns stock in every one of these 5oo companies including AOL Time Warner, Boeing, Cisco, Coors, Disney, Exxon Mobil, Ford, Gateway, Gillette, Hershey, Intel, Johnson & Johnson, Lockheed Martin, Marriott, McDonald’s, Motorola, Oracle, PepsiCo, Pfizer, Safeway, Sara Lee, Schwab, Sears, Texas Instruments, Toys R Us, Wal-Mart, Walgreen, Waste Management, Wells Fargo, Wrigley, Xerox, and Yahoo! You get the idea.

Since the S&P 500 index is widely regarded as “the market,” an investor in this index fund would automatically match the market’s return. As it’s difficult, if not impossible to consistently beat the market, matching the market – which trends upward over time — is generally a good investment strategy. However, when you consider investment fees, safe investment strategies and inflation, you’re actual rate of return will be lower.

Delayed Gratification

Of course, we realize that patience is generally not a virtue of the young and that much of what we wrote in this post is easier said than done. That is why we wrote “The $500 Cup of Coffee” – to offer both encouragement and practical support along the way to financial security.

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About Steve Lome

Steve Lome and Dave Kramer are the guys behind "The $500 Cup of Coffee, a Lifestyle Approach to Financial Independence, Especially for Millennials and the People Who Love Them". We are not professional financial advisors, but we have lots of money experience. As a mortgage broker, Dave reviewed the personal financial statements of thousands of customers. As a developer of affordable housing, Steve learned it was easier to build a house than a mortgage-ready customer, because so many of his prospects were wearing or driving their wealth. They both realized that no matter how little or how much people make, most do a lousy job of managing their personal finances. Dave first conceived of “The $500 Cup of Coffee” as a way to help his clients save their money. Working with Steve, he re-imagined it as a roadmap to financial independence that almost anyone can follow. The final result is a well-balanced blend of Dave’s straight forward thinking and Steve’s expansive worldview that encourages a commonsense, relatively low pain approach to wealth accumulation, emphasizing conscious consumerism, steady saving and regular investing.

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