Why Skipping $3 Coffee Won’t Build Wealth: The Real Money Moves
If you’ve ever scrolled through Twitter or Instagram personal finance posts, you’ve probably seen the classic advice: “Skip your daily $3 coffee and save thousands!” Sounds simple, right? But here’s the truth—those small daily savings, like making coffee at home or eating burritos instead of Chipotle, barely move the needle when it comes to building real wealth. In this post, I’ll break down why these common tips are misleading and what you should really focus on if you want to master your money and grow your wealth over time.
The Coffee Myth: Picking Up Pennies in Front of a Steamroller
What Is the Steamroller?
Imagine a giant steamroller barreling down the street, and you’re picking up pennies on the sidewalk. Those pennies don’t stand a chance. This steamroller is a metaphor for massive financial forces like inflation, stagnant wages, rising costs of living, and healthcare expenses that crush small savings efforts.
Since the 1970s, wages adjusted for inflation have been flat. Meanwhile, the cost of college has skyrocketed over 1200%, housing prices increased by over 800%, and healthcare costs grew exponentially. Rent has consistently increased around 8.8% annually, while wage increases haven’t kept pace. In this environment, saving a couple of bucks by making coffee at home is like trying to outrun that steamroller by picking up pennies—it simply won’t work.
Why “20 Cent Iced Coffee” Doesn’t Build Wealth
The “20 cent iced coffee” analogy is popular because it’s relatable. You save $2.80 each time you skip buying a $3 Starbucks latte. Let’s break it down:
- Saving $2.80 per coffee
- Drinking coffee 5 days a week (Monday to Friday)
- 52 weeks a year
- Over 30 years
Do the math:
$2.80 x 5 days = $14 saved per week
$14 x 52 weeks = $728 saved per year
$728 x 30 years = $21,840 saved
Sounds decent, right? But what if you invested that money?
Investing the Coffee Savings: The Inflation Factor
If you invested that $14 weekly saving at an 8% annual return over 30 years, you’d nominally end up with about $68,612. Great! But here’s the kicker—how much will that money actually be worth after inflation?
- At 7% inflation, your $68,612 is worth only about $9,013 in today’s dollars.
- At 10% inflation (which some argue is closer to reality), it’s worth a mere $3,932.
- Even a more optimistic 2.9% inflation rate shrinks your purchasing power to around $29,103.
So, after 30 years of sacrificing your daily coffee habit, you’re essentially ending up with the equivalent of an entry-level used car. Not exactly the Ferrari lifestyle many envision.
The Real Problem: Inflation and Stagnant Wages
Inflation erodes the value of money over time. While your savings might grow nominally, their real-world purchasing power diminishes. Meanwhile, wages have barely budged since the 1970s when adjusted for inflation. This means most people are stuck working harder just to maintain their current lifestyle, let alone build wealth.
Healthcare, education, and housing costs have all skyrocketed well beyond wage growth, creating a financial steamroller that small savings can’t outrun.
What Actually Builds Wealth? Think Bigger
Preserve Your Purchasing Power
Your primary goal should be preserving your purchasing power (let’s call it your PP). How? By investing in assets that keep up with or outpace inflation. Real estate, dividend stocks, and other income-producing assets tend to do this well. Over time, these investments not only maintain their value but also generate income that can help you get ahead.
Create Multiple Income Streams
Relying solely on a stagnant W-2 paycheck is a recipe for financial frustration. Building multiple income streams is crucial. This can be through:
- Rental income from real estate
- Dividends from stocks
- Side hustles or freelance gigs
- Starting a small business
The more streams you have, the better your chances of beating the steamroller.
Think Big: Increase Your Value
Almost anyone can do minimum wage work, but that’s because it’s accessible to the broadest pool of people. To really grow wealth, you need to increase your value in the marketplace. This might look like:
- Learning new, specialized skills
- Pursuing advanced degrees or certifications
- Starting a business or monetizing a passion (like YouTube or blogging)
- Taking on leadership roles to boost your earning potential
The key is to separate yourself from the pack by offering something unique or more valuable.
Why Small Savings Alone Won’t Cut It
Sure, cutting back on daily coffee or fast food is a good habit, but it’s just one small piece of a much bigger puzzle. If you focus only on these tiny savings, you’ll end up frustrated, feeling like you’re missing out on life’s pleasures without much to show for it.
It’s like going to a fast food restaurant and swapping your fries for a side salad—better, but you’re still eating fast food. To truly transform your financial life, you need to change your entire diet—your approach to money.
Common Questions About Building Wealth Beyond Small Savings
Q1: Isn’t every little bit of saving helpful?
Absolutely, every dollar saved helps. But without investing those savings wisely and focusing on bigger financial moves, small savings won’t overcome inflation and rising costs.
Q2: How much should I aim to save and invest weekly?
Aim to save and invest as much as you can reasonably afford—ideally at least 20% of your income. The key is consistent investing in assets that appreciate and generate income.
Q3: What if I can’t invest much?
Start small, but focus on increasing your income and building skills that boost your earning potential. Over time, this will allow you to invest more and build wealth faster.
Q4: Are real estate and stocks the only good investments?
They’re among the best for preserving and growing wealth over time but consider diversifying. Look at bonds, index funds, dividend stocks, and alternative assets that fit your risk tolerance.
Final Thoughts: Focus on the Big Picture
Don’t get caught up in the popular but misleading advice about skipping your $3 coffee or packing your lunch every day. Those actions alone won’t build wealth or secure your financial future. Instead, focus on:
- Preserving your purchasing power by investing in assets that keep pace with or beat inflation
- Creating multiple income streams to break free from the stagnant wage trap
- Increasing your value through education, skills, or entrepreneurship
- Thinking big and making strategic moves that truly move the needle
Small savings habits are a good starting point, but the real wealth-building magic happens when you tackle the big stuff. So next time you see a tweet about “20 cent iced coffee,” remember the steamroller and think bigger.
Peace out, and keep building your wealth the smart way!
