In the personal finance space, especially among the frugal living and FIRE advocates, the subject of coffee comes up a lot.
Seriously - all the time.
This is because there is a coffee addiction that is prevalent in the west through the corporate world.
It's not a stretch to say if you pick any random office tower in New Zealand, probably 90% of the people inside are caffeinated.
But that's not the issue, exactly.
The issue is with the cost.
Walk by any coffee shop at eight o'clock in the morning, and what do you see?
Queues of people waiting to pay $4, $5 or $6 for a cup of coffee.
For example, here's the NZ Starbucks menu:
The argument is this:
Coffee is so easily made at home, that buying it is an unnecessary luxury.
Not to mention, it's grossly overpriced.
You can buy 50 servings of instant coffee at Pak N Save for $1.79, which is literally 3.5 cents per cup (maybe 10 cents per cup after milk and sugar):
The claim then becomes, just from making your own coffee at home, you would so much money you would become a millionaire.
That's what the Starbucks Experiment is about.
If we stopped buying a coffee from Starbucks everyday, and instead put that money into Starbucks stock, would we become a millionaire? How long would it take?
Let's take a look.
The SBUX Experiment
The experiment is simple.
In the @moneybren portfolio, I have an automatic Sharesies order that buys $3 USD (about $5 NZD) of Starbucks stock every weekday (five days a week).
We simply leave it to compound and see where it goes.
As of January 2023, $1,802 has been invested into the experiment.
It's returned 9.9% or $180, of which $25 is dividends.
Can It Reach A Million?
Let's look into the claim that giving up coffee can make you a millionaire.
It's not a hard equation.
If we save $5 per day, five days a week, and assume SBUX can return 10% per year on average, how long does it take to reach a million?
Using our compound interest calculator, we get an estimate of 44 years:
That means if we start when we're 18, we'll reach a million by 66, just in time for retirement.
Since 10% might be optimistic, let's dial it back a little.
Let's say SBUX returns 7% per year:
In this scenario, it would take us 58 years to get to a million.
Now let's look at if we had actually done this with SBUX stock over its lifetime.
SBUX listed in 1992 and has grown from $0.39 cents to $100.88 over the past 31 years:
That's a compounded annual growth rate of 19.63%.
If we had stopped buying coffee and instead bought $5 of SBUX every day over the past 31 years, here's how much we would have today:
Almost 3 million bucks.
So ... can giving up coffee make you a millionaire?
Not only is the answer yes, it can make you a multi-millionaire if you manage to invest it at above average returns, and in less time than you'd expect.
The lesson of the Starbucks Experiment isn't that you should feel bad for buying coffee.
Try to think of it as a lesson in compounding.
If even $5 a day can grow to a million, what can you do to build a habit of investing $5 a day?
You can still enjoy your coffee, as long as you create good habits of being frugal and accumulating assets.
I say it here all the time - building to a million isn't complicated - it's just simple mathematics and a lot of patience.
Check back here in a few years and see how the SBUX experiment has grown!