Keep Drinking Your $5 Lattes

Most personal financial experts will tell you to forego your daily coffee run and save more than $1,500 a year. My dad was an accountant when I was growing up, and he always taught me that since he could bill clients $400 an hour, every minute of his counted, and so should mine. You can think of yourself as having billable hours, like a website developer or any other professional working hourly. Whether it is $20 or $400 an hour, your time is extremely valuable.

So go ahead, buy your $5 morning latte (or if you’re like me, your tea). You can even buy it every day if you want to (but bring your own cup to save our environment).

Let’s start on the low end and say that you value your time at $20 an hour; so one coffee is equal to 15 minutes. To save that $5 as the experts advise, by making the coffee at home, you might in fact waste more than 15 minutes, not to mention the additional cost of buying all of the supplies.

Whereas if you just stop in at your favorite café on the way to work, you’ll get into the office earlier, you’ll have more energy, and then you’ll likely work more effectively and productively. Seriously — coffee drinkers are much more likely to be high-achieving go-getters. You might even get a bonus or promotion at the end of the year that totals more than the $1,500 you could have saved!

It’s all about making sure that your money choices, big and small, reflect your goals and your values. When all of this is aligned, you won’t question your well-planned buying decisions, which will end up saving you even more time.

For example, when I was a freshman at Stanford back in 2000, I also worked part-time at IBM. At first I worked 5-8 hours a week and made $14 an hour. This meant that I couldn’t always go back to my dorm to eat meals that I had paid for in my meal plan, but I would pack some meals to go.

Soon I became really good at my job and was contributing significantly to the team. My hours increased to 10-15 hours a week. Suddenly I had no time to pack my lunch from the dorm dining hall and I ended up buying a $5 sandwich or a $10 meal at the coffee shop next to the office.

Even if it seems that I wasted the meal plan that I had already paid for, by not wasting time going back to the dorm I worked more hours and gained valuable work experience. Obviously, working more hours isn’t everything — I needed to also prioritize work-life balance and a healthy lifestyle.

I still managed to save money after paying for my meals. I had a 30-30-40% budget. I saved 30% to pay for taxes and put the rest in a savings account, invested 30% and spent the remaining 40%. If your 40% in spending budget includes $5 lattes, so be it.

I hear it all the time from personal finance gurus: They say investing $5 a day for 20 years will earn you close to $1 million if you manage to get a return of 10% per year (the annual return for S&P index has been close to 9% past 30 years). Since I started investing in individual stocks at the time the market collapsed (I did not know about ETFs then and how they diversify risk), I lost money initially and made less than 9% a year in returns. By working hard (while many of my friends were out partying) and staying in the market for the long term, I managed to recuperate these initial losses.

Putting a small amount in individual stocks is good for beginners, but not for everyone, because it can lead to dramatic ups and downs. As a professional investor for 17 years, I know not to invest in a single stock if I need the investment gains immediately, or within 12 months time unless I know I can handle losing my capital.

For those who are new to investing and perhaps starting later in your life than your college years, I would recommend that at least 10% of your paycheck should be put into a index ETF like SPY which tracks the S&P. This is even good if you are nearing retirement.

My philosophy is that money is there to enjoy. It’s not worth your valuable time to get bogged down in cutting out small, enjoyable expenses. A financial plan is like a diet: depriving yourself continuously is not sustainable and rarely succeeds, and usually leads to binging afterwards. Allow yourself the minor indulgences like coffee (tea), lip balm, or a Netflix subscription — while keeping an eye on the big picture.

Not buying the $5 latte doesn’t mean you will save a lot of money automatically. Cutting it out doesn’t mean you won’t spend the money elsewhere. The key is to be efficient with your valuable time and start investing!