Feb 20, 2024
Buying coffee to-go has become a hot topic in personal finance. Some high-profile financial experts are convinced that overspending on lattes and cappuccinos is among the key reasons young Americans struggle to create wealth.
Suze Orman, for instance, told CNBC spending money on expensive coffee could amount to “peeing $1 million down the drain” in lost investments. Dave Ramsey’s company Ramsey Solutions estimates the average consumer can save roughly $22,995 over the course of 30 years by skipping the morning coffee line.
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Entrepreneur Kevin O’Leary seems to be a member of this anti-takeout-caffeine camp.
“Stop wasting money on $5.50 coffee and $15 sandwiches,” he wrote on X (formerly known as Twitter). “Pack a sandwich, skip the fancy latte and watch your savings pile up.”
The post sparked a debate in the replies section. Perhaps the most noteworthy comment was from fellow financial expert Ramit Sethi.
“Kevin, tell them if it’s making your own coffee that led to your net worth,” he wrote.
Overhyped frugality
In a follow-up post, Sethi argues “frugality” isn’t what made the “Shark Tank” investor a millionaire. After all, you would have to skip 181,818 cups of coffee daily priced at $5.50 each to save $1 million. That’s one cup a day for 498 years.
This isn’t the first time Sethi has targeted O’Leary over his advice on buying coffee. Sethi believes rich people telling average Americans to skip their morning lattes are missing the point.
“I don't mind people becoming extremely wealthy. Just tell the honest truth!” he exclaimed. “It's not f—ing coffee and it's not saving money on iceberg lettuce that got you there.”
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He also highlighted the fact that a key ingredient in O’Leary’s wealth building recipe is risk. Like any other investor, the Canadian entrepreneur has put money into ventures that have ultimately failed. Notably, O’Leary claims to have lost the $15 million he was paid to be a spokesman for FTX, the cryptocurrency trading platform that collapsed into bankruptcy in late 2022. Some of that payment, he says, was invested into crypto.
“How many coffees do you have to cut back on to equal that number, Kevin?” asked Sethi.
Instead of focusing on small expenses, Sethi believes it’s much more practical to focus on the bigger picture.
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Sethi's approach
Sethi believes one of the keys to living a rich life is building a budget that’s simple and easy to stick to.
Instead of tracking and mitigating every small expense each day, he encourages people to create four broad baskets for all expenses. The first basket is for fixed expenses such as rent, utilities and groceries. The second and third are for savings and investments. The last one is for guilt-free discretionary spending.
Dedicating fixed percentages to each category should help you create a simple budget that you can deploy consistently. For example, spending 60% of income on fixed costs, 10% on investments and 10% on savings leaves 20% for discretionary spending.
Sethi believes this approach is more practical than tracking the number of lattes and sandwiches you order to-go every day.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
