You're Not Rich, and Starbucks Is Why | Hacker News Reader

You're Not Rich, and Starbucks Is Why

nickinrichland.com

16 pointsnicholascolby25 comments

Reminds me of this old joke...

  Lady: Do you smoke?
  Guy: Yes I do.
  Lady: How many packs a day?
  Guy: 3 packs.
  Lady: How much per pack?
  Guy: $10.00 per pack.
  Lady: And how long have you been smoking?
  Guy: 15 years
  Lady: So 1 pack is $10.00 and you have been smoking 3 packs a day which puts your spending per month at $900. In 1 year, it would have been $10,800. Correct?
  Guy: Correct.
  Lady: If 1 year you spend $10,800, not accounting for inflation, the past 15 years puts your spending total at $162,000. Correct?
  Guy: Correct.
  Lady: Do you know if you hadn't smoke, that money could have been put in a step-up interest savings account and after accounting for compound interest for the past 15 years, you could have by now bought a Ferrari?
  Guy: Oh. Do you smoke?
  Lady: No.
  Guy: Then where's your fucking Ferrari?

Over 40 years ago I was in high school, had access to a computer, and did a simple programming exercise.

I created some tables of how much money my dad was spending on cigarettes, and how much he would have if he invested it instead. IIRC the interest rates I used were from 1% to 10%. The price of a pack of cigarettes was somewhere in the neighborhood of $0.30. Maybe the tables went up to $1.00 a pack but probably no higher.

Fast forward 40 years. Cigarettes are now about 30x as expensive as they were, but interest rates are somewhere near 0%. Times change!

The math might add up, but this might still be wrong.

1. Not spending $5 on Starbucks every day changes other things. For example, the person might have a feeling of "I'm being good by saving $5", and that feeling might lead to purchasing something else as a reward - dessert at lunch, or a more expensive vacation at the end of the year.

2. Someone that spends $5 on Starbucks every day gets something in return. Maybe they enjoy it so much it makes them more productive, or maybe they meet friends there which makes them happy, etc.

Regarding the math, the SP500 might not make 11.3% annually forever. It's a relatively high-risk investment compared to other avenues. So it might not be the most fair figure to use in the article's argument.

He's not counting inflation and 11.3% is a super optimistic expectation of future S&P500 returns. A more conservative estimate for real returns would be 6.5% [1] (and internationally returns to equities actually average lower). When I punch those numbers into a calculator [2] I get $65k which is ahem not as impressive.

[1] http://www.nickinrichland.com/starbucks-broke/

[2] http://www.moneychimp.com/calculator/compound_interest_calcu...

Exactly. 11% returns is crazy high and a 44 year window is quite long. Under more realistic assumptions it's mid-5-figures.

By that calculator, $1300/year (52 weeks/year * 5 days/week * 1 coffee/day * $5/coffee) over 47 years (aged 18-65) assuming 6.5% gets you nearly $400,000...

($65,000 is definitely way off! 1.065^47=19, very roughly. So let's assume you just invest $1300/year for 3 years then go back to buying coffees. What's a ballpark figure for how much you'll have aged 65 after that? Figure very approximately $1300 * 3 * 19 = $74,100.)

Agh you're so right! Sorry Sunday morning biff, I had $5/week not $25.

$5/day, $25/week, $100/mo, $1200/yr compounded over 47 years at 6.5% is $382,849.60. The interest rate may be exaggerated, but the benefits of saving are clear.

If you can get 11.3% per year on your investments forever, spending anything on anything is going to look foolish: just wait a few hundred years and you will have more money than the US GDP, which only grows at 2-3%.

If you do want to enjoy an espresso, I will point out that coffee is considered "food for office" and is a 100% deductible business expense.

Starbucks has nothing to do with why you aren't rich.

You aren't rich because of your actions not because you spent $5 a day on coffee.

When you build that business or invest in those assets that help you become wealthy, you don't focus on things like coffee because they aren't important.

One does not get rich by saving money. One does get rich by earning it.

That's overly simplistic. If you consider $1 million rich, like the author does, you can easily get rich by saving money. If you consider $1 billion rich, your Starbucks habit doesn't matter.

Pedantic grammar note: If you consider $1 million rich you almost certainly consider $1 billion to be rich. In contrast, if you consider rich to be $1 billion, you may or may not consider $1 million to be rich.

Attitude has a lot to do with getting rich. "Saving money" is one very important aspect of it.

Here's[1] a guy who "earned" more than $100,000,000 but was forced to declare bankruptcy. Sadly, there's a large group of his contemporaries[2] that "earned" a lot of money but have very little to show for it. E.g. Mike Tyson "earned" an estimated $400,000,000 over his career but went bankrupt.

[1] http://www.npr.org/2015/01/27/381724445/how-do-some-highly-p... [2] http://en.wikipedia.org/wiki/Personal_finances_of_profession...

That theory has been debunked long ago. It just isn't true.

Compounding interest? https://en.wikipedia.org/wiki/Compound_interest

Would you be able to provide details? I don't know what has been debunked, or how.

The main problem I see is that he cherry-picks the number for investment returns (arbitrarily using a 20-year average even though he's talking about a 44-year investment plan) and then fails to account for inflation. For more realistic numbers, the amount would be more like $160K - nothing to sneeze at, but not the click-baity "over a million" he obviously wanted.

Thanks, and agreed. The point is good enough that it doesn't need exaggeration like that.

The other comments in this thread make an excellent point on how this doesn't make sense (extremely long investment period, unusually high interest, no inflation...).

However, my $0.02 is time. If you can afford a daily $5 coffee, the time it takes to make yourself a cup of coffee every day will cost you a lot more than $5.

Not to mention the fact that if you can afford $5 a day, you 're probably stable enough financially to save up for retirement anyway.

The short answer is you won't invest money; you'll use it for another expense or to reduce a liability against you.

The medium answer involves understanding your finances to know how 25/week on Starbucks impacts your budget. Is it 1%? Is it 10%?

The much longer answer involves analyzing the stock market and spending habits, and understanding that to become wealthy in the sense referred here, managing your money is only a part of, you do need to work on generating a lot of income.

Assuming 11.3% real annual return is kind of crazy. Unless your name is Warren Buffet, you aren't going to achieve that.

There's the way to retire rich spending a life saving big, or living a life to retire with great menories. Some have the luck of both. Depends on the risks you are willing to take and the right decissions you make.

Properly weighing the cost and value of things is key. I try to be somewhat frugal not out of a desire to deprive myself but because by doing so I can move myself more quickly toward being financially independent, and because a lot of the things I could spend money on aren't actually providing me much value. I spent a few hours today walking to/through a local botanical garden, paying nothing to drink in nature that I had been missing for a long time, and I think I got more great memories out of that than I ever had from going to Starbucks.

There's a trend of moving from "spend money on things" to "spend money on experiences," but my concern is that that second bit of advice can let us fall into things that we're told are experiences but are really just habits.

An Experience is a thing, same as saving is a thing you do. It just depends on where your goals at. That doesn't even have to be to become happy, sticking to your habits or do things as others say. If you like and feel enthousiastic about what others say, just do the same your own way.

Reply on news.ycombinator.com