Would You Rather Have Starbucks Or $700?

Choose right now… Starbucks or $700? Not Coffee or $700. Just Starbucks. Choose. Now.

Starbucks is in the news a lot. They are either opening their first store in Milan (highly suggest clicking on that link, the pictures are crazy), having trouble in Philadelphia, or boosting their stock price due to another great quarter. At one point there weren’t enough Starbucks stores in the United States to serve the demand for their coffee, and that was only last summer!

You’re probably saying that’s crazy because if you live in a major city it seems like there are multiple Starbucks on every block. You’d be right.

Now, we’ve seen a lot of the articles about how millennials could have so much more money or even be a millionaire if they cut out all their “trendy” food items such as avocado toast. A certain Australian millionaire even said the reason millennial aren’t millionaires is because of their avocado toast addiction. We saw some articles where the math was done and we even did it ourselves and found the idea a little far fetched. But it did get us thinking. Is there anything about our consumption habits that really do mess with our personal finances?

Absolutely. Besides the fact we rely so heavily on credit cards and think when something is on sale we “saved” money when in reality we really just spent less but our caffeine habits really do damage our personal finances. I’ll be the first one to admit I got Starbucks and Dunkin or whatever coffee was available to me in college almost every day. That was on top of my Keurig or Mr. Coffee (depending on what year I was in college) that I would make most days. Looking back, I wasted so much money on coffee.

I read recently that the average Starbucks order is $2.75 in the US and in NYC it’s $3.75. Most people I know stop for coffee at least once a day, usually on their way to work, every weekday. So 52 weeks in a year means 260 work days, we’ll be liberal here and say you get 15 vacation days you take full advantage of so 245 working days a year. We’ll go even further beyond that and say at least another 15 of those you’re running late and don’t get to stop to get your caffeine fix, now we’re at 230 days a year. Sounds like a lot but it’s pretty common for coffee drinkers to have at least a cup every day, specifically every morning, if not more than that. So some quick math of 230 days x $2.75 for an average order and you get $632.50 a year that you’re wasting on over priced, over roasted coffee.

Now I get it, if you’re addicted to caffeine like I am when you need coffee, you need coffee. Most likely your work has a coffee machine somewhere that you can get for free so let’s discount the entire working day and only focus on your mornings.

I personally bought a Mr. Coffee very similar to this one and use it every single day. The Mr. Coffee shown above costs $35.96 or just around 13 cups of coffee at Starbucks. Now for anyone who is going to say that they don’t have time to wake up and make coffee, I wake up at 4:50am and program this wonderful machine the night before to start making coffee at 4:45am, so not only do I have a fresh cup of coffee right when I wake up, I also get to wake up to the smell of freshly brewed coffee and honestly there’s nothing better than that.

I don’t even buy filters, my Mr. Coffee like the one I referenced above comes with permanent reusable filter that I just rinse out every night and put right back in. And you can pick something up like this Byron Stainless Steel Travel Mug for less than $10 and now you’re in business. Total outlay so far: $45.96 or less than 17 cups of coffee at Starbucks.

The last thing you’re going to need is coffee and this is where the real savings kicks in. You can do what I do and drink Maxwell House Original Blend Ground Coffee which sells on Amazon for $6.93. There is 240 6 fluid ounce cups in this thing! Conveniently happens to be just around the amount of cups we estimated the average person to need to go to work. That’s so much coffee. That’s less than 3 cents per cup of coffee! If you want to follow the famous Shark Tank Invest Kevin O’Leary you can take your $2.72 in savings and invest them.

Adding all this up that’s around $53 a year for your coffee addiction in the first year and it only goes down from there. Drink more than one cup a day at home? Raise your cost by $10 to $20 depending on what type of coffee you choose to order.

Some of you are going to say that all of this isn’t worth it. The daily expense is minimal on a daily basis and you don’t notice the overall sum you spend. I get it. Like I said before I have been there. But once I realized what was happening and how much I was spending my habits completely changed. The small daily expenses truly add up and turn into major expenditures. Don’t let this happen.

Take that extra $700 or more every year and invest that money or put it into your savings account and let that money grow. You’ll still be having your coffee fix every day, but you’ll be getting it in a way that allows you to minimize your expenses and optimizes your savings.

Make sure to subscribe on our website for all the latest personal finance and investing news and advice and follow us on twitter @themodernpiggy2. Have a question about personal finance you’d like answered or have comments or concerns or just want to chat? Email us at founders@themodernpiggybank.com

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Starting The Dreaded Student Loan Journey

Paying down your student loans? Yeah, us too.

College? Awesome. Student loans? Absolutely not.

I have student loans. And I hate student loans. I hate paying them every month and only watching the principal balance drop minutely. It’s a problem a lot of people have and one that is not going to be fixed anytime soon. What we’re here to discuss is how you, as a Modern Piggy Bank reader, can pay them down as quickly and as painlessly as possible. But to really understand student debt and paying them back, we’re first going to dive into some facts about it.

If you read my article on budgets, you’ll notice that I consider student loans a major category and a main part of my overall budget. And yet that’s really not enough. Sure, I make the minimum payment every month but do I really want to be in a mountain of debt forever? Of course not! I, like you, want to be debt free. Did you know according to Forbes and Credit Suisse if you have $10 in your pocket and zero debt you are richer than 15%-25% of Americans respectively.

“If you’ve no debts and have $10 in your pocket you have more wealth than 25% of Americans. More than 25% of Americans have collectively that is.”

That’s actually astonishing. So if I go up to my 18 year old cousin and hand him a $20 bill he is now in the top 75% of American households. Wake up people! Credit is great, debt can be great. Bad debt is not great. Use it wisely.

And education debt is the United States is massive and current trends only show it increasing. According to Forbes which cites MakeLemonade student loan debt in the US has reached $1.5 trillion. If you get a free minute and want to blow your mind look at these pictures to see what $1trillion would look like in cash. Crazy stuff. And we have that and more just in student debt. Forget mortgages, credit cards, car loans, and anything else you can possibly purchase on credit, student loans dwarfs them all.

Don’t go into $100,000 of debt for a $40,000 job. -Some Random NYC subway advertisement

For example purposes, Jeff Bezos (CEO and Founder of Amazon and recently anointed richest man alive) has approximately $150billion. THAT WOULD NOT EVEN MAKE A DENT IN TOTAL US STUDENT LOAN DEBT. Nor would I want Mr. Bezos to waste his money on attempting to eradicate student debt. That would just be stupid.

But let’s face it, student loan debt is a huge issue. And I’m not talking about the overall student loan debt now, I’m talking about your personal student loans that you took out to go to college.

I’ll be honest, I never really thought about my loans until senior year. I would go to school, have a great year, and then just sign whatever the school sent me for my loans and whatever my parents put in front of me. I thought they knew what they were doing. And then senior year I logged onto my account and saw the debt I was truly in.

Sure, I had known about it in the back of my mind that this debt was piling up but it wasn’t real. It was an idea floating on the outskirts of my thoughts. Let me be the first to tell you that it becomes real, real fast.

So now I’m here, staring into what seems like an insurmountable abyss of debt and just trying to figure out how to climb out of the whole that so many Americans find ourselves in. But I have a plan.

I mentioned before that I had a goal to live off one paycheck a month and save/invest the other one entirely. Unfortunately besides building a cash reserve for emergency purposes I don’t plan on saving or investing much beyond some meager contributions to a Roth IRA. And that’s because most of my excess money will be going towards student loans. I want that debt out of my life forever. I want no debt, no credit card debt, no car payments, yes a mortgage but really nothing else besides that. Don’t buy something unless you can afford it is something I truly want to live by.

So how am I getting there? I’m allocating as much as I possibly can a month towards my loans without sacrificing my health, both mental and physical. I’m riding my bike to work so I can save money on gas and put that towards student loans (I highly recommend biking or walking to work if it’s feasible for you since it not only saves money but is healthier as well).

I’m making sure I’m only eating out when it’s truly a special occasion or a time to hang out with friends. Any money left over from my social life budget goes right into loans at the end of the month.

I’m also making payments more frequently than just the once a month timeline that everyone is on. If you get a gift or a bonus in the middle of the month, use it right then to pay down your debt. I know how tempting it is to go out and get the newest and coolest thing or that item you’ve been eyeing for a while but take the temptation away. Get your money and pay your loans right there and then. You can still make your normal payment but you’ll feel so much better about paying twice or more in a month.

Something that never made sense to me was buying name brand food. Now I completely understand buying a brand for certain items, they simply taste 100x better and I won’t blame anyone for choosing the name brand, but if it’s something simple go for the generic brand. This has led me to have excess money in my grocery budget every month and the extra, you guessed it, goes right into student loans.

There are so many plans you can utilize to pay off your student loans. I’ve already started looking at refinancing my loans and consolidating them to simplify my payments. I highly advise you all to do the same. If you need some guidance, feel free to reach out to us in the Contact Us page and we will personally get back to you and help you navigate. Also make sure to share this article so your friends know they aren’t alone and there are strategies to dealing with your student loans.

Remember, student loans isn’t a debt that will disappear for you tomorrow, but follow us and you may just pay them down quicker and be debt free sooner than you ever thought possible.

Main Street’s Edge

One thing that new investors, myself including, usually grapple with is the belief that investing is a zero sum game.  There is a winner and loser on every end of a trade.  Furthermore, another hesitation plaguing retail investors is the belief that Wall Street has the edge with their superior research and execution ability.

The bad news is Main Street is completely right.  In the short term, trading is a zero sum game, there will be a winner and loser on either side of a trade.  This is especially true when we look at the options and futures markets.  If that’s not bad enough, fund managers have armies of PhDs at their disposal to conduct cutting edge research and legions of engineers designing computer systems to place trades in nano seconds essentially cutting the line in the execution queue.

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If you’re still reading good!  There may be hope for Main Street yet.  First, I would challenge you to think long term.  Investing education is fundamentally flawed in the sense that most people learn that the best way to invest is to pay close attention to a handful of hand selected stocks.  This causes us to over trade and exposes us to a lot of unnecessary risk.  If we look at the major indices we see a steady increase over time.  This makes sense because as the economy expands due to things like population growth which increases the labor force, technological advances which makes workers more productive, etc.  All of this steadily increases corporate earnings which is reflected in the steady increasing of major indices like the S&P 500.

In the past 90 years an investor could expect a 10% return annually on average from the S&P 500, though don’t take this at face value because annual returns fluctuate widely.  A modern investor could capture this utilizing the ETF SPY or the Vanguard 500 fund which have both minimal tracking error and costs.  You would continue to collect dividends, eliminate single company risk, and significantly outpace inflation in the long term all at a cost of less than 20 basis points per year.

So why doesn’t Wall Street just buy and hold if it’s that easy?  If you look at a hedge fund’s fee structure you may see that most charge 2 and 20.  2% on your total account value and 20% on returns.  The truth is Wall Street relies on investor money to pour in to make money.  To attract that money they have to outperform the benchmark S&P 500 and unfortunately few managers can consistently outperform ultimately resulting in being canned by their investors.  This is not to say that all money managers don’t deserve their paychecks.  In fact, there are countless managers who provide amazing strategies that outperform with low correlation to the equity markets you just have to do your due diligence to find them.

The edge that the small investor has is that they can buy and hold over long periods without having to answer to stakeholders.  While money managers were begging people to stay in 2008 the average investor could smile and pour more money into their IRAs buying US equities at huge discounts.

“Our favorite holding period is forever” -Warren Buffet

A prime example of this is Warren Buffet.  AQR published a paper on how he generates his alpha, a measure of market outperformance.  They concluded that Buffet’s philosophy of buying and holding great companies trading at fair prices outperforms because of two main factors. First, Buffet believes in his strategy as his market holding period is “forever.”  If you’re still not convinced, Buffet has seen his holdings decline by over 50% on two separate occasions in his career.  His sheer ability to sit through massive drawdowns is a big reason he is regarded as the greatest investor of all time.  Second, he is able to strategically apply leverage, a concept we’ll discuss in articles to come.

So there you have it.  As a retail investor you have the luxury of not answering to stakeholders who want consistent outperformance and are less tolerant of drawdowns which every portfolio is subject to.  Of course you have to have the discipline to sit through them, but being able to accept market returns over long periods of time is usually all the edge an investor needs to build wealth.