Many people just earn enough money to make ends meet yet often they do not have a clear picture of where their money actually goes or disappears to. When I hear someone explain such typical circumstances, I’ll often ask them when they last visited a coffee shop. Their typical answer is─ on my way to work this morning.
I had an opportunity to meet fellow financial author, David Bach, when he spoke in Bend, Oregon. In his book Finish Rich he coined, a now well known phrase he calls “The Latte Factor” It comes from the notion that if you added up the cost of your daily lattes or other similar drinks and saved or invested that money, you could create significant prosperity over time and certainly in a much shorter time frame. It is the trivial things we spend money on every day that adds up to a considerable amount of money over time. I believe most people are unaware of how much they spend on the little stuff each day.
You’ll probably agree with me that it’s very easy to spend $10 a day on inconsequential purchases. Let’s take a look at the simple math. If you were to save and invest this $10 a day or $300 a month into an investment that yielded a conservative 6 percent return, over the course of 20 years, you will have accumulated over $142,000. Over 40 years this amount surges to almost $600,000! This can certainly help add perspective.
I recently returned from a speaking engagement in beautiful Chicago. I stayed at the Palmer House- one of Chicago’s grandest hotels dating back to 1873. In the lobby was a nationally known coffee shop. Each morning the line for caffeine would go all the way around the corner. I was amazed how much of a premium they were able to demand due to their convenient location. This reminded me of a story that Darren Hardy, the editor of Success Magazine tells.
To paraphrase him, he states there are three different types of people and if you could hear the way each thought while in line to purchase coffee you would immediately be able to determine if they were destined to achieve financial independence in their life or be destined to a life of financial mediocrity.
The first group would ask themselves if they wanted to have a cup of coffee. If the answer was yes, they would then ask themselves ─
“You don’t need to do anything extraordinary to accumulate wealth. You just need to do some ordinary things extraordinarily well. Living on 90 percent of your paycheck rather than over 100 percent is a great start.”
What do I have to do to get the coffee?
Governed by impulses and emotions they might beg, borrow or even steal to satisfy their need for caffeine, sugar or any other desire for immediate gratification.
I believe a majority of people fall into the 2nd group. This crowd would ask themselves─
“Do I have $5 to purchase a cup of specialty coffee?
This may sound perfectly logical, and it is reasonable however this is why most people are of average means. This group is certainly more fiscally responsible than the first group as they will only spend it if they have the money. However, their focus is on the here and now and they are not contemplating how such a simple decision could negatively impact their entire financial future.
I find that the people who have achieved financial independence on their own think in a way that is quite different from the rest of the herd. This group would reflect on the same coffee scenario and ask themselves a very different question ─
If I spend $5 on coffee, that would be $5 I’m not spending on something else. If I invested this $5 rather than spend it on this cup of coffee, what could this money grow to over time?
Well, let’s take a look. $5 growing at 8 percent over 30 years would accumulate to over $50. This is ten times the original amount! They would then ask themselves ─ Is this $5 coffee worth $50 to me? While in the accumulation phase of their lives, this unique group of people would choose to pass on the coffee today so they would achieve true financial freedom later.
I have to admit that I get joy by treating myself to an Americano at Bellatazza, Bluebird and other local coffee shops. It’s a combination of their delicious blends, friendly service and enjoyable atmosphere to meet friends and colleagues. However, I have made the conscious decision to make this a treat in my life and not a daily habit.
I greatly admire how the wise and inspiring third group of people think in a different way. Here are some of the life and financial principles I observe them living by:
-They understand that rather than always working for money, that money can also work for them by living below their means and investing the difference for their futures.
-They understand that the tougher they are on themselves today─ the easier life will be on them later.
-They understand the power of compound interest. Compound interest is when interest is added to the principal, so that from that moment on, the interest that has been added also itself earns interest. Albert Einstein considered it the eighth wonder of the world. If you understand it, you will earn it. If you don’t, you will pay it. Be the ones who earn it!
-You don’t need to do anything extraordinary to accumulate wealth. You just need to do some ordinary things extraordinarily well. Living on 90 percent of your paycheck rather than over 100 percent is a great start.
-Lastly, enjoy your life. Whether you have accumulated wealth already, are on the road to financial independence or never achieve it, the least selfish thing you can do in life is be happy because when you are happy you are not a burden to anyone.
If you incorporate these lessons into your life, I believe you can have the financial freedom to not only make a specialty coffee part of your daily life in the future but experience an espresso in places like Venice, Barcelona or wherever your heart desires.
David Rosell is President of Rosell Wealth Management in Bend. www.RosellWealthManagement.com. He is the author of Failure is Not an Option- Creating Certainty in the Uncertainty of Retirement. Learn more about his book at www.DavidRosell.com or Amazon.com. Ask for David’s book at Barnes & Noble, Newport Market, Cafe Sintra, Bluebird Coffee Shop, Dudley’s Bookshop and Sunriver Resort.
