Mighty Bargain Hunter

Low-fat latte factor?

January 24th, 2008 | by mbhunter |

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Starbucks is beginning to test $1 “short” cups of drip coffee with free refills in Seattle.  Other chains are offering good alternatives at lower prices, so Starbucks might be feeling out the market to avoid getting beaned by the competition.

Pricey drinks are of course a favorite example of David Bach, author of The Automatic Millionaire : A Powerful One-Step Plan to Live and Finish Rich and coiner of The Latte Factor®.  Its significance is that little expenses over time have a large negative effect on one’s net worth.  Little as to the little habits that can cost us dearly over decades.  Even a $1 per day habit is expensive.  Five dollars saved per week for 25 years will become over $11,000 if invested at 4% (let’s be realistic here!).  And this is after the cheaper Starbucks started its testing.

The bottom line is that an inexpensive habit is still a habit and it still costs money.  If a habit seems insignificant, try tracking your expenses to see how much it costs on a monthly basis, and plug the number into a compounding calculator with some modest interest rate to see what it will really cost you over the rest of your life.

If this number is more of a bite out of your retirement than you’d like, you can look for a less expensive replacement.  For example, a coffee maker with a thermal carafe does a really good job at brewing coffee and you can brew a whole pot of coffee for less than the cost of an average cup of coffee at Starbucks.

I’m all for cheaper prices, but Starbucks is still making money on this deal, and if you end up getting sick of the cheap drinks, the more expensive ones will be right there for you.  That’s what they’re counting on if this cheap coffee thing takes off.