Random Thoughts – Coffee Ain’t Going to Ruin Your Retirement

By now you have probably heard of the latte factor, famously created by David Bach. The idea is simple, rather than spending $5 each day on a latte, invest that money, and let it grow. Over a year, $5 saved each day means you would end up with $1,825. If you invest that money every year for 20 years, at an 8% annualized return rate, you would end up with $92,021.83 with $36,500 as your principal.

Recently, Suze Orman, a famous personal finance guru, claimed that your daily coffee habit is costing you $1,000,000 over your lifetime. When I first read that headline, I was dumbfounded. There was no way that coffee would cost you that much. As Dave at Accidental Fire pointed out, that number was not realistic at all. Dave used a conservative price of $1.85 per cup of coffee in his calculation. However, if we use $2.50 for a cup of coffee, at four cups each day for 40 years, compounded at an 8% annualized return, you would end up with $1,000,000. (Ok, $1,024,850.80).

But that’s A LOT of coffee and over A LONG TIME! And who in the right mind spends $10 a day, every single day, for 40 years (and drinking 4 cups of coffee every single day for 40 years)?

That’s just misleading and unrealistic in my opinion.

Coffee & latte ain’t going to ruin your retirement or quest for financial independence

Don’t get me wrong, I do agree that small things add up over time. A dollar here and a dollar there, soon you’d end up with $10. But if coffee is your daily luxury and you can’t live without it, by all means, spend that money to enjoy your life. Don’t deprive yourself of your daily dose of enjoyment, stop categorizing your daily coffee spending as your guilty pleasure. Rather, enjoy that coffee and look for other expenditures you can reduce. If you are indeed consuming 4 cups of coffee at $2.50 a cup, maybe see if you can reduce that consumption down to 2 cups per day… that’ll save you $512,425.40 over 40 years. You can still have your cup of Joe and save. It’s a win-win!   

It’s fine and dandy to try to save small amounts of money here and there, but don’t forget, it’s the big expenditures that will ruin your quest for financial independence and retirement. It makes no freaking difference to save that $5 each day when you are spending $50,000 every 2 years on replacing your luxury car, a McMansion that you can’t afford, spending 3 to 6 months of gross salary on an engagement ring, or dropping $150,000 on your wedding. (Mrs. T and I went with frugal weddings and got married 3 times for $8,812 CAD or $6,600 USD).

Let’s be real, big expenses are what will ruin your retirement. If you keep making these silly big expenses, you can say bye-bye to your dream of financial independence and early retirement.

So, if you enjoy that cup of Joe, go for it, but do pay more attention to the big expenses in life.


In the first half of 2018, we added over $50,000 in dividend paying stocks and ETFs. These purchases increased our forward-looking annual dividend by $2,694.66. So far in 2019, we have added the following stocks and ETFs:

  • TD (TD.TO)
  • Canadian National Railway (CNR.TO)
  • Inter Pipeline (IPL.TO)
  • Canadian Tire (CTA.B)
  • Bank of Montreal (BMO.TO)
  • Vanguard Canadian All Cap index ETF (VCN.TO)
  • Bank of Nova Scotia (BNS.TO)
  • iShare All country ex Canada index ETF (XAW.TO)
  • AbbVie (ABBV)
  • Canadian Imperial Bank of Commerce (CM.TO)
  • Apple (APPL)

After I tallied up the total, I discovered that once again we have added over $50,000 in dividend paying stocks and index ETFs so far in 2019 (I’ve excluded the cash that we gained and deployed from our dividend portfolio house cleaning). These purchases also added about $2,420 in forward-looking annual dividend. We do have some cash sitting on the sideline and hopefully we will be able to deploy the cash sometime this year.

Some of you have recently reached out regarding which stocks are on my radar. With the stock market remaining somewhat volatile due to the China-US tariff discussions, here are some stocks I am currently monitoring.

Tawcan’s 2H 2019 Dividend Stock Watch List

Bank of Nova Scotia (BNS.TO) and Canadian Imperial Bank of Commerce (CM.TO)

For some reason, both BNS and CM stock prices remain low compared to the other big 3 banks. This is mostly because both BNS and CM missed their profit estimates and both expected very little earnings growth in 2019. Since we are in it for the long term, I believe short term headwinds create a good buying opportunity. Both BNS and CM have relatively high dividend yields, so even if the stock price does not appreciate greatly in 2019 or 2020, we can continue collecting dividends and wait.

Delta Air (DAL)

Delta is quickly becoming one of my favourite North American airlines. The fleets are newish, I have gotten great service whenever I flew with Delta, and the flights are mostly on-time. Since getting the Delta Medallion status, I have gotten upgraded to either Comfort+ or First Class every single time. That makes me one happy customer. I’m so pleased with Delta, I will seriously consider flying with them even if that means I have to make a stop rather than having a direct flight.

Furthermore, Delta isn’t impacted by the Boeing 737 Max fiasco, as Delta did not purchase any 737 Max’s. This means Delta has been able to keep up with the demand without having to re-route planes.

Unfortunately, the stock price hasn’t really kept up with its great product offering and profitability. The stock is trading at a PE ratio of 9.35 and a PEG ratio of 0.64. In comparison, United Airline is trading at 10.46 PE, American Airlines at 10.43 PE, Air Canada at 15.33 PE, and WestJet at 33.56.

Delta’s dividend yield is 2.72% at a payout ratio of 23.3%. These numbers are pretty solid considering its 6 years dividend increase streak, a 5 year annualized dividend growth rate of 61.31%, and a 1 year annualized dividend growth rate of 29.1%.

We previously owned WestJet and Chorus Aviation with subpar stock price performance. Given that the airline industry is extremely competitive and its profitability can be impacted by crude oil price, I am a bit weary to start investing in yet another airline stock.

AbbVie (ABBV)

AbbVie has performed quite poorly over the last year, returning -18.99% YoY. One of the reasons for the poor performance is that AbbVie’s declining sales of Humira, which makes up 57% of AbbVie’s total revenue. However, AbbVie appears to have several other drugs of which the sales are growing at a strong pace. AbbVie also has a relatively new immunology drug, Upadacitinib, that may have blockbuster potential. At a TTM PE ratio of 22.13, a forward PE ratio of 8.91, investing in AbbVie now, collecting dividends, and waiting for the company to turn around may be a good long term investing strategy.

Dear readers, what are some stocks that you’re monitoring? I’d love to hear them and your reasons.

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17 thoughts on “Random Thoughts – Coffee Ain’t Going to Ruin Your Retirement”

  1. Definitely agree. There probably is a case for making a decision to cut out the coffee and other small expenses (even if you like them) early on in the game to help build the initial snowball. Like maybe year one of work, but once you get the ball rolling those expenses become immaterial pretty quickly, especially if it is something you love! Have a good Sunday.


  2. I think it’s more about the small expenses being non-meaningful- like if someone loves their cup of coffee and it brings them a lot of joy every day, continue it. But if someone doesn’t enjoy it and would rather travel (or invest in dividend stocks) then that money should be siphoned off to that means.

  3. Hey Bob,

    Couldn’t agree more about small expenses. While it’s important to keep an eye on them, I don’t believe that depriving oneself of simple pleasures is the way to real success. What we become in the process is also important, and asceticism isn’t for everyone.

    Take care,

  4. ABBV has been on my radar for about six months and I have added to that name several times this year, most recently last week after its huge sell off. I still like it long term and you are paid generously to wait too.

  5. I would think as long as you save enough, spend the money on whatever you want. Why do we work hard and earn money? So that we can enjoy life. I guess the key point is that you spend within your means and you know how much you should save for a financially secure future.

    Coffee is not an issue for me but in my household, we spent lots on eating out and take out. I can easily save few hundreds by cooking more myself. But I am a working mom, this expense reduced lots of stress for me so I think financially the money is well spent. The only thing is that it might not be that healthy.

    • Exactly! I like your example of eating out and take out. If a few eating/take outs reduce stress and make your life easier, I think it’s money well spent. Obviously you need to find a balance so you don’t eat out or have take out all the time. 🙂

  6. Great reality check on the “skip coffee” to become a millionaire. There’s so much hyperbole in the financial advice industry. It’s hard to sort through all of the misleading claims. Although, usually there’s a grain of salt to them. Cutting back a few small expenses here and there compounds. I cut soda out of my life about 10 years about. I’ve easily saved over a thousand dollars upfront with that decision. On top of that, I might save tens of thousands in health expenses longer term.

    • Yes, cutting back a few small expenses here and there do add up if you take advantage of the compounding interest. But if you really enjoy something, I’d say it’s not worth it to cut back on it and deprive yourself. Look for something else to cut back instead. 🙂

      Cutting soda out of your life is a great idea. Sodas are too sugary and bad for you.

  7. Tawcan –

    Fun article and took a huge turn to your watch list that I didn’t anticipate!

    I do love Delta and wrote a huge analysis at SeekingAlpha on them, if you are interested, ~1-2 weeks back.

    Also – am a firm believer in CM, no doubt!


    • Thanks Lanny, read your Delta article a few weeks ago. Really like the airline but it’s hard for me to dip my toes in the airline industry right now. Maybe I’ll change my view later, we’ll see.

  8. I love that you have already added $50 000 this year. That’s amazing. My stocks to buy are Ry, slf, ifc, t, mru, cnr. All which are too expensive to buy at the moment. I am wary about adding more bns as I already have quite a bit. In fact, I am considering selling cibc and replaceing it with ry as I feel that ry performs better in the long run. What are your thoughts?
    Btw Happy Canada Day!!!

    • Hi Rn,

      Thank you. All of the ones you listed are great buys IMO but they might be a bit overpriced at this point. CIBC’s evaluation is quite low now, so I’m buying with the hope that it will appreciate in price in the near future. RY is a solid buy as well. Hard to say whether CIBC or RY is a better pick for the long term as I don’t have a crystal ball. I probably would go with RY if I were you.

  9. I agree that if you get overly concerned with the little things you are more likely to slip on the big things. Plus if you deny yourself every single luxury you are likely to snap and then go overboard (much like if you starve yourself on a diet for so long your mind snaps and you go binge eating and undo everything you had gotten).


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