The True Price Of Trendy Coffee
By David Holding |
29 October 2007
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A couple of years ago I was a regular visitor to a broadcasting studio where I noticed the trendy young woman on reception would usually have a large coffee cup from one of the many fashionable coffee chains.
When I asked her why she bought a pricey coffee each morning and afternoon instead of buying the equivalent from the in-house canteen at a discounted 50p, she said it was because it tasted better. But trust me, it didn't. The in-house coffee was freshly made on the spot from a Gaggia machine and was the equal of the Starbucks / Caffé Nero equivalent.
I suspect the real motivation for buying the coffee was its fashionable status. It's the accessory no self-respecting, twenty-something trendy can be seen without these days. But when I did a quick calculation of the receptionist's approximate disposable income, the figures were quite frightening.
Broadly speaking, I assume the receptionist was earning somewhere around £18,000 a year and taking home around £1150 a month. As she had two large coffees each working day, this amounts to £136 a month.
When you take off her likely spend on Council Tax, rent or mortgage, food, clothes, utilities etcetera, this is a staggering percentage of true disposable income. Now of course, there's more to life... and all that -- and for all I know, she may well have been perfectly able to spend this kind of cash without batting an eyelid. But judging by the record levels of personal debt around, I suspect not. Believe me, hers isn't a job you would do for the sheer fun of it.
As an illustration, let's presume she was able to go 'cold turkey' and give up coffee for good. Now let's say she kept that amount of money aside and drip fed it into high yielding shares paying 6% a year via Motley Fool Sharebuilder* at £1.50 a month, and re-invested the dividends.
After five years, her investment would be worth almost £10,000 if the shares remained at the price she originally paid. Take that cold turkey forward for another five and now we're really talking at £22,600. The figures are a simplified hypothesis, but you get the point.
Extrapolating this forward and presuming the young lady is now 20, she could amass over £63,000 by the time she's 40, simply by refusing to buy into the trendy brand mentality in one small area of her day-to-day living, even if the shares had never budged at all. Of course, she could be less lucky with the shares, but judging from the past performance of the stock market, her luck is more likely to run the other way and the saving be even more pronounced.
It may be true that 'a little bit of what you fancy does you good,' but a little bit of prudence can help you out too.
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* We currently have a special offer for Sharebuilder. All purchases until 31st December are commission-free! In January we'll return to the normal low charge of £1.50 a purchase. We can charge such a low commission because we transact all of our share purchases at four fixed points during the month.
The value of your investments and the income from them can go down as well as up. You may not get back the full amount you have invested. If you're in any doubt about the suitability of an ISA, or whether to buy or sell shares, you should consult an appropriate Financial Adviser.
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* This article was first published in December 2006.
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