I recently wrote, “Endless PF Debates, Wrong Context” where I discuss some of the endless debates in the investment community about how to invest. I also wrote that I would write about other debates in a future date so that day is today.
Spend Less Than You Earn vs Earn More Than You Spend
Another endless debate is the one that advocates spending less than you earn versus earning more than you spend. The spend less than you earn advocates will typically say something like “skip the latte” and save the money. It’s technically not bad advice but what if you really love the latte? What if drinking a latte a day really brings joy to your life?
Earn More Than You Spend
The solution to a latte lovers problem isn’t to give it up, it’s to find a way to make that latte happen. So what can a latte lover do? I have a solution.
According to yahoo finance, SBUX has an upcoming ex-dividend on May 16th. The annual dividend is $2.28 (2.68%) so how much SBUX stock do you need to cover those lattes? Math to the rescue!
Dividends Paid Quarterly, Latte Daily
First, SBUX dividends are paid quarterly so we’ll use that as a basis for our math. The $2.28/4 = $0.57 per quarter.
We’ll use $4 as the base price for our Cafe latte but you can adjust that number based on the cost of your favorite version and size.
One latte per day M-F @ $4 x 4 weeks/month x 3 months/quarter = $5x$4x4x3 = $240.
Drinking one latte per day from Monday thru Friday per quarter (3 months) will cost $240 so how many shares of SBUX do we need to offset that cost? $240/$0.57 (share dividend) = 421 shares.
Buying 421 shares of SBUX will provide enough dividend cash to pay for a latte each day but dividend taxes not included. We’ll assume these are qualified dividend and the person’s income is below $80k so the tax is zero. If you’re over $80k, you have a 15% or 20% dividend tax so that would push up the shares needed to 421+63 = 484 shares at 15% tax rate or 505 shares at 20% tax rate.
As of Friday April 12 2024, SBUX is trading at $84.92 and 421 shares will be $84.92 x 421 = $35,751.
Is the Latte Worth It?
I drink coffee occasionally, usually a cup in the morning and I brew that at home on my Keurig. I like exotic coffees so we buy coffee beans from a variety of places and grind them ourselves. We also have some Keurig cups when we don’t feel like going through the trouble of grinding it. Personally, I wouldn’t go to Starbucks EVERY DAY but I do occasionally go to one when I’m out and about.
Of course, it’s not up to me to decide for anyone whether they should skip the latte but to point out a way to MAKE IT HAPPEN by earning more than you spend.
Rinse and Repeat
One of the things I have done is to take all my major recurring expenses such as utilities, internet, insurance, groceries, etc. and determine how many shares of those firms I need to pay for those expenses. It is an important exercise to do so you know exactly how much money you need every month and WHERE it will come from to pay for it. I’ll share that spreadsheet at some future point but now it’s time to share the wealth.
Share The Wealth
Do you have a “frivolous” vice and how many shares do you need to pay for it?
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