Why 'Shark Tank' Investor Kevin O'Leary Refuses To Spend $2.50 On a Cup of Coffee (cnbc.com)

An anonymous reader shares a report: Kevin O'Leary has invested hundreds of thousands of dollars in small businesses over the course of his tenure as a star and investor on ABC's "Shark Tank." But there is one business to which he refuses to fork over his hard-earned dollars: coffee shops. "Do I pay $2.50 for a coffee? Never, never, never do I do that," O'Leary tells CNBC Make It. "That is such a waste of money for something that costs 20 cents. I never buy a frape-latte-blah-blah-blah-woof-woof-woof for $2.50." Instead, he makes it at home. "I drink coffee, one cup every morning," he explains. "It costs about 18 cents to make it, and I invest the rest." That idea -- saving small sums and investing continually -- is central to O'Leary's personal finance advice. "The truth is, there is a lot of crap you don't need," he explains.

Comments

Wholeheartedly agree

[Anonymous Coward]

The coffee shop explosion is one of the great rip-offs of our age

Re:Wholeheartedly agree

[dreamchaser]

Not to mention that most of those coffee houses serve absolute crap for coffee and overcharge for it. Hey, at least people get cute baristas once in awhile.

Re:Wholeheartedly agree

[amiga3D]

It's really the "convenience" explosion. You pay for the convenience of not having to fool with it. To most people it's worth it. Look at convenience stores for example. You can buy soda vastly cheaper at the grocery store but the make their living off of people not wanting to take the time when they can just stop off on their way and grab a coke. What's more important to you? Your time or your money. For a lot of people it's the former.

Re: Wholeheartedly agree

[c6gunner]

Why would you stand in line? I get my coffee at a drive-through window, along with my breakfast. Saves me 20 minutes easy. Sure I could save $4 by making my own breakfast and coffee before I leave the house, but those extra 20 minutes of sleep are worth a lot more to me.

Re:Wholeheartedly agree

[TheRaven64]

For coffee, the real difference is likely the capital cost. If you like espresso, then it costs a few hundred dollars to get a good machine. Even if you like filtered coffee (which is about the cheapest to produce) then you get a much better cup if you grind your own beans, which means buying a grinder as well as whatever you're using to make coffee, which can add up to a hundred dollars or so. In contrast, tea can be made with just a ten dollar kettle.

Of course, this argument goes out of the window with places like Starbucks, where their entire business model revolves around making terrible coffee and then selling you syrups and creams to disguise the taste.

Re: Wholeheartedly agree

[Known Nutter]

Mod parent up. In the 10 to 15 minutes (on average!) it takes someone to pop into Starbucks, they could have done it at home much faster and far cheaper, which throws the "time or your money" argument right out the window.

$0.89 coffee at the 7/11 when you stop for gas? Okay, sure... $5 and 20 minutes at Starbucks?

Re:Wholeheartedly agree

[lucasnate1]

I pay a coffee shop to rent their wifi and/or space in order to meet someone. That's worth the money.

Re:Wholeheartedly agree

[geekmux]

It's really the "convenience" explosion. You pay for the convenience of not having to fool with it.

Decades ago, they made this machine that would automatically brew a hot cup of coffee at whatever time you set the coffee alarm to, so that people could wake up to a hot cup of coffee ready and waiting for them.

The true stupidity is listening to the Starbucks generation dealing with store lines, drive thrus, and obscene prices, claiming their way is somehow more convenient.

Re:Wholeheartedly agree

[TheRaven64]

I wonder how much people just don't think about how much things cost. $2.50 is a sufficiently small amount that it's not worth keeping track of. $2.50 a couple of times a day feels psychologically like it's still in the noise. Over $1,200 per year feels a lot more, but it's not until you do the calculation that you realise how much you're spending. If at that price it still does seem worth it, great, but it might not be the best way of translating $1,200 into an improvement in your quality of living.

Re: Wholeheartedly agree

[green1]

If it only saves you $4, then it's either an incredibly cheap breakfast, or you way over-estimate the cost it would take to make your own.

As for saving 20 minutes, I'd question that too, because from the time my alarm clock goes off, until I walk out the door is only 30 minutes total, and that includes eating breakfast, and getting a 2 year old ready, fed, and out the door too.

I'm pretty certain you're also underestimating the time it takes to order, get your breakfast, and eat it at the drive-through.

Re:Wholeheartedly agree

[Oswald McWeany]

Not to mention that most of those coffee houses serve absolute crap for coffee and overcharge for it. Hey, at least people get cute baristas once in awhile.

That's actually all a bit subjective. A lot of them typically serve a darker roast than most Americans usually go for; a dark roast is easier to produce a consistent experience for, which if coffee is your game, you want a cup to taste the same in every venue. Lighter roasts tend to vary batch to batch and are more dependent on bean quality.

Sure, the quality is not going to match what you make in your French press at home, but it's going to be on average better quality than your average fast food place like McDonalds or Burger King.

As for being overpriced... yeah it is, if you're going for coffee. If you're getting a take-out, you're being royally ripped off. I almost never go, because I don't want to pay that much. What you're really paying for is the experience... convenience to some degree, but you can get a cheaper cup at McDonalds or one of those other low quality food places.

Most Starbucks have a comfortable "living-room" like atmosphere. They're trying to attract people who want to have a home-like comfort away from home on neutral turf. Somewhere where friends can meet, sip, and talk. If, like me, you're friendless, alone-in the world, etc... there is no experience to be had... it's a rip off.

If you're June, Mum of 7 kids, wanting to escape your wretched life, you call up your buddy April, make a date on the calendar and go to starbucks where you over pay for coffee to rent a free living room to sit and talk in away from the kids.

As for cute baristas... that's just a myth perpetuated by TV shows. They're all ugly.

This is a lie

[rsilvergun]

And a pretty easily proven one. He's talking about $850 a year. That's not going to make or break anyone's investment portfolio. It's like that schmuck in Australia who told the young uns the could afford a house in Sydney if only they'd give up avocado toast. It's nonsense the aristocracy tells it's workers to excuse stagnant and falling wages. Don't fall for it.

Re:This is a lie

[Baron_Yam]

If you're relatively poor but buy a coffee everyday... I guarantee you you're poor because of poor financial decisions and not because of circumstances beyond your control. And, if my blue-collar work experience has taught me anything, you probably also spend too much on tobacco, alcohol, and lottery tickets.

As I've progressed in my career, I actually do find myself exercising MORE restraint with regards to purchases, not less... even though I now have more money than I ever really seriously thought I would.

I realized there's nothing wrong with 'brown bagging' it, nothing wrong with used cars, clothing without fancy brand logos on it, etc. I find conspicuous consumption offensively stupid.

The result of this behaviour is that I haven't built up debt, and have paid off the 'unavoidable' debts a lot sooner than most, and now I live fairly comfortably and I'm not particularly stressed about finances. And because I'm not in debt, the money I earn is effectively worth more as I'm not bleeding interest payments to the bank.

$850 a year is a LOT of money if you keep rolling it into bonds and you're patient. It might mean helping your kid get through college without crippling debt, or maybe loaning them a down payment on a house.

Re:This is a lie

[Baron_Yam]

There is a difference between 'cheap' and 'frugal'. I don't spend money on stupid things. You know how rich people get rich? By getting people like you to be brand loyal and buy their stuff just because of the logo on it.

I buy what I need, when I need it, and of a quality that will last as long as I expect to need it for... without regard for who made it or who is selling it except when I'm weighing the value of a warranty.

So instead of a new BMW, some Nike shoes, a closet of Polo shirts, and a Starbucks coffee every day. I'm not blowing hundreds of dollars at a shot to get a lousy seat at a concert when the music's better on my home sound system. And no, I don't see every new movie in the theatres when I can wait and see them at home for a fraction of the cost.

I can go on vacations more frequently (and still be putting some money away for potential large future expenses). I can turn down overtime at work and spend more time with friends and family. If I have an unexpected expense, I can cover it.

>I'd rather have my fun now, thank you, even if that means not saving as much as you do

If your idea of 'fun' is living paycheque to paycheque... with a base load on your credit cards... OK. But a little short term restraint means you have less stress and more options in the long term.

Re:This is a lie

[war4peace]

"I don't spend money on stupid things"
How do you tell thing A is stupid and thing B isn't? Let me tell you: you weigh it against your beliefs. So there you go: that 2.5 dollar coffee is stupid to you (and to me too) but is not stupid to the one buying it. And you can't tell them it's stupid because your opinion has equal value to theirs.

"So instead of a new BMW, some Nike shoes, a closet of Polo shirts, and a Starbucks coffee every day" - the phrase doesn't end but I get your point. And here's what: all those are valueless to me too, but I'm not going to tell anyone who buys them that "it's stupid". They would tell me that the hardware I bought for my PCs is stupidly expensive - and they would be right, from their point of view.

What I meant is that there are two extremes:
1. Spending all your money on stuff
and
2. Spending none of your money on stuff.

The idea is to find some middle ground, try not to get into either of the extremes, and you'll end up having a good life. I've seen people reaching each of those extremes, and believe me it's sad either way. I'm currently recovering from #1 and slowly finding middle ground, it's a battle, trust me. Mostly because of my chronic depression which pushes me really hard to get the happiness fix through buying. I've been a slave to that for many years, it sucks. But it also sucks to not enjoy life at all because all you do is save, save, save.

Re:This is a lie

[green1]

Which just shows you've missed the point entirely. It's actually not about the coffee, it's about priorities. People who say "it's only $2.50" or even who add it up for a year and say "it's only $850", are likely doing the exact same thing with more small purchases as well, how many "only $2.50" items before you get to actual numbers that you do care about?

The Coffee is just an indicator of a mind-set. Every dollar you don't spend helps you. They all add up.

I'm not saying don't spend money on things that make you happy, just think about it first. Which will make you happier, $2.50 every day on a cup of coffee? or $850 once a year on a slightly bigger purchase? or $10,000 once a decade on an even bigger purchase? or $50,000 extra in retirement? Multiply this times all the little "treats" you give yourself and you can likely find some much bigger numbers than just the coffee too.

I never drank coffee, but I did used to buy lunch out every work day. I realized I could save over $200 a month by packing a lunch from home. I still eat out on occasion, but it's not the routine any more. I'm no less happy during the work day as eating out wasn't a special treat, but just a routine occurence, but I can use that $200 on all sorts of other things that I know will actually contribute to my happiness. And that mindset flows through everything I spend money on. Thinking that way has allowed me to pay off my mortgage when I was 30, take several nice vacations overseas, buy a fancy car, and still be well set up for my future retirement, all on an income half of what some of my friends make who are still living paycheque to paycheque with no more to show for it. Now when I do eat out it's not just a daily occurrence any more, and that makes it a bit more special, so it does actually contribute to my happiness.

Yea Sure

[jetkust]

So I'm supposed to believe a guy that is worth more than $300 million never buys anything he doesn't need? Sounds legit.

Re:Yea Sure

[religionofpeas]

Not buying anything you don't need is how you save up money. And having money is very helpful when you want to get rich.

Treat it as a luxury

[TheRaven64]

There are lots of things that are cheaper at home. Drinking a beer at home is a lot cheaper than drinking one at the pub, for example. You're not just paying for the drink, you're paying for the use of a big space where you can talk to other people. The problem isn't $2.50 coffee (actually, I'd be astonished if I could buy coffee that cheap around here), it's buying $2.50 coffee every day. Even once a day each week, that's $50/month on coffee. Two coffees a day and it's $100/month. Give that up, and you can afford a nice holiday somewhere, or pay back your mortgage earlier.

Re:Invest in Apple, But Don't Buy iPhone

[Opportunist]

That's basically the idea behind the Chinese economy boom. Produce the crap for the West but don't buy the shit yourself.

Re:That isn't advice

[thegarbz]

This is advice. Financial advice

You want advice. Live under a bridge. Eat nothing but potatoes, don't ever pay someone for something you can do yourself regardless of how long it takes you. Then you will truly be saving money.

It's a fucked life, but hey, every dollar right?