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Coffee-nomics: How habits impact long-term wealth

Last week we kicked off the budgeting and financial planning month. As a reminder – we grounded the budgeting and financial planning journey in attitudes and behaviors. This is the “short version” of my approach to wealth building. If you can implement these, you will build wealth.

About the author: Jeff Hulett is a career banker, data scientist, behavioral economist, and choice architect. Jeff has held banking and consulting leadership roles at Wells Fargo, Citibank, KPMG, and IBM. Today, Jeff is an executive with the Definitive Companies. He teaches personal finance at James Madison University and provides personal finance seminars. Check out his new book -- Making Choices, Making Money: Your Guide to Making Confident Financial Decisions -- at

Please check out Jeff's YouTube channel for the VidCast of this article.

This is called the M-T-P

  1. Motivation grounding: Be content with yourself, don’t spend money you don’t have, don’t buy things you don’t need, and don’t focus on impressing people.

  2. Time frame setting: Have a long-term focus (and long-term is not two or three years). Wealth and security are built over decades, not months.

  3. Process implementing: Save → Invest → Evaluate → Rebalance → Repeat

making choices, making money

Allow me to illustrate the idea of making confident financial decisions with a simple example: buying a daily cup of coffee. If you're not a coffee drinker, you can substitute any "want" or "non-need" product you regularly purchase. My intention here is to help you understand and manage the impact of fixed purchases over a long period of time.

Let's say you have a habit of buying a Starbucks venti café latte for about $4 every day. This habit costs you $20 per week. You think to yourself, "I can afford this, I'm worth it!"

All decisions you make have an emotional element to them. You "feel" them in your gut, and you use this gut feeling to gauge any actions you may take. But when you think practically, not emotionally, action-oriented, knowledge-seeking, confident, calm, and collected your new thinking approach sends up a red flag: "Why am I deriving my self-worth from a cup of coffee?"

Herein lie the basics of my approach to wealth building. Pragmatic thinking fuels personal power, and emotional intelligence and education are the greatest sources of that power. Pragmatics provide kindness to others and consider kindness a source of strength. Applying this mindset provides you with the focus and tools to successfully navigate the complex consumer finance landscape because you are not allowing your emotions to bias your decision-making. Sometimes emotion-based judgment has its place, but only in the context of a good decision process. For example, instincts come from an unspoken emotion; you just "feel" a certain way. A good decision process teases out the helpful emotion and leaves behind any inappropriate emotional bias. Although thinking pragmatically is not always intuitive, with practice, it is VERY achievable!

Compare your coffee-buying habit with the first two points of the wealth-building approach – The “M” and the “T” - and ask yourself these questions:

  • Do I need a Starbucks coffee drink? Or perhaps I am trying to impress someone, including myself?

  • Is this action consistent with my long-term focus?

  • Can I achieve the same value but without spending $4 a day?

Now, let’s take a closer look at the long-term impact. It’s an arbitrage—a fancy term we economists use to describe buying or selling assets in different markets to take advantage of price differences—leveraging risks for financial growth. A successful arbitrage leads to a high-value choice, a confident decision, or growth. My approach is to compare your financial decisions to your retirement aspirations, usually considered the longest-term focus of your life. How bad could a $4-a-day coffee habit be? A 22-year-old spending $4/day, five days a week, would forgo almost $400,000 at retirement throughout his or her working life! A pragmatist would bring a reusable cup of coffee from home or get free coffee at the office instead.


This graph shows the mathematical intuition of non-linear growth. We would rather non-linear growth work for us! This shows how our habits may lead non-linear growth to work against us. Also, remember, it is NEVER too late to start. Even if you are not in your twenties, good financial habits will accrue to your long-term wealth.

You may still believe purchasing a coffee drink is worth it. People buy “non-needs” all the time. I’m not suggesting you never make a non-need purchase—of course you will. This example illustrates how the sum of your small decisions adds up over the long term, and how your feelings may build habits affecting the decisions you make.

Next week, we will discuss how to make non-need purchases by implementing the appropriate payment hierarchy. We call this approach "pay yourself first."

Until then,

You’ve got this!


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