Aren't your lattes making you rich? How much small purchases matter

This is evident from Deloitte’s most recent annual report Digital Media Trends ReportAmericans spend $61 per month on streaming services, a 27% increase from the previous year. While this isn’t a significant amount on a monthly basis, it can add up quickly, especially if you allow other small purchases to creep into your money. budget.

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Many financial experts, like Suze Orman, believe that spending money on the daily coffee habit prevents young people from saving money and building wealth. That’s why it’s important to think about what daily lattes and other small, regular purchases might look like that prevent you from achieving your financial goals.

How small purchases add up

“Prices for lattes, avocado toast, streaming or other things will vary dramatically by individual and by location,” says Tanya Peterson, consumer finance expert and vice president of brand at Reaches.

Keeping in mind that costs can vary, Peterson gave an example of how much you can save monthly and annually by eliminating these small purchases from your budget:

Assuming someone buys a $5 drink four times a week, that equates to $1,040 annually. If you spend about $8 a day seven days a week, that’s $2,912 on caffeinated drinks by the end of the year.

How long would it take to get rich by cutting out lattes?

Using these amounts of $1,040 and $2,912, here’s how much your money could grow if you choose to invest it over 10 years, assuming a daily interest rate of 4%:

Save and invest €1,040 annually for 10 years at 4% interest = €14,100
Save and invest €2,912 annually for 10 years at 4% interest = more than €39,000

The amount you have after ten years depends on how you invest your savings. For example, you would get very different results if you chose to leave the money in a high-yield savings account versus an index fund.

Ultimately, it would take a significant amount of time to build real wealth just by shutting down the coffee shops.

It’s not just lattes

Peterson said one in four U.S. consumers spends more than $75 on streaming services every month – that’s more than $900 per year. “Save $900 over 10 years – 4% interest, compounded daily – and you’ll have more than $12,000.”

You can save even more by ditching your daily lattes and streaming services to invest the money.

If you want to experiment with the numbers based on your unique situation, you can use a online calculator to see how much your small purchases are costing you over time. You might be surprised how much you can save in the long run by making certain sacrifices.

Do small purchases really keep you from getting rich?

While the numbers show that cutting off streaming services and daily indulgences could increase your net worth, does this really make sense?

Building real wealth is about priorities

“If you have $12,000 or $39,000 more in 10 years, you might not get rich,” Peterson said. “However, setting priorities – what is important for you to do and have in your life – and developing a mindset to make smart purchases, advocates the discipline to avoid overspending and debt, and opens up the door to increasing real wealth.”

If you want to build significant wealth, you’ll need to prioritize your finances, which may involve making some tough decisions. If your streaming services and daily pleasures are keeping you from saving, consider making changes.

Everyone has unique values

“We are all wired differently and value different purchases and activities differently,” says Robert R. Johnson, Ph.D., professor of finance at the Heider College of Business at Creighton University. “The key to budgeting is to figure out what’s really important to you and prioritize those expenses while de-emphasizing expenses that aren’t important to you.”

Create a financial plan around your unique values and what you care about. You may crunch the numbers and discover that you don’t mind spending $5 on a cup of coffee every day because you value this social interaction and can find other ways to save money.

Personal finances are personal

“When Suze Orman and Dave Ramsey punish people for buying lattes or avocado toast, they are assuming that we all value purchases and experiences equally,” Johnson said. “For some, the daily coffee purchase goes beyond just a drink, but also has a social aspect.”

When you budget, you want to figure out what’s important to you, rather than worrying about how others might value the purchases. Here are a few points to consider:

Your daily coffee consumption can be more valuable than a night out.
You can save money by watching movies on Netflix at home instead of going to the cinema regularly.
Your family could have a ritual where everyone goes out to eat once a week that everyone looks forward to.

It’s important to know where your money is going

While cutting lattes and Netflix from your life may not help you get rich, the point of the exercise and doing some calculations is to help you figure out what’s happening to your money. You want to know where your money is going so you can create a budget based on the data.

“The key here is to be aware of what you spend and make sure it fits within your priorities and household budget,” says Peterson. “If you’ve decided that your priority is, for example, purchasing a new TV, going on a trip, and retiring at a certain age, it becomes much easier to align your spending and savings toward those goals. to vote.”

The goal is to identify what’s keeping you from achieving your financial goals so you can create a plan that works for you. For this to work, you need to be realistic about your finances.

Johnson concluded, “You don’t successfully build wealth by simply taking what you have left after all your spending. We achieve what we prioritize. Prioritize savings and invest those savings.”

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