‘How To Get Rich’ Host Ramit Sethi: Stop Agonizing Over Your $3 Coffee — Build Wealth This Way Instead
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Jake Safane
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T. Woods
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A rather common personal finance tip is to end the daily habit of buying coffee from a coffee shop, as those $3 cups (not to mention $7+ lattes) can really add up in your bank account day in and day out. However, sometimes those small spending habits get overblown.
That said, even if you saved over $100 a month by cutting back on coffee — and less than 5% of Americans actually spend that much, according to a survey by Coffee Holli — that may not make nearly as much impact as, say, earning $1,000 per month more from a career advancement.Instead of focusing your attention on $3, $7 or $15 cups of coffee, focus on big wins, said author of I Will Teach You to Be Rich and host of the Netflix show How to Get Rich Rami Sethi in a recent LinkedIn post. He has suggested that big wins like learning personal finance basics and automating your finances can dramatically improve your life, far more so than comparatively coffee savings.
If you don’t know how to budget, for example, you might focus on cutting back on coffee while not realizing that your housing and car payments are far too high based on your income. Lowering your fixed expenses like bills could actually free up more money for coffee, with room to spare. By automating your finances — like moving 15% of every paycheck into a retirement account and 5% into a high-yield savings account — could then make it easier to know how much you have left over for small pleasures like coffee, while still having a nest egg.
Sethi also suggested focusing on big wins like investing early and consistently. The power of compound interest means the earlier you start saving, the more your money works for you.
As an analysis from Vanguard shows, if someone who’s 25 invested $10,000 per year until age 40 and then stopped, they’d end up with more money by age 65 than someone who invested $10,000 from age 35 to 65. Even though the 35-year-old saved more money for more years, the end result differs because investing early has the advantage of compounding, so the 25-year-old’s savings would grow more.
Another big win, suggested Sethi, is to find a great job that pays well. If you go from making, say, $30/hour with irregular hours, to a stable job earning $80,000 per year plus benefits, that can have a much bigger impact on your financial well-being than saving a few dollars here and there on coffee.
That’s not to say you should spend recklessly, but saving money by drinking coffee at home might not have as much effect on your personal finances as some other moves, like increasing your income, investing and lowering your fixed expenses.
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