Are Your Lattes Preventing You From Getting Rich? How Much Small Purchases Matter
Written by
Martin Dasko
Edited by
Amber Barkley
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According to Deloitte’s most recent annual Digital Media Trends report, Americans spend $61 monthly on streaming services, a 27% increase from the previous year. While this isn’t a significant amount on a monthly basis, the amount can add up quickly — especially if you allow other small purchases to creep into your budget.
Many financial experts, like Suze Orman, believe that spending money on a daily coffee habit is holding young people back from saving money and building wealth. This is why it’s important to consider how daily lattes and other small regular purchases could be holding you back from reaching 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,” said Tanya Peterson, a consumer finance expert and vice president of brand at Achieve.
Keeping in mind that costs will vary, Peterson offered an example of how much you could save monthly and annually by cutting out these small purchases from your budget:
Assuming someone purchases a $5 beverage four times weekly, this adds up to $1,040 on an annual basis. If you spend around $8 daily, seven days a week, that’s $2,912 spent on caffeinated beverages by the end of the year.
How Long Would It Take To Get Rich From Cutting Out Lattes?
Using those $1,040 and $2,912 amounts, here’s a look at how much your money could grow if you chose to invest it over 10 years, assuming 4% interest compounded daily:
- Saving and investing $1,040 yearly for 10 years at 4% interest = $14,100
- Saving and investing $2,912 yearly for 10 years at 4% interest = over $39,000
The amount that you have after a decade will depend on how you invest your savings. For example, you would have much different results if you chose to leave the funds 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 cutting out your coffee shop runs.
It’s Not Just Lattes
Peterson said one of four U.S. consumers spend over $75 each month on streaming services — that’s over $900 a year. “Save $900 for 10 years — 4% interest, compounded daily — and you’d have more than $12,000.”
You could save even more by cutting out your daily lattes and streaming services to invest the funds.
If you want to experiment with the numbers based on your unique situation, you can use an online calculator to see how much your small purchases are costing you over time. You may be surprised by how much you could save over the long run by making certain sacrifices.
Are Small Purchases Really Preventing You From Getting Rich?
While the numbers show that cutting out streaming services and daily indulgences could increase your net worth, does this really make sense?
Building Real Wealth Is About Priorities
“Having $12,000 or $39,000 more in 10 years may not make you rich,” Peterson said. “However, establishing priorities — what’s important for you to do and have in your life — and developing a mindset of making smart purchases champions the discipline to avoid overspending and debt, and open[s] the door to growing real wealth.”
If you want to build significant wealth, you’ll have to prioritize your finances, which could involve making some difficult decisions. If your streaming services and daily indulgences are holding you back from saving, you’ll want to consider making changes.
Everyone Has Unique Values
“We are all wired differently and value different purchases and activities differently,” said 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 is really important to you and prioritize those expenditures while de-emphasizing expenditures that don’t matter to you.”
Build a financial plan around your unique values and what you care about. You could run the numbers and find out that you don’t mind spending $5 on a cup of coffee daily, because you value this social interaction and could find other ways to save money.
Personal Finance Is Personal
“When Suze Orman and Dave Ramsey chastise 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 simply a beverage but has a social aspect.”
When you budget, you want to figure out what matters to you — instead of worrying about how others may value the purchases. Here are a few points to consider:
- Your daily coffee consumption could be more valuable than a night out.
- You may save money by watching movies on Netflix at home rather than going to the cinema regularly.
- Your family could have a ritual that involves dining out once a week that everyone looks forward to.
It’s Important To Know Where Your Money’s Going
While cutting out lattes and Netflix from your life may not help you get rich, the point of the exercise and running some calculations is to help you figure out what’s happening with your money. You want to know where your money’s going so that you can create a budget based on the data.
“The key here is to be aware of what you’re spending and make sure it fits into your priorities and household budget,” said Peterson. “If you have decided your priorities are to purchase a new TV, take a trip and retire at a certain age, for example, it will become much easier to align your expenditures and savings with those goals.”
The objective is to determine what’s holding you back from reaching your financial goals so that you can create a plan that works for you. You must be realistic about your finances for this to work.
Johnson concluded, “You don’t successfully build wealth by simply taking what you have left after all your expenses. We accomplish what we prioritize. Prioritize savings and invest those savings.”
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