The staggering amount you can save by skipping that morning coffee
Just give up coffee, cut down on brunches, spend a bit less on shoes...
If you are trying to save for a big goal, you may be tired of this sort of advice.
How much of a difference would cutting out your daily coffee really make to your financial life?
An examination of the numbers reveals that if you buy a coffee six mornings a week, you spend about $1250 a year. That assumes you have the willpower not to pick up a muffin for breakfast at the same time.
That is enough for a return trip to London. Not a bad payback for switching to brewing your own.
Financial educator Lisa Dudson said people should not underestimate the power of little purchases because every dollar spent would add up.
She would sometimes get clients to keep track of everything they bought in a month. Then, she would ask them to rank their discretionary spending in order from the most important to the least. They would be told to get rid of the spending that was not important.
"One woman was in debt and was spending heaps on fashion. I told her she could pick a couple of things but she couldn't have them all. She wouldn't let go of her facials and make-up but was happy to dramatically reduce her clothing budget. Some people might think that's nuts but I don't really care what it is that you spend money on, you just can't have everything," Dudson said.
"It's clear to most people that just giving up coffee isn't going to allow them to buy a house," said financial adviser Hannah McQueen, of EnableMe.
"It's a whole lot of things. You've got to have a plan. Without that, they sell themselves short."
She said most people frittered money away in some way. But she said just giving up something such as coffee or eating out would not help if there was no clear strategy in place for what to do with the money instead – it would just get swallowed up somewhere else.
"People don't realise what they are capable of achieving and don't set targets so they make no progress. Then they have the coffee because at least it makes them feel good."
Dudson agreed a plan was key.
She said people who were giving something up to save needed to have a goal that was more important, to keep them on track. "If you're cutting down on coffee it's all about what you're not spending but if you have a goal that puts you in the mindset of what you can have instead."
General manager of wealth at ASB Jonathan Beale said people should look back through their bank statements to work out where their money was going each month.
They could then decide what to trim, if necessary. If saving for a particular goal was the most important thing, they could put the money aside for that each payday first and then live off whatever was left.
"I spend a lot of money on coffee but even if I didn't, it wouldn't give me the money for a house."
How many years of coffee would you have to give up:
- To save $100,000: 80 years **
- To buy a return flight to London? One year
- To buy a $10,000 car? Nine years
*Based on $4 coffee, six days a week, in an account with a 2 per cent interest rate.
** You could reach this goal more quickly by investing in a managed fund once you reached $10,000.
Are you a good saver? What’s your secret?
Written by Susan Edmunds. First appeared on Stuff.co.nz.