It’s something you do every day without giving it much thought—you go to your favorite coffee shop to get your cup of motivation for the work day ahead. But did you ever stop and think that the Carmel Macchiato you just ordered could be ruining your retirement? Here are five signs that some of your daily habits are sabotaging your savings.
- The barista at the local coffee shop has your drink ready before you even order. If you estimate that there are 21 work days per month and if you buy a $5.00 latte on your way to work each day, the baristas soon learn what your beverage of choice is. At this rate, you are spending over $100 per month on just coffee… did you put at least that much into your 401(k) last month?
- You never have dirty dishes in the sink. Okay, this might not sound like a bad thing, but if you never have dirty dishes, it could be an indication that you aren’t using those dishes—and possibly eating out too often. Whether it is fast food or a sit-down restaurant, the money that you spend each month on the convenience of not having to cook can really add up. Let’s just assume that instead of packing a lunch, you are going out to eat every day during your work week. Even a moderately priced lunch could set you back around $10, plus tax and tip. If you chose to pack your lunch instead, you could probably save yourself about $5-7 per day, $25-35 per week—or $100-$140 per month.
- You couldn’t decide which Stitch Fix items to send back, so you just kept all of them. While these types of personalized services are great if you don’t have time to shop or aren’t close to a store, they can rack up hundreds of dollars of unnecessary spending throughout the year. Even though shipping is free both ways, every time you get a shipment, you are paying a fee for the service, and then if you decide to purchase some or all of the items, you will pay extra. Shopping for the perfect outfit may not interest you, but it could save you quite a bit of money to be able to use store coupons or wait for sales. If you truly need the outfits, then it may be a deal, but if you don’t… well, that money could have been put to better use.
- You can’t decide whether to watch a movie on Amazon, Netflix, or Starz. Perhaps none of these services cost that much per month individually, but if you subscribe to multiple similar services, you may be spending money than you need to. Try to look through your monthly expenditures for duplicate services that you may be able to cut. For example, if you have a voicemail account on your cell phone, do you need it on your home phone too? Satellite radio may be nice to have in your car, but is it worth it when your drive to work is only 15 minutes?
- Half of the purchases on your credit card this month were from iTunes. One little in-app purchase of $1.99 doesn’t seem like a big deal at the time, but if you are consistently making in-app purchases, it could be adding up to quite a bit of your monthly budget without you even realizing it.
So how do you change these types of habits?
If any of these scenarios sound familiar to you, don’t worry, there are some things that you can do to help you cut down on the frivolous purchases and put that money toward your future:
- Prioritize your spending. Differentiate between needs and wants. Ask yourself before making a purchase, “Do I need this or do I want it?” Make sure your money is going toward the needs first.
- Pay cash for discretionary items. You don’t have to cut out coffee, happy hour, or eating out altogether, but if you have set aside a certain amount of cash each month for these things when that money is gone, the spending will stop. So maybe you indulge and get a coffee before work one day a week rather than five days…
- Set aside money from each paycheck for savings or retirement in a separate account—preferably have this set up to come directly out of your paycheck. Money is not as easy to spend if it never enters your checking account.
The key principle in personal finances, as in life, is moderation. There is absolutely nothing wrong with enjoying caramel macchiatos or any other small indulgences that bring happiness and comfort into your life. You just need a proper balance between living in the now and planning for the future. By having a clear vision of how you want to live your life both now and in the future, combined with careful planning and a sensible spending and saving strategy you can have the confidence to live life well – and enjoy those macchiatos guilt-free.
Katie Moore, CDFA, a Financial Planner and Certified Divorce Financial Analyst with Finivi, is passionate about empowering savvy independent women, and women in transition due to a divorce, the death of a spouse, a career change, or other significant life event to expand their knowledge and build their confidence regarding money and investing.