What’s the easiest way to save money? Cut out the little stuff, right? You’ve probably heard a million examples of how much money you could save over the course of a year if you cut out that daily $5 latte. The concept was actually coined by an author and finance guru named David Bach who named his theory “The Latte Factor.”¹
But do you really drink coffee that costs $5, and do you drink it every day? Some quick math on my part shows that even if your latte is a whopping five bucks and you buy one every single weekday the entire year, you’ve spent $1,300. Yeah, that’s a lot of money, but it’s not a fortune, especially when you consider you got 260 mornings of bliss for that price. And I’m guessing most of us are probably aren’t buying 260 $5 lattes each year. You’re probably only in the once-in-a-while latte-drinking boat, or you’re drinking daily coffees that cost more around $2 rather than $5.
So is it worth depriving yourself of that daily cup of joy for just for an extra $100 a month? You can kill yourself cutting out the small pleasures of life—never buy a latte again, say no to happy hour with friends, skip the Redbox rental—but is it worth it?
Sometimes those minor budgetary cuts are worth the pain or are even absolutely necessary, but what if there was an easier way to save money? Here’s a different thought—instead of cutting out the teeny tiny expenses with a scissors, take an ax to the big expenses instead.
If you’re looking to keep more money in your pocket this year, try slashing expenses in these three key areas:
If you could reduce your monthly mortgage payments or rent by even $100 a month, that’d equal the same savings as depriving yourself of your super fancy latte every single day. You can lower your housing costs by moving to a less expensive home or apartment, moving to an area with cheaper property taxes, trying to get your property taxes lowered if you think your home is assessed too high, acquiring a roommate, or maybe even refinancing your home.
This one’s even easier than housing, because eliminating big costs in this area is usually pretty quick and easy. Sell your current car and opt for a vehicle that’s older or not quite as nice, as long as it’s safe, reliable, and fuel-efficient. Potential savings here? Hundreds of dollars a month, when you consider your lower car payments and cheaper auto insurance for a car that’s worth less. (That’s why I drive my old beat-up car happily!) Or, you can get rid of your car altogether. It might be tricky at first, but surveys show a lot of millennials are getting by with zero or one car per household and are less likely to own cars than any other generation.²
3. Media and technology
Cable, cell phones, internet . . . all those things add up, especially when you consider that they’re ongoing monthly expenses. When was the last time you took a look at your cell phone or internet bill to see if you could cut costs, negotiate a better deal, or switch providers? And how important is cable to you? Netflix or Hulu don’t cost nearly as much, although you may want to cut those, too. My husband and I have found that the more options we have for TV and movies, the more time we spend in front of the TV, which we usually regret. We’re actually happier not having anything but a digital antenna and watching TV that’s free and not as likely to suck us in for three hours. That’s a choice you get to make for yourself based on your interests and priorities!
So, the next time you want to cutback, look to make cuts in the areas that really count and will make the biggest impact on your financial goals. I’ll see you at Starbucks tomorrow morning with a latte in hand—no shame.