One of the greatest debates in the personal finance community is: Can skipping out on your daily morning coffee make you rich?
In other words, should you worry about chasing micro savings? Can saving a few bucks on your morning coffee actually make a difference?
Let’s explore this idea. For most people, monthly expenses look something like:
Food, housing, and transportation are the big three expenses for most people. But there’s also a ton of tiny categories like entertainment, insurance, cell phone, cable, dining out, gym, Netflix, fun money, and other miscellaneous that all fall under “Other random stuff”.
Individually, these tiny categories really don’t make a difference financially. Paying 8 bucks a month for Netflix won’t break the bank. But I would argue that finding ways to save in many of these tiny categories actually can make a difference.
As an example, here are some ways I have found micro savings in these tiny categories:
Earlier this year I was gifted a Keurig, which I use almost every day now. I typically buy a 48 count k-cup package for $24. This means each cup I drink costs 50 cents.
Typical coffee: $3
My alternative: $0.50
Total Yearly Difference: $912.50 ($2.50 * 365)
By switching from Verizon to Ting, I dropped my monthly phone bill by $32 each month.
Verizon monthly phone bill: $50
My alternative: $18
Total Yearly Difference: $384 ($32 * 12)
Online Savings Account
Most online savings accounts pay virtually nothing in interest. Ally, however, pays
1.05% 1.15% annual interest. I typically keep around $4,000 to $5,000 in my savings account at any given time, so I earn roughly $50 per year in interest.
Most savings accounts: $0
My alternative: $50
Total Yearly Difference: $50
Bringing Lunch to Work
There are huge financial benefits to bringing lunch to work. I pack my lunch every day and it only costs me about $2 per meal.
Typical lunch at work: $8
My alternative: $2
Total Yearly Difference: $1,560 ($6 * 5 days* 52 weeks)
My total yearly micro savings is $2,906.50
But can an extra $2,906.50 each year really make a difference? Let’s see what it would look like if I invested $2,906.50 each year at 7% interest for the next 20 years:
At the end of 20 years I would have $127,494 thanks to a few simple micro savings.
I only have one caution to micro savings: Unless it’s a convenient, time efficient alternative then the micro savings aren’t worth it. If I had to drive an extra 10 miles each morning to save a dollar on coffee, it wouldn’t be worth the hassle.
The point of micro saving is to find cheaper alternatives to the mainstream approach. Ideally, you should use a “set it and forget it” method. For example, once I bought my Keurig I no longer had to drive to the coffee shop each morning. I can wake up and make a cup of coffee in my own kitchen. Once I took the time to transfer from Verizon to Ting, the hassle was over and my savings are automatic each month. Set it and forget it. Even packing my lunch is stress free because I turned it into a habit. It’s just part of my daily routine now.
I don’t think saving a few bucks on your morning coffee will make you rich. But I do think saving a few bucks in many different categories – coffee, phone bill, daily lunch, etc. – can make a massive difference in the long run. So go find some convenient micro savings. You’ll thank yourself in 20 years.
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