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Last week’s column showed how buying an expensive machine to make coffee at home instead of frequenting a coffee shop could save around $1,000 a year.
Coffee, of course, is just one example. The same home-vs-store financial benefit could apply to a host of other habitual indulgences and services, from restaurant lunches to meal deliveries to manicures. As long as those habits aren’t breaking your budget, though, why should it matter?
Here’s one hypothetical reason: putting annual savings of $1,000 into an IRA invested in stocks averaging a 7% return could potentially grow a nest egg of over $94,000 in 30 years.
For most of us, these numbers aren’t enough to break a routine like visiting a coffee shop or going out for lunch. Why? Because, as I discussed last week, our habits are driven by emotions and cognitive biases, not financial logic. The immediate pleasure and convenience of grabbing a cappuccino on the run or having lunch delivered tends to overshadow the long-term benefit of saving money.
In addition, many of us have as one of our money scripts the belief “I deserve this.” We often justify indulgences with the idea that we’ve earned them. This makes it harder to give up buying treats for ourselves, even when we know changing that behavior would be in our financial best interest.
Here are a few strategies that could help shift your mindset toward the long term:
1. Visualize the specific rewards. Instead of focusing on the immediate satisfaction of today’s convenience or treat, picture the long-term benefits. For example, if making just one daily cappuccino at home saved $1,000 a year, which you invested in an IRA with a likely 7% return, chances are you could have $13,816 in 10 years, $40,995 in 20 years, and $94,460 in 30 years. (In my case, where I make three cappuccinos a day at home, my 30-year savings could reach $330,613.)
2. Track your spending. It’s easy not to notice how much small regular habits can cost. Track your spending weekly or monthly for a while. Seeing the numbers add up can motivate you to make changes.
3. Start small. You don’t have to give up your favorite habit cold turkey. Maybe start by brewing your own coffee or taking your lunch to work one or two days a week. Gradually increase that as you get comfortable. You’re likely to feel motivated to continue as the savings stack up.
4. Set aside the savings. Every time you choose the cheaper make-at-home option, transfer the amount you did not spend into a savings account. When it reaches $100, consider opening an account that requires no minimum investment, like a ZERO Total Market Index Fund with Fidelity, and continue to invest your savings there.
5. Reframe the upfront investment: Buying an espresso machine or spending more on groceries can feel like a lot. Think of it as an investment in your financial future. Focus on the amount you will save in the long run.
Choosing to make your coffee or your lunch at home instead of hitting the café every day is not just about saving a few dollars—it’s about setting yourself up for long-term financial success. By understanding the cognitive biases and money scripts that drive your spending habits, you can start making small, manageable changes that will lead to big financial rewards.
Remember, too, that the goal is not to emulate Ebenezer Scrooge, depriving yourself of every indulgence so you can accumulate wealth. The goal is to find a balance that allows you to enjoy life’s small pleasures now—as well as giving your future self the ability to do the same.
Rick Kahler, MS, CFP®, CFT-I™, CeFT®, CCIM, is the founder of Kahler Financial Group, a Rapid City, SD-based fee-only Registered Investment Advisor.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
