How Much Do Small Daily Purchases Really Affect Your Long-Term Finances?
According to a recent report by Northwestern Mutual , 53% of Gen Zers and 52% of Millennials surveyed believe that small daily purchases like their daily cup of coffee will impact their long-term financial security. The idea that avocado toast is to blame for the financial problems of an entire generation has been ridiculed for years. But given recession fears , how much does daily indulgence really affect long-term finances?
I spoke with personal finance expert Jan Smith, co-host of @frugalfriendspodcast and @modernfrugality on Instagram . Here’s how your spending habits can affect you in the long run.
Iced coffee is not what keeps you from owning a house
Let’s start with a little math. Smith puts it this way: “If you think only in numbers, buying $5 iced coffee five days a week for a year will cost you $1,300. It won’t stop you from buying a house. In 10 years, you’ve spent $13,000 on iced coffee, which is a lot, but that’s not what’s holding you back from financial freedom.” Smith goes on to say that talking about your morning coffee isn’t really about the cost of those small purchases, but about the slippery slope of lenient decision making.
Daily life directly affects how you browse and make large purchases.
The same mindset that justifies daily iced coffee can turn into iced coffee plus a breakfast sandwich, plus afternoon coffee, and so on. “What started as completely harmless,” says Smith, “becomes a set of shopping habits that perpetuate a paycheck-to-paycheck lifestyle.” This doesn’t mean you have to give up on all the small purchases that bring you much-needed happiness. According to Smith, it would be a mistake to condemn certain spending habits: “A $5 iced coffee is not the enemy. Mindless consumption. Instead, the key is to be mindful and consciously decide where your money goes.
Become a more conscientious spender
Some people are afraid of the budget because they think it means they have to forgo many purchases that bring them joy. Smith says this is not necessarily the case.
“A budget is not a tool to deprive you,” she says, “it’s a plan that makes sure you get what you want in life and you don’t get forced to spend your hard-earned money on something you don’t want so badly.” . That’s why it’s so important to review your bank statements to make sure the things you’re spending money on are really valuable to you, and not some subscription service you’ve long forgotten about. You may be surprised to find out what expenses you can eliminate because they are unintentional or caused by stress. “When you make sure you only spend money on things you love and don’t spend money on things you don’t like,” Smith says, “you will make more important financial decisions.”
Even if your morning routine costs you $35 a week, it won’t make the difference between long-term financial security and chronic debt. You should budget for this $5 coffee after consciously deciding that it is worth the comfort it brings you.
Here’s our budgeting guide , along with steps you can take now to prepare for a recession.