Enjoy Your Latte Without Worrying About Dying Penniless

Coffee Money
Coffee Money

If you read enough advice columns, one fact will come through loud and clear: Personal finance experts hate lattes.

Expensive coffee drinks are an easy target for money pundits. Here's how the argument goes:

  • They point out that you spend $4 a day on your liquid addiction, and over the course of a year that amounts to a four-digitbite out of your potential savings.

  • Next, they make the grand assumption that you'd actually invest that money if you didn't stand in line every morning to spend it.

  • Finally comes the magic of math – specifically, compound interest. There's a drumroll, some fancy math, and -- voilà! – suddenly we're talking about hundreds of thousands or even millions of dollars lost over the course of a lifetime of your latte drinking.

That's right: You could have been a millionaire, but evidently, you were more interested in a little pick-me-up to start your day.

Sweating the Small Stuff Can Lead to Big Problems

Now, I understand how small expenses can add up to big sums of money. But you don't have to give up your favorite addictions to reach your financial goals.

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Just knowing how you spend your money every month can make you reassess whether the things you buy are really worth the price you pay. That's why going to the trouble of having a budget makes lots of sense, especially if you're having trouble making ends meet.

But if you turn cutting costs into a crusade against every little expense you incur, you risk cutting into your quality of life. And that's a huge danger -- because having to sacrifice all your little pleasures can breed resentment that will eventually lead you to give up on your spending plan entirely.

Have Your Latte and Do These Things Instead

Instead of clamping down on every stick of gum or breath mint you take to the cash register, try turning financial responsibility toward a more positive point of view. Focus your valuable time on the things that will really make a big difference to your bottom line.

1. Above all else, pay yourself first. Yes, it's another common nugget, but this one is hard to argue against. Paying yourself first will ensure that you don't skimp on your savings when money gets tight right before your next paycheck.

If you have a retirement plan at work, such as a 401(k) plan, and aren't contributing to it, then start putting aside some money today. Start small if you have to, but set yourself the goal of increasing the portion of your paycheck you contribute to that plan over the year, with an eventual target of saving 10% of your pay.

2. Don't make small cuts until you've made the big ones. When you're looking for ways to save money, spend the most time trying to cut your biggest expenses. Many people drive clear across town to save a couple bucks on a $20 item, but they won't do things that could pay them back a lot more. For example:

  • If you carry a balance on your credit cards, a short phone call to get your interest rate reduced could help you save hundreds per year.

  • Pushing up the deductibles on your auto, homeowners, and other insurance policies can reduce your premiums by 15% or more.

  • When you buy a house, a car, or other big-ticket items, take the time to look for ways to save. Getting a buyer's agent when you're considering a home purchase usually won't cost you a penny, but your agent could help you save thousands by negotiating a better price or warning you of problems you might have missed. Similarly, don't be in a rush to pay the sticker price on a vehicle; haggling with salespeople is a hassle, but for most of us, a few extra hours to save hundreds or even thousands of dollars is time well spent.

Once you take care of those major things, you'll find that the rest of your financial life falls into place a lot more easily. Getting used to a new way of doing things may take some time, but the stress reduction that comes with it is priceless.

Drink Up!

Take care of business up front and then order that latte – and make it a double. Then enjoy every sip without having to worry about visiting the poorhouse in your golden years.

Motley Fool contributor Dan Caplinger actually does hate lattes; his guilty pleasure is hot chocolate. You can follow him on Twitter here.