This post will reveal how small expenses add up over time and how you can easily save over $50,000 in 10 years with just a few small changes.
We all have that little daily routine that makes us happy. For many of us, this is the daily latte. But it could be the weekly (or more) trip to Target where you get some time away from the kids and can roam the isles in blissful freedom. Maybe you enjoy waking up and browsing your favorite online shopping sites on your phone before you get out of bed. Whatever the little guilty pleasure of choice, it brings a little happiness and relaxation to our hectic lives.
But do you really know the cost, added up over time, of your little guilty pleasure?
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How small expenses add up
Action Step: Track your spending and save more money by visiting the FREE resource library to download monthly expense tracking and budget worksheets!
The true cost of your daily latte
Let’s assume that every morning you buy one latte that costs a nice round $5. You love the routine, your barista knows just what you want as soon as you walk through the door. It’s amazing.
1 $5 latte x 5 days/week = $25
There are 52 weeks in a year therefore $25 x 52 = $1,300
So now let’s say that instead of your morning latte, you invest in a Keurig machine and make your own coffee at home. What will this cost you?
One Keurig k-cup machine from Amazon: $68
Four boxes of 24 Starbucks Breakfast Blend k-cups from Amazon: $0.64 each cup
Coffee Mate creamer: $0.11 per ounce
One cup of coffee with one ounce creamer: $0.75
I will assume that the Keurig machine will run smoothly for three years of continual use, but most likely it will last longer.
Cost of owning Keurig machine/month: $68/36 months in three years = $1.89 per month
So the monthly cost of making your own coffee every morning is approximately: ($0.75 x 30 days in a month) + $1.89 = $24.39
The cost of your coffee for the year: $24.39 x 12 = $292.68
How much do you save by making your own coffee?
$1,300 – $293 = $1,007
What would you do with an extra $1,255? Not much you say? Let’s now decide to invest this extra money every month in index funds. We will assume you earn 7% interest*, which you reinvest, earning yourself compound interest. How would this look?
Year 1: $1,046.05
Year 2: $2,167.72
Year 5: $6,043.12
Year 10: $14,610.01
*I like Vanguard’s total stock market ETFs. The 10-year annual average returns is 12.06%, since inception the average annual return is 7.46%.
Without earning interest and taking advantage of compound interest, at year 10 you’d only have $1,007 x 10 = $10,070.
You just earned an extra $4,540.01 in interest and added over $14.5k to your overall wealth.
Of note, I don’t even use a Keurig machine. I purchased a reusable filter and splurge on high-quality local roasted coffee beans that I grind myself before using. I’m a total coffee snob now. But since it only costs me $18 a month, or $216 for the year, I figure I can be as snobby as I like. That includes the price of the filter and grinder over time, the coffee and the Torani syrup I use.
I’m liking the sound of that. Shall we keep going?
You can kick the daily latte habit by making your own coffee, too! Here’s everything you need to start making your coffee on the cheap (but still tasty!) from home.
*This post contains affiliate links for your convenience (which means if you make a purchase after clicking on the link, this blog makes a small commission, which goes towards the cost of running this helps keep my blog up and running, but doesn’t cost you a penny more). See my disclosures page for more info.
The cost of hiring a house cleaner
A few months ago I had carpal tunnel surgery. While my son was extra helpful around the house during my recovery, he doesn’t quite have the attention to detail to do a thorough cleaning of our home. Scrubbing toilets and mopping floors aren’t actually on his list of chores.
So, I came up with the great idea to hire a house cleaner. It was amazing!
They came swooping in with a flurry of assorted cleaning implements I didn’t even know I needed, and in no time at all, my home looked better than it had in years. And for a relatively low cost, I could maintain this level of cleanliness every single month without the time and hassle of scrubbing myself. It was so very, very tempting to maintain this small luxury.
I had many reasons lined up for exactly why I should maintain monthly house cleaning.
I’ll list them for you, some may even sound quite familiar to you!
Most importantly, my time is very valuable to me and professional house cleaners would save approximately 5 hours of my time every month. If I take my hourly rate into account, my time really is more valuable than the cost of the cleaners.
Secondly, most other busy families I know also employ professional cleaners, not just once a month but twice a month, so if I compare myself with friends and family, once a month is pretty reasonable and certainly socially acceptable. I was highly encouraged to keep the cleaners.
Last, but by no means the least, the most compelling of all arguments I told myself was that my house was guaranteed to be cleaner at all times. This would decrease my stress levels and allow me to have friends over more often and I was sure to be more social as a result. It’s been a goal of mine to create and open and inviting home to friends a family.
Needless to say, I was convinced and committed to monthly cleaning.
And then I ran the numbers.
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Initial deep clean (required once a year): $300
Monthly upkeep: $150
Cost per year: $300 + ($150 x 11 months) = $1,950
So let’s now argue that it is better to save this money every month and run it through the same compound interest calculator.
Year 1: $2,026
Year 2: $4,198
Year 5: $11,702
Year 10: $25,290
Or, let’s use the more common cleaning schedule of twice a month:
House cleaner (biweekly)
Initial deep clean: $300
Monthly cleaning: $300
Cost per year: $300 + ($300 x 11 months) = $3,600
Savings results:
Year 1: $3,739
Year 2: $7,749
Year 5: $21,603
Year 10: $52,228
One way to look at this, if you chose to clean your own home instead of the convenience of hiring cleaners, in 10 years you’d have a down payment for a new home. That’s $47,000 in weath that you otherwise wouldn’t have had.
Needless to say, I fired my house cleaner.
I’ll do this one more time because it’s an area that I haven’t made the switch yet. Every 4 weeks, religiously, I go to my salon and catch up with my hair stylist while she touches up my hair color. Over the last 10 years I’ve had major life events and they have not been kind to my natural hair color. I’m only 38 years old. I am not ready to look 15 years older than I am because of dull grey hair! But I also don’t want to look like I dye my hair from drug store boxed dyes either. I’m a professional after all! So here’s a look at my salon spending:
For related reading, visit:
How To: Track Your Personal Finances
150+ Expense Tracking Categories to Help You Track Your Finances
The Beginner’s Guide to Creating a Budget You Can Stick To
Salon vs. Do-it-yourself box dye
Salon
Every 4 weeks root touch up = $45
Every 4th is full hair color with toner = $150
Day one: $150
Day 28 = $45
Day 56 = $45
Day 84 = $45
Day 112 = $150
Day 140 = $45
Day 168 = $45
Day 196 = $45
Day 224 = $150
Day 252 = $45
Day 280 = $45
Day 308 = $45
Day 336 = $150
Day 364 = $45
Total: $450 + $600 = $1050
Of note, I’ve been with my stylist for many years and she has not increased her prices for me. She knows me well enough to know that I won’t pay more than this. Most likely, salon color will cost significantly more than this.
Box: Every 4 weeks $8 = $102 total for a year
Difference: $948 ($79/month)
Savings: (I’ve rounded up to $80/month)
Year 1: $997
Year 2: $2,066
Year 5: $5,761
Year 10: $13,928
Now that I have run the numbers, how do I feel about an extra $14k in wealth in 10 years? It amounts to a little over $1,000 extra savings each year. Is it enough to motivate me to go through a difficult break-up with my stylist? You bet it is!! I just haven’t told her yet. Wish me luck!
So let’s say I do all three of these savings tricks, I vow to make my own coffee, fire the house cleaners AND dye my own hair at home. I’m going to take the total monthly savings and put it in my high interest investment account and take advantage of compound interest.
Total monthly deposit: $84 + $162.50 + $80 = $326.50
Now my savings is similar to if I had splurged and hired the house cleaners twice a month instead of just once a month. I’d have over $56k in extra wealth after 10 years.
Notice that this is not the same as if I just added the total savings for each category, (coffee, cleaners and hair dye) because compound interest is more powerful the more money you invest initially. If you start with a higher monthly deposit by combining multiple streams of savings, you will end up with a bigger nest egg down the road.
Also note that if I just saved that $326/month and kept it in a low yield savings account like one my bank offers, I would have $39k at year 10. NOT over $56k!
Recap
What does an extra $56k mean to me? That’s a down payment for a home, or maybe a multiplex rental property that will generate both monthly passive income and long term wealth generation. An extra $56k could mean the difference between retiring or not. THAT is worth kicking the daily latte habit and making other small changes in my spending every month.
Action Steps
- Visit the FREE resource library to download pdf workbook on tracking finances and fillable worksheets for monthly expense tracking and budgeting.
- After you track your expenses for a month, go through the categories you spend money and think about areas of spending that could be either cut out entirely or substituted for something less expensive.
- Some examples could be cancelling your cable or downgrading your current plan, eliminating one meal out every week, packing your own lunch instead of going out, switching personal care product brands or stretching out the time between mani/pedis.
- Run the numbers, use the compound interest calculator and learn just how much money you could be saving over the next 10 years.
- What would that extra money would mean to you?
- We’d all love to hear how it goes! Ask any questions or share your experience in the comment section below!
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This is awesome! I never thought calculating the price per cup of coffee at home like you did but the illustration really drives the point home!
Is this assuming you invest all of the money at the year end or as you accumulate the savings?
Thanks!
Thank you, I’m glad you enjoyed the post!
I ran all the calculations assuming a monthly contribution to an investing account.
What I tend to do is shuffle extra savings throughout the month into my online bank savings account automatically, then at the end of the month I transfer that savings over to a higher interest earning account, either high interest savings or personal investing account with Vanguard.
And yes, I definitely find that calculating out small, every day expenses vs. savings keeps me on track and motivated to make better spending decisions. 🙂
Dawn