There is a passionate discussion about this topic going on in the personal finance community and among bloggers.
The central question is: “Should you save the $5 you spend every day on your morning caffè latte, or should you save that money and put it into your savings/retirement account?”

The answer to this question is crystal clear, at least to me: Save the money!

But just to be sure, let’s do some math to back up my claims!

Assume you drink a caffè latte 5 times a week that sets you back $5 each time. That’s $25 a week, $100 a month, $1,200 a year, $6,000 in 5 years and $12,000 in 10 years.


And that’s if you don’t invest the money!

If you consistently make $100/month contributions to an investment account or low-cost exchange traded fund for 10 years, assuming a 7 percent investment return and a 25 percent tax rate, that $12,000 you made in total deposits will have grown to $15,841 in 10 years (the future value of your investment). So, as you can see, a seemingly unimportant habit such as popping into Starbucks and getting your caffè latte has actually become very significant in financial terms.

Just by saving your coffee money and investing it consistently, after 10 years you will have saved up enough money (including investment returns) that you could probably make a cash down payment on a house or an income-producing investment property!

Plus, $12,000 is a pretty hefty sum of money to spend on coffees, right? Small amounts of money do add up.

And, just for the sake of argument here, imagine what you could do financially if you were fully committed to your dream of retiring early and achieving financial freedom….imagine what you could do if you saved not just $100/month by cutting out your coffee but by putting $500, $800 or $1,500 each month into investments that produce a recurring stream of income for you! You will be on the fast track to financial independence!

You see, people that encourage you to keep spending $5/day on your coffee habit tend to focus more on the “earnings” side of financial independence, meaning their argument is that you should focus on maximizing your income instead of pinching pennies.

I disagree wholeheartedly with this notion for two specific reasons. For one, people grossly underestimate how powerful it is to save small amounts of money consistently over time. Small change piles up very quickly. And two, dismissing $5/day as an insignificant expense just shows me that absolutely crucial money lessons have not yet been learned. Postponing to save money is a cardinal sin and closely related to a phenomenon called “lifestyle creep”.

Lifestyle creep means that as your income goes up, your living expenses will increase also. And if you haven’t learned how to budget and save money on a small income, you will not be able to save money on a higher income! The end result: Even with a higher salary you will not manage to build up any savings.

Say, for instance, that you used to be perfectly happy with your Toyota Sedan to get you to work, but now that you got a promotion and a salary increase, you feel like you can’t possibly be seen anymore in your Toyota. You may feel compelled to broadcast your increase in earnings power through the purchase and use of a brand-new BMW. The issue here is that as you upgrade your lifestyle in lockstep with your growing income, you are NOT going to save any money. If you haven’t learned to save money on a small paycheck, how are you going to sock away money now on a big paycheck? You haven’t learned the skill, and until you learn the lesson you will keep on making the same mistakes.


Whether you believe it or not but saving $5/day over a long period of time makes a world of difference! Don’t be misled and believe that $5 is so little money that it doesn’t matter. It does and it matters the more time you have to invest and compound your money. To put the matter to rest once and for all: Save the $5/day and put the money into your retirement account for it to compound. Be smart: Be a saver, not a spender!