You may have heard the advice to “cut out your daily latte” if you’re trying to save money. Small daily impulse purchases do add up over time and shouldn’t be ignored. However, before denying yourself a small daily luxury, make sure it’s part of a larger budgeting plan and not just an arbitrary cut.
Arbitrary cuts feel like progress in the short term, but after three days of skipping a $7 coffee, you might be tempted to say yes to the $50 impulse buy you saw while scrolling.
That’s why before you cut your coffee, you need to sip your T.E.A.
T: Track Expenses
Before making cuts, track your spending from the past 30 days to see where your money is really going. What percentage of your spending goes towards fixed expenses? What about variable expenses? What category of purchases makes up most of your variable expenses? Is it food? Dining out? Impulse buys? Something else? Having this data available will better align your future spending plan with your actual behavior, not what you think your behavior is.
E: Evaluate Priorities
Spending should support your financial priorities, but priorities aren’t limited to big things like “family” and “security.” Priorities can be small things, too. An avid gym member might prioritize new workout shoes over meals out, while a foodie might be fine wearing years-old sneakers to prioritize an expensive dinner at a new restaurant. Deciding your small, medium and large priorities in advance helps make your spending more intentional.
A: Automate Savings
Saving doesn’t need to be a conscious, deliberate action every paycheck. Make your good decisions easier by making them automatic. Decide on a savings amount and set up automatic transfers into your savings account to ensure that money is less available for the category of spending you decide to cut. Sometimes people feel their savings amount is too small to warrant an automatic transfer. Remember, any amount of saving is helpful and adds up over time!
A Meaningful Plan
After you track, evaluate and automate, any cuts you decide to make should be better aligned with your spending priorities and goals. You may still decide to cut down on your daily lattes, and that’s great! But now you know it’s part of a larger plan that’s making a big difference in your savings, not just a one-time cut you won’t remember later.
