How many articles have you read that suggest millennials could buy a house if only they’d just stop splurging on avo toast? Apart from being tone deaf to the challenges many young people face from crushing student debt to soaring costs for homeownerships (especially in big cities) the math just doesn’t work out. At best you’re looking at another $2,000/yr. That’s not nothing, but it’s not anywhere near enough to afford a downpayment on a $1M “starter” apartment in SF or NYC.
Personally I love my lattes. When I go to my favorite coffee shop and buy a latte I’m getting more than my daily dose of caffeine. I get so much joy from just sitting in my local neighborhood coffee shop. Many days it’s my temporary office. Other days it’s a place for rich self care. I’m primarily buying the experience of being at the coffee shop, which is well worth $5! When it comes to everyday indulgences lattes may actually give me my biggest bang for my buck. So for me that’s not where I’m going to cut back.
The truth behind that advice is that you don’t have to save that much to make a difference. How would it feel to know that you had a full month of expenses in savings so you weren’t always living paycheck to paycheck? Thanks to compound interest if you start saving and investing when you are in your 20s that can really add up by the time you reach your 60s. Even if you need to start small you will build the habit of saving and give yourself peace of mind knowing there’s a buffer when you need it.
Here are some better ideas of how to painlessly set aside $200 (or more!) a month.
Set up an automatic transfer to savings of $200+ every month. With no additional thought or willpower you’ll be on your way to reaching your financial goals. Look for a high interest savings account. You should be able to find an account with at least 2% interest that doesn’t require you to take on any additional risk*.
Stop mindless lifestyle creep. This is a big one. When you do get the new job or a big promotion that doesn’t necessarily mean it’s time to move to a bigger apartment or buy a nicer car. Just because you make more doesn’t mean you need to spend more. Take some time to reflect on what really brings you joy. Lifestyle creep is one of the biggest culprits among high earner who are still living paycheck to paycheck. It’s not about penny pinching for the sake of penny pinching, but rather considering how your money can support your dreams, desires, and goals.
The next time you get a raise put aside your incremental income in a savings account. What you do with the extra money is up to you and could be anything from paying off your credit card debt to planning a fabulous vacation to enabling yourself to take time off from work so you can finally pursue your passion that’s been on the backburner.
If you are renting, the next time you move set your budget $200/mo lower. If you want to significantly cut your living expenses consider finding a roommate and/or moving to a different neighborhood. Housing is typically your biggest living expense so it’s also one of the simplest ways to reduce your montly expenses.
Check if you have any monthly subscriptions that you don’t enjoy or rarely use. This might include streaming entertainment, cable, clothing subscription boxes, gym memberships, etc. It is easy to set up an account and forget you’re making monthly payments even when you don’t use the service. Canceling can be an easy win.
Negotiate a lower rate or switch providers for regular expenses. This approach will require a bit more research so you know if you’re also making trade-offs in quality. You may be able to negotiate a lower bill for cable and internet by calling your provider or to reduce your auto insurance payments if you have a squeeky clean driving record. With a bit of research you may find that a less expensive health insurance plan still offers enough coverage for you. Again, be aware if you’re making any trade-offs. But there may be opportunities to reduce your expenses without even noticing the difference.
*As of May 2019. Interest rates may rise or fall in the future.