Saving

Don't bother giving up coffee, says expert: Here's the best way to 'increase your savings'

Twenty/20

The stereotypical $5 latte is often cited as a frivolous expense holding back 20- and 30-somethings from their financial goals. Sure, cutting out that purchase would save some money — but considering that you potentially need over $1 million saved to retire comfortably, it's not nearly enough to make a difference.

Instead, focus on making more substantial changes if you want to build wealth, says Douglas Boneparth, a certified financial planner and founder of Bone Fide Wealth in New York City: "If you really want to move the meter on your spending and increase your savings, you're going to want to look to high ticket items like your rent, or where you're living, or your car lease."

Those larger, regular expenses, like housing and transportation, are where the bulk of your money goes, explains Boneparth, who is a coauthor of "The Millennial Money Fix." So, as he points out in the video below, you'll see the most impact if you make smart decisions around those more significant expenses, while also avoiding lifestyle creep.

VIDEO2:5402:54
Is your daily coffee really making you broke?

The math bears him out: Even if you cut out caffeine and invest the money you're saving, you'd still only have a fraction of what you actually need to retire.

Let's say you were able to save an additional $50 a month by losing the lattes. If your money grew for 30 years at an average annual rate of 7%, you'd end up with $60,400. But if you bump that investment to $300 per month, which you freed up by choosing to buy a lightly used car rather than leasing something new, for example, the $300 in savings would become $363,900.

That's not to say you shouldn't be mindful about small purchases, because they can add up. Once you've tackled those big, recurring expenses, it's a good idea to comb through your other spending and prioritize which purchases are most important to you within the limits you set.

One popular budget framework is called the 50/30/20 rule, which divides your income among basic living expenses, discretionary spending, and long-term savings and investments. "It's like baby steps for budgeting if you're looking to get your expenses more in line with your goals," says Kelley C. Long, a certified financial planner. "It [gives] you great guidelines for how you should make spending decisions."

In other words, if you want that latte, make sure it's part of your spending plan.

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