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Sweat the Smart Stuff—Not the Small Stuff

Sweat the Smart Stuff—Not the Small Stuff

Contrary to what you’ve heard, your daily latte and other minor spending habits aren’t going to single-handedly make or break your financial future. But making smart, thoughtful decisions about a few big things can help you plan, save, and prepare for tomorrow.

Illustrations by Rose Wong

I f you’ve paid attention to pop culture personal financial advice, you’ve probably heard a story that goes something like this: the reason you can’t get ahead over time—or sufficiently save for a secure and comfortable retirement—is your coffee shop latte habit.

Or your love of avocado toast.

Or your fondness for streaming music and video services.

The thinking behind this is simple. It presumes that people fritter away far too much of their money on frothy little luxuries—and that in the long run, that thoughtless spending adds up, amounting to slow-drip financial self-sabotage. If all of us would instead eliminate our daily frappuccinos and other unessential purchases, we’d then have more money to save, putting us on track toward brighter financial futures.

Only that’s not the whole story.

Yes, a penny saved is a penny earned. And sure, spending less on stuff that you don’t need now can mean more money at your disposal later. Making a budget, being conscious of your daily spending habits, and cutting back on life’s little indulgences when appropriate are all good ways to boost your savings toward the future.

However, they’re not the only ways to do so. After all, a penny saved is still just a penny. When it comes to planning, saving, and preparing for tomorrow, it’s arguably less important to sweat the small stuff than to make smart, thoughtful decisions about a few big things—the key choices that almost always play a major role in building long-term wealth.

“The idea that you’re not rich because you buy coffee is ludicrous,” says Billy Hensley, president and CEO of the National Endowment for Financial Education (NEFE), a Denver-based nonprofit that works to improve and maximize the impact of financial education. “It’s lazy. Let’s not be lazy. Let’s change the narrative, and instead ask ‘what is your goal? What do you want to achieve? And what are ways we can focus on your budget to help you achieve that goal?’

“There’s this assumption that it is these five-dollar decisions that explain why people are struggling. But meanwhile, are people staying at a job when they could be making more across town? Do they understand how to refinance or renegotiate their debt? There are a lot of decisions people make that have nothing to do with their daily consumption that have much greater impact on their financial lives.”

To better understand what those decisions are—and how people can best approach them—we spoke with Hensley and three other people with deep experience in personal finance: Stephen Dunbar an Atlanta-based Executive Vice President, Equitable Advisors; Brandy Mickens, a Cleveland-based Executive Vice President, Mid America Branch, Equitable Advisors; and Jazmin Williams, a Charlotte-based Financial Professional with Equitable Advisors. Here’s what they had to say:

It’s Not Just the Cost of Cappuccinos, It’s Also … The Cost of Your Home

The math on this is simple. Even if you spend $5 a day on coffee, five days a week, that only amounts to $1,300 a year—nothing to sneeze at, but less than the $1,556 median monthly cost of homeownership in the United States.

For many Americans, home buying is the biggest financial decision of their lives, and one that can significantly impact their futures. Thanks to federal tax policy and price appreciation, homeownership can be a powerful means of building wealth over time. But it also carries risks, with returns on investment varying widely across geographic markets and timing of purchase.

And don’t forget maintenance and repairs. When I bought my first house, I was moving from an apartment. I didn’t have anything. I had to buy a water hose, a hoe, everything you’d need for yard work. Then, while I was putting new windows in, the furnace failed and I had to put in an entirely new one. Given my income at the time, that was a shock to say the least!

In addition to home, the geographic location of where you live—town, city, state, and region—can have a major impact on your current and future financial status. Some of the country’s most prosperous areas, including so-called “superstar cities,” offer higher salaries and more opportunities, but also higher cost of living.

But there’s another component to this: the investment in your life and experiences. A place that is likely to have little growth in equity and value if you buy a home because it is in less demand may be a place where you will be paid less at work. But it also may be a place that is closer to your family and friends, or a place where you can do things like go hiking and fishing more easily. How do you weigh those things?

It’s Not Just Tapas with Friends, It’s Also … Education for Your Children (or Yourself)

Paying for education, especially a college degree, often represents a financial tradeoff. On one hand, it can be extremely expensive—saddling individuals and families with onerous amounts of student loan debt, or eating up resources that otherwise could have been used to start a business or invest in other ways.

On the other hand, the payoff can be life-changing: in 2018, college graduates earned weekly wages that were 80 percent higher than those of high school graduates, and attending a particular school can be a launching pad for lifelong friendships, professional contacts, business partners, and even future spouses.

Choosing to pursue higher education—and how to pay for it—also can be emotionally fraught for parents and children alike.

So one of the best things you can do is to set up a timeline and a plan for how much you need to be saving. And think about it as soon as possible—I start talking to my clients when they have young kids. Time is never on our side, so starting to put those funds aside sooner rather than later is important.

It’s Not Just How Much You Spend on Cocktails, It’s Also … How Much You Earn at Work

It sounds like a no-brainer: the amount of income you earn at your job largely determines your overall financial health today, as well as what you can save and invest for tomorrow. But what many people don’t realize is that they might be shortchanging themselves by failing to understand their full worth in the job market.

You also need to advocate for yourself. Sometimes, you get your best raise by leaving for another job. But sometimes, it’s just by being clear about why you are worth more and deserve a raise. That process can be intimidating. But right now, with as much information and data that’s available to us, you can make an informed case and informed decisions.

If you’re not sure about these things, it’s worth the time to sit down and look at the cost and value of them. Your future self may thank you for it.

Another way to make your job work for you? Take advantage of every benefit your employer provides—whether it’s paid vacation days, 401(k) contribution matching, or other perks.

It’s Not Just How You Manage Streaming Services, It’s Also … How You Manage Debt

According to a 2019 survey, roughly half of all Americans subscribe to streaming entertainment services—and within that group, 13 percent either never or sparingly use those services, wasting an estimated $347 a year.

That’s significant. But it’s far less impactful than what people spend on credit cards, car loans, mortgages, and other types of debt—costs that often can be lowered through careful planning and attention to detail.

It’s Not Just Getting a Nice Haircut, It’s Also … Getting Ready for the Unexpected

A flooded basement. A car that won’t start. A sudden illness. Unexpected problems are as costly as they are inevitable, and can create significant financial hardship. Yet while many financial experts recommend setting aside an emergency fund that’s equal to at least three months of take-home pay, 26 percent of Americans have less than that—while another 25 percent have no emergency funds at all.

Americans are living longer, and at some point after age 65, most will require assistance with the basic personal tasks of everyday life. While the U.S. Department of Health and Human Services estimates that the average American who turned 65 in 2015 will incur $138,000 in future long-term care costs, those costs are not covered by health insurance. (Medicare and Medicaid only cover some of those costs in certain circumstances).

The federal government also estimates that families will shoulder about half of that financial burden out-of-pocket—which can make long-term care insurance worth exploring as part of an overall financial plan for the future.

These are expenses that many people don’t think about—and a lot of the time, they are way more expensive than people think. I like to show my clients a geographic map of what long-term care costs are in different parts of the country. That can actually help you decide where to retire.

It’s Not Just the Money You Spend, It’s Also … How You Save the Money You Don’t

Reducing your expenditures—yes, even on coffee—can be an important first step toward a more secure financial future. However, what you do with that money matters more. A plan for saving and investing can help you get to where you want to be. And making that plan starts with setting realistic, achievable goals.