Buy Cheaper Latte, or Make Your Own Coffee

How's that hot cup of java treating you?

Practice these four strategies for curbing impulse purchases and your cup may runneth over.

You might want to think twice before you buy that morning latte. Expenses that may seem insignificant can quickly add up, putting a sizable ding in retirement savings.

Even small expenses can grow to thousands of dollars in a year. For example, a $3 coffee purchased five days a week for a year can cost more than $780. A $15 lunch can top $3,900 a year.

And by cutting those funds from your retirement savings, coupled with the power of compounding interest, you’re likely to lose a sizable chunk that could have been added to your nest egg.

Over a 40-year career, with an average annual rate of return of 8%, that $3 coffee a day: a potential retirement fund loss of $226,916. The $15 lunch: a whopping dent of as much as $1,134,578 to your retirement fund.

 “If the numbers look scary, maybe that’s because they are.” – Scott Halliwell

“Granted, you have to spend something on your lunch each day, but you get the picture of how impulse expenses can add up,” says Scott Halliwell, a CERTIFIED FINANCIAL PLANNER™ for USAA.

“For most Americans, they could get their financial house in order just by curbing impulse purchases,” says Jeff Yeager, a pundit for spending less who has written several books on the subject including, “The Cheapskate Next Door.”

Here are four strategies for curbing those impulse purchases and keeping your retirement fund healthy.

1. Maintain a Balanced Budget

The first step to reining in impulse buys is a budget, says Halliwell. “The word ‘budget’ often has a negative connotation, but having one is necessary. It is the only way to distinguish between what you need, what you want and what you really have to spend and save.”

Luckily, the opportunities to cut back on impulse purchases abound in daily life, giving investors ample chances to beef up retirement savings.

One of the largest traps for impulse spending is the grocery store. Shoppers stopping in to pick up a few selected items can end up purchasing more than they planned.

Yeager says other “cheapskates” that he’s polled only grocery-shop one or two times a month, reducing the opportunities for impulse buys.

“You go in for bread, milk and eggs, and you leave with all that, plus ice cream,” he says. “Be a premeditated shopper.” Yeager suggests not using a basket or cart for short trips. And always stick to a list.

2. Scrutinize Large Purchases

Impulse purchases aren’t limited to just small-ticket items. Yeager looks at his major purchases twice a year and asks himself if he’d buy them again if he could do it over.

Yeager says that Americans have some regret about 80% of their purchases. “We all know that feeling: buyer’s remorse. I’m in favor of spending procrastination. Put off until tomorrow what you could buy today,” he says.

In an audit of spending, someone might find they are constantly springing for the latest technology. But delaying a purchase could mean the price drops as demand decreases and later versions have been refined and actually perform better.

3. Save the Savings

But sidestepping impulse buys only helps if those savings are stashed away.

“That cup of coffee you didn’t buy often morphs into an extra topping on your pizza at dinner,” says Yeager. “Most people aren’t going to take that savings and put it away. As a mathematical equation it works. In reality it doesn’t always.”

That’s where automatic savings can play a huge role. Setting up automatic deposits into a retirement account for what you would have spent over a month on lunch or coffee makes it easier to resist temptation when you drive past the coffee house — the cash is already socked away.

“It feels painful or punishing to not spend that money if you don’t realize you have something to achieve with it down the line,” says Halliwell. “If people knew that they needed to save $400 a month, then they could say that this $500 iPad is going to set back my retirement by X number of months.”

4. Make Small Sacrifices

Halliwell insists that cutting back on impulse purchases isn’t about being stingy or denying life’s pleasures. And even Halliwell has looked at his own spending.

When his children were younger, he and his wife would often stop by fast food restaurants at times when they were too harried to cook at home. “At one point we realized that, out of convenience, we were doing something that was both bad for our budget and bad for our kids,” he said. They started limiting their trips to the drive-thru.

“It had a threefold effect: It saved money, it made us healthier and when we did do those things, they were more enjoyable,” says Halliwell.

But whether it’s a small, regular sacrifice or a few larger, wiser financial decisions over the year, Halliwell urges people to start somewhere. “When it comes to getting started, perfect is the enemy of good. You don’t need to have the ‘perfect’ system in place. You just need to start saving because no one else is going to save for you.”

This content is provided courtesy of USAA.

Examples given are hypothetical illustrations and not necessarily an indication of the benefits or features of any USAA product. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. This material is for informational purposes. Consider your own financial circumstances carefully before making a decision and consult with your tax, legal or estate planning professional. Calls will be answered by USAA Member Advice and Solutions, a service of USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California), a registered investment adviser and insurance agency, and its wholly owned subsidiary, USAA Financial Advisors Inc., a registered broker dealer.

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