Debunked #1: Small Lifestyle Changes Make No Difference

The writer is a Delhi, India based Certified Financial Planner CFPCM, conferred upon by the
Financial Planning Standards Board. If you are an Indian resident looking for a financial plan prepared according to your needs & goals, write to her at shruti(AT)
Welcome to my investing myths debunked series. Here’s the first part. You can see all the posts in this series here.

People complain that they can’t save or invest because they don’t have enough money. They keep waiting for that big change that will somehow make them rich overnight, but refuse to make small changes in their spending habits. The result: they end up changing nothing and just keep wishing.

This alarming fact came into light again for me when I watched this VICE video about how expensive San Francisco is. The woman in the video makes some pretty bad decisions for someone who is ‘trying’ to save money. Like buying a $2 coffee when she reaches office and buying lunches from a local sandwich shop which cost her around $12 a day.

A commenter rightly called her out and said “.. those coffees and lunches are a waste. Buy a coffee machine and a travel mug. Also make your own lunch. Saves money.” Although this comment had a lot of upvotes, the replies justifying her behaviour were so infuriating! Here’s a sample –

“.. they make good money they shouldn’t have to be cheap..”
“.. homemade stuff isn’t the same..”
“.. groceries are so expensive these days.. you don’t really save money making lunch at home vs a sandwich out..”
“.. it’s such a meager expense and a tiny extravagance..”
“.. don’t kid yourself, not buying that coffee or sandwich is not gonna allow you to afford a home in that market..”

The above replies show that a common perception is thinking about the bigger issues of life, and completely ignoring the smaller details of the problem. They just completely forget the basic fact that it is these small pixels which add up to form the bigger picture. Let’s do the math. She is spending around $14 every workday on snacks & lunches. Assuming 20 workdays that’s $280 a month. if her husband does the same that’s $560 a month.

Between the great things we cannot do
and the small things we will not do
the danger is that we shall do

If you want to change your situation, you first have to change yourself. And to change yourself effectively, you first have to change your beliefs. You have to stop seeing these meager expenses and tiny extravagances in isolation. Understand that these daily unnecessary little expenditures are blocking your path to wealth.

Let’s understand this with help of an example:

Say you buy a coffee from the office snack shop everyday for ₹50. You also grab a meal outside (either lunch or dinner) for ₹300. That’s ₹350 every working day or ₹7000 every month.  Now, if instead of spending this amount on coffee & lunches you invest the same ₹7000 monthly for 5 years in an instrument that earns @ 12% p.a. you would have invested ₹420,000 & your investment can grow to ₹577,405. Some equity mutual funds can even give up to 20% p.a returns.

Take into consideration that I have taken the lowest possible amount which you will be spending on your daily coffee+lunch fix, it’s likely you are spending more than that after including taxes and tips (you might even like to have a little snack with it or a soft drink). Just imagine how much wealth you can have in the next 5 years if you stop spending your money on this little extravagance.

So, contrary to common belief these small savings do actually help build wealth in long term. In fact, eliminating such small unnecessary expenses is the easiest way of creating wealth. This is because this doesn’t require any big sacrifices on your part. You can still enjoy your coffee and watch your wealth grow. Just keep in mind that instead of going for expensive small quantities of coffee from outside, you make coffee at home & carry it to work in a travel mug. Or make your own lunches to carry with you. The internet is awash with cooking videos that tailor to all sorts of cooking skill types. Even if you are an amateur cook, learning a new life skill can’t hurt, can it?

Also, keep in mind this is not being cheap, this is being smart. There is no logic in wasting money on fulfilling small wants, when the said money can be used to fulfill some of your needs later on. As, I discussed in my earlier posts it’s not always easy to increase your income, but you can always increase your savings by managing your expenses, all you have to do is create a good budget.

So, find daily expenses that add up and eliminate them. Then decide if the money you saved is to be placed in an emergency fund, or to be invested so that compounding can work its magic and grow your savings into wealth. I feel like I must mention Julia Carney’s classic lines from her poem, Little Things here: “Little drops of water, Little grains of sand, Make the mighty ocean, And the pleasant land”.

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