Save and Invest

Self-made millionaire: Don't deny yourself—you can buy lattes and save money at the same time

Don't cut back too much on spending or you'll be 'miserable,' says Ramit...

You don't have to give up your daily lattes and live like a pauper in order to successfully save for the future, self-made millionaire and personal finance author Ramit Sethi tells CNBC Make It.

"Everywhere you turn, you hear people telling you what you can't do with your money: No lattes, no jeans, no vacations," Sethi says.

Though the costs of small pleasures can add up over a lifetime, giving up all the "extras" typically doesn't work in the long run, he says. That's partly because it can be difficult to say "no" all the time. Financial experts say constant vigilance around money can use up your willpower and, in some cases, push you to go on a spending spree. If you give yourself permission say "yes" occasionally, it can help you stay the course, like having cheat days on a diet.

There's also a limit to how much you can trim your spending, and there's a limit to how far trimming your spending can get you.

Ultimately, Sethi says, the ends don't justify the means, not when the means make you miserable. "One day, when you're 2,000 years old, you can feel great — who wants to live like that?" he says. "Life isn't simply about cutting back."

Extreme frugality isn't worth it, argues the "I Will Teach You to be Rich" author.

Besides, depending on your income and budget, you don't have to eliminate treats in order to successfully save for milestones like buying a home, children and retirement.

Instead, he recommends automatically putting money aside for savings and investing so you can stay on track with your long-term financial goals. Then, after you pay your expenses, use any leftover money, guilt-free, on things that make you happy.

Ramit Sethi splurged, happily, on his wedding to his wife, Cassandra.
Source: Ramit Sethi

Focus on the big wins that matter, such as saving and investing. "By reducing the number of things to focus on — and picking major, important items — you don't need to worry about that one-off latte or the extra $20 you spent on shoes," Sethi says.

When it comes to savings, Sethi's rule of thumb is to put 5 to 10 percent of your take-home income into a savings account. Separately, invest another 10 percent.

Putting away 15-20 percent of your income is a lot, he acknowledges, but if you can do it, "you're on a good track and that means that the rest of your money, after your fixed expenses like your rent or your mortgage, is guilt-free money."

Approaching your finances this way can buy you peace of mind. "While everybody else is worrying about how little they can spend and how much they can cut back on, you know you've automated your investing," Sethi says.

Life isn't simply about cutting back.
Ramit Sethi
author of 'I Will Teach You To Be Rich'

Once you've got your savings and investing withdrawals set up, Sethi recommends you spend your money to give yourself a break.

For example, Sethi says, he buys pre-cut vegetables at the grocery store: "When I was growing up, my mom thought this was a huge waste of money. I now think it's a great use of money because it buys back my time."

Focus on what's important to you and "use your money strategically," Sethi says. Hire a dog walker, use a travel agent to book your next vacation or even fly first-class so you're not jet-lagged. If you've saved appropriately, a luxury can provide real value, especially if you're strapped for time.

"I would rather you set your automatic savings goals and then you take the rest of your money — your guilt-free money — and you spend it extravagantly on the things you love," he says.

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