Save and Invest

'Buy the latte,' says CFP—save more by focusing on 'needle movers' instead

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Some 63% of Americans hope to save more this year, according to a recent survey from Bank of America.

Although the rampant inflation from 2022 appears to be slowing, consumers are still contending with high prices on everything from rent to eggs. As a result, 77% of those who set financial resolutions say inflation may impact their ability to achieve them.

Never fear, an army of financial gurus will tell you. To up your savings rate, you merely need to cut all small, extraneous expenses out of your everyday life, such as lattes and avocado toast.

That was Rachael Camp's strategy when she first moved to Chicago and was paying so much in rent it strained the rest of her budget.

"I was trying to make coffee at home. I was making all my food at home. It was exhausting to try to stick to these habits daily," she says. "I always blew through my budget."

These days, Camp is a certified financial planner and owner of Camp Wealth, where her advice to clients skews a little differently.

"Buy the latte. Splurge on avocados. Keep renting," she wrote in a recent tweet. "In 2023, we're focused on needle-movers: 1) Lower fixed costs 2) Increase income 3) Invest the difference."

Here's why she says you're better off focusing on one-time, major financial moves rather than dwelling on the day-to-day.

Lower your fixed costs in big chunks

By the time the lease ended on Camp's Chicago apartment, she was earning more money, which made upgrading to nicer digs tempting. "What a lot of people do is they keep stepping up to apartments that are a little bit nicer," she says. "A lot of my peers were starting to get their own apartments."

Camp opted to move somewhere cheaper and live with roommates. For her, it came down to a simple calculation. "If I don't buy a latte every day, it will save me a good $2,000 a year," she says. "If I could afford a $2,000 apartment by myself, but split it with a roommate and pay $1,000 less, that's $12,000 a year. That's where those big savings can really happen."

If I could afford a $2,000 apartment by myself, but split it with a roommate and pay $1,000 less, that's $12,000 a year.
Rachael Camp
certified financial planner

The same logic applies to major purchases such as homes and cars. If there's a chance you'll move in the next five years, for instance, a home purchase will come with enormous upfront costs that you may have difficulty recouping, says Camp.

"It can make sense in certain situations, but for many people it's not an investment," she says. "It's not all it's cracked up to be."

As for knocking down your transportation costs, consider whether you need a car if you live in a place where there's plenty of public transit available.

If a car is totally necessary, even "buying a car that's a few years old rather than a brand new one" can be a needle-mover, Camp says.

Increase your income to give yourself breathing room

Boosting your income is easier said than done. But one way to start is to pick up a side hustle, and there's no shortage of them out there, whether you're an artist, an introvert or someone who prefers to work from home.

Otherwise, you're going to have to look for ways to increase the income you earn from your 9-to-5. To that end, "knowing how to really effectively negotiate your salary and knowing your worth are really important," says Camp.

Camp's No. 1 question to clients looking to boost their income: "Are you regularly interviewing at other places?"

In doing so, you can get a sense of whether you're being paid fairly at your current gig or whether you could be making more elsewhere. The typical American who changed employers between April 2021 and March 2022 got a 9.7% bump in inflation-adjusted "real" wages, according to Pew Research.

If you don't want to leave, "you can take that offer, bring it to your current employer and say, 'Hey, I think I'm worth a little bit more,'" Camp says.

Invest the difference

If you've managed to spend less money or make more of it, congratulations. Now it's time to put the surplus toward your financial goals, such as paying down debt, building an emergency fund and investing for retirement.

With your money being pulled in several different directions, investing in yourself can feel just as tedious as combing through your daily budget. That's why Camp recommends setting your investments to autopilot wherever you can.

"[Workplace retirement plans such as] 401(k) or 403(b) accounts are masters at automation. You never see that money hit your checking account because it gets sent to your investing accounts before you ever see it. That's a great first step to take," Camp says.

You can also set up automatic transfers from your bank account, both toward financial goals and toward your cost of living.

"Once my money hits my checking account, it's immediately sent off to do its job before I can ever spend it," Camp says. "It goes into a Roth IRA, it can go into a taxable brokerage account, it can go to a vacation savings account."

Once you've paid your bills as well, whatever money you have leftover can be spent "guilt-free," she says.

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