Reduce your Monthly Spending (Volume vs Expense)

The easiest way to increase your savings is by reducing your monthly or day-to-day expenses. A lot of people get tricked by the mindset that saving on the little amounts doesn't matter, and that I only need to save on the big expenses.

Let's consider two scenarios. In the first one, we are going to save 10% on our $15000 car purchase which corresponds to a $1500 dollar savings. Now consider cutting back from your morning and afternoon coffee stop at your favorite place. Let's say that each coffee cost $5 and you get two a day for 50 weeks of the year. If instead of two per day, you are able to cut out the second, either for health reasons or by braving the company coffee pot. This would translate into a savings of $1250 a year. Car purchases don't happen every year, but on average every 5 years. Therefore, you will save $6250 on coffee in 5 years compared to $1500 on your 1 car purchase in 5 years. Consequently, there is a Volume vs Expense trade-off that you need to think about.

This isn't saying that you shouldn't try to reduce your large expenses, but that your small purchases are just as important if not more. Yes, the amount of savings on the inexpensive items does seem "small", but realize that these items are usually purchased in higher volume which translates into a large cash flow.