You've probably heard or read that forgoing your daily store-bought latte could spell the difference between retiring in comfort or being broke in your old age. And there's some truth to that theory. When it comes to saving for retirement, small changes, like cutting out that latte, could have a big impact over an extended period of time.

A cup of latte with a swirly foam design on top

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So let's see what eliminating that latte might look like. Assuming yours costs $3 a pop and you buy one five days a week, 52 weeks a year, that's $780 in annual latte costs, which is kind of a lot. Now if you're what we'll call coffee-dependent, you'll probably need to replace that latte with another source of caffeine. According to, you can make your own coffee for $0.27 a cup, so if we multiply that by five cups a week and 52 weeks a year, we wind up with a grand total of $70.20 -- a savings of over $700. But while accruing an extra $700 a year can certainly work wonders for your retirement, there are more efficient ways to shave that much or more from your budget.

Big changes, big results

Cutting out that latte is a good way to free up cash for retirement, but let's examine some of the more significant monthly costs we all face -- namely, housing, transportation, food, and entertainment. As a general rule, your total housing costs (including your rent or mortgage payment, real estate taxes, and homeowners' insurance) shouldn't exceed 30% of your take-home pay, but the lower you keep your housing costs, the better. Let's say $2,000 is currently buying you a nice home in a popular neighborhood. Even if $2,000 is well below that 30% threshold, if you can instead rent a reasonably comfortable space for $1,500 in an area that's slightly less hip, you'll save $6,000 a year right there.

Now let's look at transportation. Having a car at your disposal may be convenient, but if you live someplace with public transportation, there's a good chance the latter option is far cheaper than owning a vehicle. Imagine a bus or train pass costs $200 a month, but that you're currently spending $500 a month between your car payment, auto insurance, and fuel and maintenance costs. Giving up your car will save you $300 a month, or $3,600 a year.

Then there's food. According to the Bureau of Labor Statistics (BLS), consumers aged 35 to 54 spend roughly $3,200 a year on food prepared outside their homes. Since restaurants typically charge a 300% markup, this means that making the equivalent food at home would cost just over $1,000, resulting in an annual savings of $2,000.

Finally, let's talk entertainment. BLS data tells us that 35- to 54-year-olds spend an average of $3,000 a year on leisure. And while locking yourself indoors with nothing but a bag of chips and a DVR is a sorry way to spend all of your downtime, seeking out low-cost forms of entertainment could free up lots of money in your budget. If you currently spend $3,000 a year on leisure, cutting that figure in half would leave you with an extra $1,500 for retirement.

So let's add up our savings. Based on the examples above, you could save $6,000 a year on housing, $3,600 a year on transportation, $2,000 a year on food, and $1,500 on entertainment, for a grand total of $13,100 a year. Or, you could cut out your daily latte -- the one you rely on for artificial energy in all of its caffeinated glory -- and save a mere $700.

Getting your priorities straight

Saving for retirement really is all about making choices and deciding what's most important to you. If the idea of giving up your beloved latte makes you miserable, don't do it. Instead, make other changes that work to free up cash. Using our examples above, any single change (housing, transportation, food, or entertainment) would leave you with a greater savings opportunity than you'd get by cutting out the latte, and the sooner you act, the more time you get to help that money grow.

Assuming you have 30 years until retirement and that your investments generate an average annual 8% return, the $700 a year you'd save by killing the latte would give you an extra $79,000 for retirement. Saving $6,000 a year on housing, however, would give you an extra $680,000 for retirement.

Before you resign yourself to a lifetime of mediocre home-brewed coffee, remember: Skipping your daily latte isn't necessarily the key to meeting your retirement savings goals. Rather, aim to consistently live below your means and invest the difference. If all goes well, you'll save enough to live it up in retirement and rise every day to all the fancy coffee you desire.