Does Cutting Back on Small Expenses Really Make a Big Difference? Here's What Warren Buffett Says

It pays to take his advice to heart.

Ever read those financial blogs that insist that if you give up your $5 daily coffee, you'll retire a millionaire? Well, that's probably not true. Most people can't meet major goals like building a $2 million IRA or buying a $700,000 home solely by giving up one modest luxury. 

But does watching what you spend on small expenses make a difference over time? According to investing giant Warren Buffett, you bet.

It pays to be mindful of your spending

Let's get one thing out of the way. If there are small luxuries you enjoy in life and you can afford them without landing in debt or neglecting essential financial goals, like building an emergency fund, then there's no reason not to treat yourself. But Buffett says it's important to keep tabs on smaller expenses. 

After all, Buffett has grown his wealth by investing. But to be able to invest money, you need to spend less than what you earn. It's that simple. And so if you have smaller expenses in your budget you're able to cut back on in a fairly painless manner, it could make a big difference -- especially over time.

So, let's say you currently pay for a streaming service you can really take or leave. If that service costs you $15 a month, you might just keep it around. After all, $15 a month won't do much for you, will it?

Well, actually, let's think long-term. If you spend $15 less per month over 30 years, and you invest the $15 a month you're not spending, you might end up with an additional $20,400 over time. 

Now that total assumes you earn an average annual 8% return on your investments. But since that's a bit below the stock market's historical average, it's a reasonable assumption for someone investing over a 30-year period.

Now clearly, $20,400 won't buy you a house or be your ticket to a secure retirement. But could $20,400 buy you more options down the line -- say, to maybe retire a few months early or take the trip across Europe you've always dreamed of? It very well might.

Save without being miserable

The little things in life that bring you joy aren't items you should cut from your budget. But if you're currently spending on small expenses you can really give up with ease, then doing so could buy you more options down the line. 

In our example above, we talked about cutting a $15 monthly expense. But what if you have several small monthly expenses you can pretty easily give up?

If you're able to save and invest $75 a month over 30 years at an average annual 8% return, you'll be looking at $102,000. That could buy you a year of early retirement, many years of travel, or another big-ticket item on your wishlist. And so it's worth paying attention to the smaller expenses that are eating up your income and making sure they're really worth it.