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Sweating the small stuff is a controversial maxim in the financial world. It lost some credibility when a property developer made Internet headlines when he said millennials can’t afford to buy a house because they spend too much on brunch.
This claim generated fury (and memes) online as people debated its accuracy, many pointing to the rising cost of living as the real reason for low homeownership among millennials.
But is it as misguided a financial sentiment as the memes want you to believe? Let’s find out.
What Does it Mean to Sweat the Small Stuff?
Sweating the small stuff is a philosophy that underscores the importance of seemingly inconsequential financial decisions.
These decisions may include indulging in the infamous avocado and latte for brunch. But it goes beyond just your choice of breakfast foods one Saturday morning. It also applies to all your financial choices, including everyday spending, borrowing, saving, and investing.
In one month, the small stuff could include:
- saffron for an at-home date night.
- a pack of gum when you pay for gas.
- letting your savings comingle into your checking account.
- covering your friend’s tab even though you already bought them a birthday present.
- the extra interest accrued on your line of credit when you pay the minimum.
- upgrading to a new flagship smartphone when you don’t have to.
Once you add up all these small decisions, their cumulative price tag costs more than a single brunch.
The Small Thing Might Be Interest
The small things aren’t always things you buy. Sometimes, it’s neglecting to take into account how interest affects your line of credit and emergency savings.
1. Debt
Let’s say you visit a website like Fora to learn more about your options, and you get approved for a line of credit. Like many lenders, Fora offers a minimum payment to help you when times are tough. It prevents late fines if you can’t pay your full balance.
Unfortunately, the remaining outstanding balance will accrue more interest and finance charges every time you pay the minimum. This means you’ll earn more debt with each minimum payment you make—even if you don’t make any more draws against your limit.
Increasing your payments by any number can help you save money. The folks at CNBC crunched these numbers on a $827.32 purchase. By bumping up a $25 minimum payment by just $4, you would save $57 in interest and pay off your balance in 1 less year.
2. Savings
A small decision about where you keep your savings can have a huge impact on your finances. Let’s compare a basic savings account, which only earns about 1% interest to a high-yield account which earns 5%.
Let’s say you put $1,000 into each account and make $50 contributions each month. After one year, the 1% account would close out at $1,613 and the 5% account would have $1,666.
If you aren’t impressed yet, just wait 10 years. By then, the 1% account would have $7,416 and the 5% would close at $9,378. That’s nearly $2,000 more in interest over a small decision.
The Small Stuff Isn’t Just About Breakfast
While it’s unhelpful to blame avocado toast as the only reason you can’t afford real estate, it’s equally unhelpful to ignore the effect of small decisions. Consider how the infinitesimal choice to pay the minimum on a line of credit can keep you in debt for an extra year. That’s a big impact for a small choice!
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