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Know This

Why Rounding Up Your Spare Change Isn't Enough to Help You Save

Jeff Proctor headshot

Jeff ProctorGuest

Author at DollarSprout

There, I said it.

Over the past few years, the financial industry has stumbled upon a really effective way to attract millennial clients to their services:

__Rounding up your spare change on your everyday debit card purchases, and either saving or investing it. __

It actually seems like a pretty clever idea to fit our "too-busy, only-focusing-on-the-now" generation. I get it.

Here's the problem:

This morning I was looking through my bank statement from last month to get an idea for how much I would really save with one of these apps.

In November, I had 53 debit card transactions.So let's say I was using one of these "rounding up" apps that, on average, tucked away 50 cents in a savings or investment account for each purchase I made. At that rate, I would be saving about $25 extra each month.

Is that good?

I'm going to put myself out there and say no. You can do better.

Sure, it's a start -- especially if you've never been serious about saving money until now. But if you're trying to save up for bigger goals, this strategy most likely just isn't going to be enough. If you need to save $1,000 to replace your dying laptop, I don't recommend tackling that project 50 cents at a time. It's just not practical.

Add in fees, and it’s REALLY not practical

Many micro-saving and micro-investing apps out there have fees, which usually seem really small on the surface.

When you take a closer look though, these fees can put a serious damper on your goals.

For example, Acorns would charge me $1 per month as long as my account was below $5,000.

Let’s say you’re starting small and only putting away your spare change. If your spare change only adds up to $25 a month, that means Acorns is taking away 4% of your savings in your first month! No bueno.

If, instead, you set an intentional automation to put $50 into your savings each week (Yikes, actual goal setting!!), those small fees start to take out a smaller slice of the overall pie.

It all comes down to making a stronger commitment to save, then putting that effort on auto pilot.

Note: this does NOT mean you have to deprive yourself!

Keep enjoying your morning coffee (in moderation)

What’s life without coffee, right?

People love to harp on millennials for spending $4+ on a cup of coffee. Baby boomers and GenX-ers seem to think we are crazy.

But if they knew how much pure joy I get out of having my beloved peppermint mocha every few days, maybe their tune would change… but I digress.

Instead of cutting out all the little things in life that make me happy, I think the better way to save money is to:

Make specific goals

Focus on the big things that move the needle, like

  1. Driving a car I can afford
  2. Living in an apartment within my budget
  3. Getting a pay raise at work
  4. Not racking up credit card debt
  5. Downgrading my cable package
  6. Boosting income with a side hustle

And then getting out of my own way (aka automating the whole thing).

When you look the things listed above, it’s easy to see that your $4 coffee doesn’t matter as much as you think it does!

Your goals should work around the things that make you happy, not get in the way of them.

If you want to save money, think BIG

Don’t get caught up focusing on the wrong things.

Investing 38 cents here and there or skipping your latte isn’t what’s going to make the long term difference for you.

To make the most of your money, start thinking intentionally.

Make goals, come up with a plan achieve them and then make it happen