How many years would you actually have to skip coffee to save enough to buy a house? Photo: Unsplash
If you've been trying to save for a house deposit, or otherwise trying to get your financial life in order, you might have heard the advice: Give up the takeaway coffee, cut back on the avocado on toast and stop brunching.
But is that really all it takes to get to your goals?
RNZ has crunched the numbers and it turns out that if you give up a daily takeaway coffee, you might save enough money for a house deposit.
But it could take 30 years.
These numbers aren't intended to be anything but a demonstration of general principles because they aren't taking into account inflation (the price of a cup of coffee will increase over the years and inflation will reduce the buying power of your saved amount).
But if you currently buy a coffee a day for $5.50 and decide to save the money instead, you could save $2007.50 a year.
If you could do that every year, with a 5 percent return each year, you'd have $26,000 after 10 years, $69,000 after 20 years and $138,000 after 30 years.
At the moment, a typical first-home deposit is about $140,000 (or roughly 25,450 coffees if you paid $5.50 each).
If you were having breakfast at a café once a week and saving $20, giving that up could save $1040 a year or $70,777 after 30 years.
Liz Koh, founder of Enrich Retirement, said the problem for many people trying to save a house deposit over a long period of time was that house prices increased faster than their savings.
"By the time you have spent a few years accumulating the deposit, houses would have tripled in price. However, it is a still a good idea to save and it's an even better idea to cut down your outgoings so you can borrow more."
Enrich Retirement founder Liz Koh. Photo: Supplied
She said while small savings would make a difference, most people needed to do something much more significant to be able to buy a house.
If you were earning $75,000 a year at 25, with $5000 already in KiwiSaver, and put 10 percent of your salary into a balanced KiwiSaver, you could save $137,926 in 10 years, according to Sorted's calculator.
"A better approach is to buy something small and run down and add value to it, then sell and do the same thing over again," Koh said.
"Part of the problem is that first-home buyers seem to want to buy their forever home from the outset, and it's not always practical or affordable to do that. Investing in property is a great way to make money, and a good lesson to teach is the lesson of leverage and how you can make that work for you over time to build wealth. It just requires some smart thinking about how to buy the first property."
Dean Anderson, founder of Kernel Wealth, said while house prices had historically gone up faster than savings for many people, he was not as sure it would continue into the future.
"The metrics supporting house prices are at their limits."
He said someone who was on a lower income and in debt could pay that off more quickly by cutting down on small luxuries like a cup of coffee.
If you have a loan of $20,000 on a 12 percent interest rate that you're paying off at $306 a fortnight, you could have 156 weeks left to run on the loan. If you topped up that payment by $20 a week, you could clear the debt 20 weeks early.
"However, when past that it is about choice and trade-off of value. A daily cup of coffee to me is worth it, that's because I know I can derive greater value by focusing on my work, building a business, building my salary, which will be far more impactful than the cost of the coffee," he said.
"Thinking aloud, and even based on chats we've had internally in the last week, if I was starting out today I wouldn't be worried about the coffee. I'd be doing everything I can to figure out how to protect my future and income prospects from being disrupted by AI."
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