Cutting back on expenses is a classic piece of financial advice. It is definitely good advice. Brewing coffee at home instead of buying a $5 latte or packing lunch instead of eating out can save you hundreds of dollars a year. But here’s the kicker: while these small changes are helpful, they won’t pull you out of a financial hole by themselves. To really make progress, you’ve got to do more than just save—you need to put that saved money to work.

Let us break this down and explore why small savings are not the end-all-be-all and how investing and compound interest can make a bigger difference over time.

Small Savings: The Good, the Bad, and the Reality

First, let us give credit where it is due. Saving on everyday expenses is a great habit. It teaches discipline, helps you recognize where your money is going, and gives you a quick financial win. Seeing those few extra dollars in your account at the end of the week feels good, and it should!

But here is the reality check: even if you save $5 a day on coffee and $10 on lunch, that’s $15 a day or $5,475 a year. While that is not pocket change, it’s not going to erase massive debt or fund a comfortable retirement magically.

The more significant issue is that small savings, by themselves, don’t account for opportunity cost. Opportunity cost is the value of what you miss out on when you choose one option over another. In this case, the opportunity cost is what your money could earn if you saved it and then invested it wisely.

The Power of Compound Interest

Albert Einstein reportedly called compound interest “the eighth wonder of the world.” While the attribution is debated, the sentiment stands: compound interest is incredibly powerful. It’s what happens when your money earns interest, and then that interest earns interest, and so on. Over time, this snowball effect can turn modest savings into a significant amount.

Here is a simple example. Let’s say you save that $5,475 from skipping coffee and lunch and invest it in an account with a 7% annual return. After one year, you have earned about $383 in interest. In year two, you are earning interest not just on the $5,475 but also on the $383 you earned last year. Over 10 years, your money grows to $10,781—nearly double what you initially saved.

Now imagine doing this year after year. The earlier you start, the more time compound interest has to work its magic. That’s why financial experts emphasize saving and investing early in life. It’s not just about the money you save today; it’s about the wealth you are building for tomorrow.

Investing: Turning Savings into Growth

While saving is about holding onto money, investing is about growing it. You can think of savings as the foundation and investing as the structure you build on top. Without a strong foundation, your investments cannot stand, but without investments, your savings will not grow significantly.

There are many ways to invest:

• Stocks: Buying shares in companies to benefit from their growth.
• ETFs (Exchange-Traded Funds): Diversified funds that include stocks, bonds, or other assets.
• Real Estate: Investing in properties to earn rental income or sell for a profit.
• Retirement Accounts: Options like 401(k)s or IRAs that often come with tax advantages.

Each investment type carries its own risks and rewards, so it’s important to diversify and align your investments with your financial goals.

The Cost of Waiting

Here is the tricky part: time. Every day you delay saving and investing, you lose potential growth. This is another form of opportunity cost. Let us revisit our $5,475 example. If you wait five years before investing it, you have lost five years of compound interest and need to save more to catch up.

For example, if you are 25 and invest $5,475 annually at a 7% return, you could have nearly $1.2 million by age 65. If you wait until 35 to start, you will only have about $565,000. That is less than half the amount, even though you have only waited 10 years. The earlier you start, the less you have to save to reach your goals.

Balancing Savings and Investing

So, where does that leave us? The best approach is to balance saving with investing. Here is how you can do it:

1. Start an Emergency Fund: Before you invest, make sure you have three to six months of living expenses saved in a high-yield savings account. This gives you a safety net for unexpected expenses.
2. Automate Your Savings: Set up automatic transfers to a savings or investment account so you can consistently set money aside.
3. Invest Regularly: Don’t wait until you have a large sum to invest. Platforms like Robinhood or Vanguard let you invest small amounts regularly, a strategy known as dollar-cost averaging.
4. Review Your Expenses: Keep saving on small things like coffee or lunch, but also look for bigger opportunities, like refinancing loans or negotiating bills.

Saving on everyday expenses is a good start, but it is just the beginning. To build wealth, you must combine smart saving habits with investing and let compound interest work its magic. And remember, the earlier you start, the better your results will be.

So, pack that lunch and skip the coffee line if you want, but don’t stop there. Take those savings and put them to work. Your future self will thank you.