Save money - for real

Chantal Richards* turned 40 last year and celebrated with a mortgage-burning party. She and her husband, David*, own a successful auto maintenance business but probably earn no more than their neighbours in Markham, Ont. The Richards are mortgage-free today because retiring their debt was their number one priority: They made extra payments for 12 years.

Yet Richards is less meticulous about her day-to-day spending: She's a frugal shopper and always looks for deals, but she doesn't track every penny. "If I'm coming to the end of the month and I'm running short, I make sacrifices," says the mother of two. "But I don't save all my grocery or Tim Hortons receipts and enter them on a spreadsheet. I don't have the time or the patience."

Is financial fitness about the small stuff?

Richards' approach clashes with the advice of financial gurus who preach about our daily spending habits. It's all about the small stuff, we're told. If we could save just a few dollars a day, we could retire rich. Author David Bach trademarked this idea with his "Latte Factor," featured in The Automatic Millionaire and its sequels. Give up your $5 latte and muffin every morning, invest that $150 a month, and in 40 years you'll have $948,611! Never mind if you don't have 40 years - you can still save almost half a million bucks if you start at age 52. You and your partner need to find just $10 a day. Yup, you're two lattes and two muffins away from financial freedom

What a load of crappuccino. Don't fool yourself: The idea that you can become an "automatic millionaire" via a trivial daily sacrifice is a dangerous lie. The only person who likely has ever become a millionaire by following the Latte Factor is David Bach.

For most people, it's about saving on the big stuff

Sheila Munch, a certified financial planner with Munch Financial Group/Assante Financial Management in Oshawa, Ont., admits some of her clients are shocked when they track their spending and discover they're dropping $15 or $20 a day on lunch and snacks. "But that's not a lot of people," she says, and brown bagging isn't going to make them rich. What matters, Munch says, is getting life's major financial decisions right. "If they buy a home within their means, they understand their mortgage, they don't buy a hugely expensive car they can't afford, and they automatically contribute to their RRSPs - if they stick to the big stuff, then I don't care where they spend the rest of their money."

So stop crying in your green chai. If you truly want to get your financial life in order, forget about your $5 indulgence and save thousands by focusing on your biggest expenses.

Next page: How to save on the big four