A few weeks ago, I came across this tweet and it kind of upset me. I figured this week’s piece might help some folks out when it comes to budgeting.
Here’s how it went:
This one really irked me because I think this is such a silly answer to give someone as a CFP® Professional. In a literal sense, if someone has a $9 latte per day habit, yeah, maybe that’s something to reconsider… especially if your office has free coffee.
But largely, the coffee argument is kind of silly. If the coffee is going to allow you to perform better at work, get locked in, and focus on building your career, then by all means go for it.
I start almost every single financial plan review with a cash flow analysis. This allows me to understand where funds are being directed. Taxes, retirement savings, housing expenses, non-retirement account savings, and expenses.
I don’t get into the nitty gritty of every credit card statement. I just want to know what amount someone needs to feel comfortable on a monthly basis.
I know people comfortable spending $3,000 per month and I know people that define comfort as something closer to $30,000 per month.
At the end of the day, who am I to pass judgment on how someone spends their money? In most cases, and especially for younger clients, I am much more concerned with how we grow income than how we erase a $5 expense such as a coffee.
Cutting expenses is a loser’s game to some extent. There is a literal floor in what we need to live on. Whereas earnings are potentially uncapped. Raises, promotions, bonuses, etc. can have a significant impact on our ability to save.
Of course building awareness around your expenses is important. I think that being frugal is much different than being cheap.
Here is what I’d encourage people to think about: Rather than the cost of something, think of the value it brings.
If you enjoy that expensive coffee, maybe it is a 2-3x per week treat. Getting it every single day could decrease the allure of it. Abundance can quickly change the “value” we perceive in something.
If going out to eat is something you’re doing frequently, maybe take a pause and really understand how much “value” you’re receiving from those experiences.
Going out to eat 4x per week may bring just the same amount of fulfillment as going out 3x per week. Maybe that fourth dinner out is really not moving the meter for you on that front.
Nonetheless, I think it’s important to not only track expenses, but also understand whether those expenses are actually worth it to us.
Not for an advisor to tell you, not for your parents to tell you, but do you truly find the value in what you’re spending money on?
If so, be my guest (so long as it is relatively responsible). There is absolutely no one who can tell you what your hobbies, interests, or passions should be. That’s for you to decide.
From there, you are the one responsible for making the decision as to the value of what you wish to spend your hard earned dollars on.
This is for informational purposes only and is not intended as legal, tax, or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of publication and are subject to change without notice. Past performance is not indicative of future results.