Budgeting? Go Ahead and Drink That Latte

One of the toughest aspects of personal finance is balancing longer-term goals against the realities of today. Many finance writers and advisors prescribe an austere daily budget as the foundation for success.

That prescription is so common that it has become cliché. Do a quick finance search online for Starbucks or pizza or even daily lunch options and you’ll find dozens of stories explaining how that expense can be transformed into your retirement nest egg. The math is simple: $3 a day times 200 work days per year times 20 years invested in a good growth fund at 8% equals $29,654. Wow, think what you could do with that! (Except in 20 years, that same $3 cup of coffee will probably cost closer to $6. God knows about the price of other stuff). (For more, see: 3 Common Budgeting Challenges to Overcome.)

It’s magic and dumb. These types of simplistic illustrations do more harm than good. Most people aren’t going to skip their daily Starbucks or weekly pizza or brown bag it every day for lunch. Behavioral evidence is abundant. At this moment in this culture, that is not the way to achieve financial success. It’s a Don Quixote-like railing at cultural windmills.

Personal Finance Does Not Have to Be Boring

I absolutely reject the notion that personal finance has to be boring. In fact, one reason people fail is because they envision it as boring and it very likely has been drudgery most of their lives. A good chunk of personal failure can probably be traced back to some Ben Stein sound-a-like high school teacher droning on about coffee and pizza and Taco Bell.

Here’s a better approach. Find a way to do the things you like. You like cars? Well, cars are expensive but a lot of people drive very cool cars. How do they afford them? What kinds of careers and decisions allow them to drive the car of your dreams? What will it take to put you in that same driver’s seat?

You like going to ball games? Season tickets are high, but the stadiums are full every single game. How is it that thousands of people have money enough to sit in those seats every time the whistle blows? What are they doing that allows them this luxury that you’d enjoy so much?

One time, I was startled when a good friend chided me for leaving a nice tip at a restaurant. He pointedly remarked, “You must be rolling in cash.” Nope. But here’s the truth. If you make the right big decisions, the little ones don’t matter so much.

Make the Right Big Decisions

If you make the right big decisions, the little ones don’t matter so much. I have a good job. I live in a nice neighborhood in a house I bought for a reasonable price. I do a bit of consumer research before spending money. I send money to my company retirement plan with every paycheck and I make sure my investments are reasonable and diversified. I rely on quality advisors to help me succeed.

Maybe some of those things are kind of boring. I don’t know. Here’s what I do know, though. I can afford a latte if I want, and pizza, too. I can go to ball games and drive the current car of my dreams. I enjoy eating in nice restaurants and do so as often as time allows.

And I can afford to tip the hard working wait staff. It’s not because I’m rolling in cash. It’s a little thing, I know, but I can afford it because I do the right big things. (For more from this author, see: Investment Performance Is a Bad Measure of Advisor Value.)