The Automatic Millionaire: The Latte Factor

I finished reading the book The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich(affiliate link) a few weeks ago but with trying to finish the school semester strong (which I did!) I have yet to post about it. So here it is!

The Automatic Millionaire is written by David Bach, and despite its title, is not a “get-rich-quick” scheme (trust me, if it was, I would not have wasted my time to read the entire thing.)

It’s a fairly quick read, and one I highly recommend to any person starting to pay attention to their finances and setting the goal of being well-off and worry-free one day. (Remember, the first decision is to DECIDE.)

The points David makes in the book are valid and powerful regardless of whether you choose to “automate” them or not. He is a big fan of making everything automatic–especially retirement savings (setting it to come automatically out of your paycheck into your 401(k) or IRA.) But some people do not feel comfortable setting everything up automatically so I would vary with him on that some people DO have the self-control to move the money right away on a regular basis (every paycheck.) I’m one of those people who takes great pride and joy in moving my money (manually, though still electronically) into my savings accounts.  If, however, you foresee or start to see, the problem of spending the money you are supposed to be saving, it would be best to automate it.

Besides the “automatic” side of the book, one of the major points Bach writes about is what has become known as the “Latte Factor.” How little expenditures every day add up and how that money could be adding up to wealth for retirement (or whatever other kind of goal you have!) Here’s the breakdown if you buy a latte and a muffin every morning for breakfast:

$5 average cost of a latte and muffin x 7 days = $35/week = approx. $150/month.

But if you chose to INVEST that $150 a month and happened to earn a %10 annual return, you’d wind up with:
1 year = $1,885
2 years = $3,967
5 years = $11,616
10 years = $30,727
15 years =  $62,171
30 yea rs = $339,073
40 years = $948,611

Some of you are saying, “But I have to eat breakfast,” and others are saying, “I’m not going to earn %10 every year.” Both are true but 1.) You can eat breakfast for much cheaper (at home!) and 2.) You may not, but it’s definitely possible and the idea behind it is what is important and powerful!

The point is to realize that most of us spend money like we breathe. Obviously, life requires spending money. But it doesn’t require spending ALL of it or spending it just because we HAVE it. If you have a dream that requires money (retirement, starting a business, building a house, etc.) then you need to start saving for it NOW. It won’t just magically appear whenever you’re ready to start living out the dream.

There  are definitely other principles David Bach discusses in the book, and I will address some more of them in the coming days. My hope is that when you start to think about it and see the numbers the way you view and spend money will change and your life will be better off because of it!

Do you have something that you could give up on a daily (or just regular) basis and start saving that money instead? (Mine used to be lattes but I’ve cut that out of my life since January of this year! So glad I did too.)

Grocery Sense: What NOT to Buy

Pardon my rant here. I really am not better than anyone else, and I don’t want to ever come across that way. But some things kind of get me going. =)

My roommate and I went to Wal-Mart last night (because Aldi was closed) to buy groceries for the week. We have our little list of 10 items, and we go in search of them. All the while my attention is being drawn to these young couples with kids hanging off their carts.

But it wasn’t the kids that caught my eye.

It was the food inside of their carts! It looked nothing like the picture above, that’s for sure!

I am 100% sure I make some grocery buying blunders sometimes. The occasional box of cookies or the occasional 2 liter of Pepsi but I have to admit that I don’t make these kind of mistakes on  a regular basis….

-Bottles of soda and fake juice hanging all along the edges of the cart
-Boxes and boxes of name brand sugar cereal
-4 or 5 frozen pizzas
-Boxes of different kinds of cookies
-Honey buns and, of course….
-Lots of frozen dinners

I’m sure this wasn’t all of it but my guess is that if people would take a little TIME to really cook that they’d be healthier and also save a little cash money. I know we all live busy lives, but I’m sure if we’d take a good look that we’d see it’s definitely worth it.

Maybe I’m wrong…I know I’ve only been living on my own for a week but I know my parents cooked from scratch way more often than putting some pre-cooked chicken wings in the oven and also tended to not buy the boxed brand named cereal when they could get the off-brand bags for a better deal. And soda, well….it’s just bad for you.

I’d say that the craving I get most often to waste money on at the store is some good ice cream. Yumm…there’s just nothing like it. Especially Braum’s ice cream. You might not have them in your area but if you did you’d wanna go on a weekly basis!

It’s amazing how much health and money sometimes go hand in hand.

What do you think? What are some big money and health traps at the grocery store?

Pay Day Ritual

Today I heard some disheartening news. “Paying yourself first doesn’t always work.”

The term “paying yourself” refers to the awesome principle of saving.

Thankfully I didn’t believe that news, and I never will. I hope you don’t either. Paying yourself first WILL work. I don’t know what your bills look like every month but if they equal your paycheck then you need to cut some of them down. Sell the car. Cut the cable. Turn off the air conditioner. Just find a way to get some extra in there. THEN it is always possible to pay yourself first.

I love paydays. I love them because I get to “get stuff done” in the financial world on those days. I usually wake up early on Pay Days and see my paycheck deposited into my checking account. Then I go about doing the following things…Save. Pay. Spend.

Save

I dish out money from my paycheck into different savings accounts. I know how much I can dish into these savings account because I have this thing called a budget (it’s rad.) And I put my savings into my budget. It’s basically just another bill. But it’s a bill I get to pay MYSELF! 😉 I do this first so I don’t have an excuse later on to back out of it. Some people even have it automatically taken from their paycheck and put in another account, but I enjoy doing it manually for some reason. 😉

Pay

This is about the necessary evils called bills. We hate them but we love them because they are the way we get to LIVE. Regardless of the due date of a bill, if I have the amount that is owed, I pay it on payday. Most of my bills are paid out of the second paycheck of the month but the big one (rent) is paid out of the first. A lot of things are automatically taken out of my checking account so I don’t have to worry about it but there are a few I manually pay. And payday is a great time to do it. Why spread out paying bills over a period of days when you can just spend a few minutes in front of the computer getting it all done at once??

Spend

Well, everything else is left to spend! It’s so simple. This is where you buy groceries and gas and movies and everything else you love to spend your money on. A budget will help you make sure you have enough left over for all of this. This is money you CAN spend guilt-free because you’ve paid yourself, you’ve paid your bills and now you get to just live.

Super easy right? Save. Pay. Spend.

Of course, some don’t feel their paycheck is big enough to handle all three. That’s when we begin to just “pay” and “spend.” But like I said earlier–find a way. Even if it’s saving $10 or cutting the “spending” down to the necessities. I promise saving will pay off in the end. I’m no expert but I’ve begun to do this, and it’s extremely rewarding.

Remember–no age is too young or too old to start. But of course, the earlier you start the better!

Do you have a ritual you participate in on payday? 😉 What do you think of the “Save. Pay. Spend.” concept? Does anyone else have any good ideas?

Back to the Basics Part 3-Budgets

Either I’m going to go out and spend all my money on food, new clothes, and awesome entertainment, or I’m going to sit inside and sulk that I can’t have any “fun” right now because I’m saving it.

Neither option the way to go, of course! But sometimes that mentality wants to sneak in on me. But I won’t let it. Balance is key!

Regardless of what others may say, the key to financial balance is having and maintaining a budget. Some feel it is too constraining but in reality it is very freeing because you get to control where your money is going instead of letting it control you.

A budget is easy to make and there are hundreds (if not thousands) of different templates you could use. J. Money at Budgets are Sexy has some pretty rockin’ ones you can find here. I’ve decided to create my own that probably only makes sense to me but here is the breakdown…

My Budget

I get a paycheck every 2 weeks so that is [usually] 2 a month. I call one paycheck, “Paycheck 1” and the other, “Paycheck 2.” (Simple, huh?!)
Paycheck 1 I designate out this way:
  • Cash Savings
  • Vacation Savings
  • School Savings
  • Rent
  • Gas
  • Food
  • Anytime Fitness
  • Life
A certain amount of money goes toward each of those categories and when they are all added up it equals the total amount of paycheck 1.
I do the same thing with paycheck 2 except it’s categories are a little different:
  • Cash Savings
  • Vacation Savings
  • School Savings
  • Electricity
  • Water
  • Cable
  • Renter’s Insurance
  • Phone
  • Insurance
  • Gas
  • Food
  • Life
  • Best Buy
And once again, a certain amount is designated to each and there is none left after that. =) I plan ahead of time where my entire paycheck is going so there are no questions.
Once I have built up my “cash savings” I will have some leeway but right now I want to get my emergency fund up.

The Usefulness of a Budget

Having and keeping a budget up will save you tons of stress and worry and will also pay off for you in the long run.

The key is to pay yourself first (in the form of savings) than your bills than day-to-day living.

Once again, it’s basic. But I know some of you aren’t doing it. 😉 You can start today. I’m not an expert on budgets but I play with mine every day and have looked at a lot of other templates. If you have a question about one please feel free to contact me.

Do you keep a budget? Why or why not? How has it helped you achieve some of your goals?

March Spending

So here it is short and sweet. I like to budget but a budget is just a plan of what you’re going to do with your money. An important part of keeping track of your finances is to review at the end of the budget period (for me it’s a month) and see where all your money went.

When you create a budget, break it down into a few major categories. If you’d like to have sub-categories that is fine but the categories should be very general. Mine are:

1. Savings (this includes emergency fund savings, vacation savings, school savings, etc.)
2. Debts (this includes what I put on my Visa card that month and paid off in full, student loans, etc.)
3. Transportation (includes gas, oil, auto insurance, auto repairs, etc.)
4. Housing (includes things I buy for my house, rent, all utilities renter’s insurance, etc.)
5. Life (includes everything else: food, entertainment, phone bill, cable bill, etc.)

So this month (my ‘budget months’ run from the middle of a month to the middle of the next) I tracked my spending through my online banking website and broke it down into categories. Here is the breakdown (as seen on the graph) of how I spent my money:

Savings 21.47%
Debts 9.07%
Transportation 16.96%
Housing 15.06%
Life 37.44%
There are definitely a few items when I went and looked back I should not have spent my money on. Most of it was some unneeded eating out that I am going to purposefully cut back on this next month.
Ultimately, at the rate of income I’m currently at, I’d like this to be the breakdown…
Savings %27
Debts 0%
Transportation 15%
Housing 25%
Life 33%
Since I’m moving soon my expenses are a little strange so this next month more will be under Housing than Life so I can get settled well.

Do you or have you ever tracked your spending? Do you find yourself consistently meeting your goals? How do you stay on track?