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Starbucks Is Not Making You Poor

By Erik Folgate

If you’ve read enough personal finance blogs, then you’ve probably read enough scenarios about giving up your grande mocha-chino in order to save more money.  I understand the reasoning for being more conscious about controlling the spending on life’s smaller luxuries.  I tend to think in bigger terms when it comes to saving money.  There are a handful of large purchases that you will make many times in your lifetime, and you can save a chunk of money if you control these expenditures rather than how many times you rent a movie in a month.

CARS 

You’ll hear me harp over the fact that we are obsessed with four-wheel toys.  Americans love cars, and it is almost as common as a mortgage for someone to have a car loan.  I have literally seen car dealers look at people like they are crazy when they pay cash for a car.  Why would you borrow $20,000 for a new car?  Do you NEED a new car, or do you WANT a new car?  I read a post from a prominent personal finance blogger that justified his new car purchase based on the reliability of new cars and some other factors.  The fact is that buying a new car, or just a car that you can’t afford is a LUXURY.  If you start paying yourself a car payment every month, and keep upgrading in car every year, you’ll be buying new cars with cash in 5 – 7 years.  You’ll save literally hundreds of thousands of dollars in your lifetime if you buy used cars and never get a car loan.

HOUSE 

This is the biggest legitimate investment that you’ll buy in your lifetime.  Yet so many people neglect their home and end up putting their money in personal property that depreciates rather than putting into a home.  If you are a homeowner, maintain it like it’s your job.  Make improvements that add value to your home and property.  NEVER buy a house with no money down.  You need a cushion just in case the housing market goes sour for a few years.  If you do this, you’ll make a profit with every house that you sell.

VACATIONS

I am all about vacations.  It may sound like I hate having fun, and I’m a tight wad, but it is quite the opposite.  My wife has to put a clamp on my wallet when it comes to planning on and going on vacation.   I love to travel, and I would much rather spend my money spending time with family and friends on a trip than buying a new toy.  The truth is that we tend to go overboard when it comes to vacations.  Have a budget and stick to it.  Try to get package deals that will save you money.  Go on vacation in the off-peak months.  This can save you hundreds of dollars from the beginning.  Visit less toursity destinations.  Central America has great beaches, and it is still much less traveled than the Caribbean.

Don’t get me wrong, I think we need to be mindful of the small things we buy throughout our day, but there are much bigger purchases to be thinking about that can save us thousands of dollars over a lifetime.  Personal finance is mostly about behavior.  You are in the driver’s seat to a path of financial freedom or financial bondage.  The choices are yours to make.

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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Comments

  • http://aprivateportfolio.blogspot.com traineeinvestor

    I agree that big items lead to bigger savings than small items. Cars, vacations and consumer electronics are three of the most obvious areas where most people can make significant savings.

    That said, regular savings on small things can still be meaningful – especially when you are younger and your income and savings are likely to be smaller and will also benefit from many more years of compound returnss

  • http://www.lazymanandmoney.com Lazy Man and Money

    The car thing sounds like Dave Ramsey’s Drive Free plan. Unfortunately here are a number of reasons why it doesn’t necessarily work.

    You’ll save some money buying used, but you typically get what you pay for. If you can get a 0% car loan, (or even 3%) it’s better to get it as you can put that money in a bank and make more on the interest than you are paying. Not all debt is bad debt. It depends on the percentage.

  • http://www.moneycrashers.com Erik

    I couldn’t disagree with you more, but that’s okay. We are both entitled to our opinions. You can read my comment on the post that you referenced about the Dave Ramsey “drive free” plan. I will never accept the idea of saving the money you would use to pay for something in cash and put it in the bank to make interest, because it does not factor in the RISK. Risk has a quantitative value, and it plays a huge role in the profitability and reliability of an investment. Yeah, you could take out a home equity loan at 6% and make 10% in a mutual fund if you play your cards right, but it’s not that simple. What if you lose your job, and that mutual fund is having a down year? Uh oh!

  • http://madsaver.com Mac

    Agree completely about buying used cars. That IS the way to go, especially if the car is still fairly new and under warranty. Basically, good as new, but with most of the depreciation already done. With both of our cars fully paid off, I should start to save the monthly car loan and pay myself with it, but we’re now trying to sell our depreciated house too, so I’ll need every cent to try to put money down on the next one. :(

  • http://www.forestcotton.blogspot.com/ Jim

    I would say five dollars for a cup of coffee everyday can make you poor..

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