Lattes, Avocado Toast And Other Personal Finance Lies

Another personal finance lie

Should you?  Or should you not?

A harmless pleasure?  Or a game of Russian roulette with your financial future?

Judging by the amount of debate around things like lattes and avocado toast in the personal finance blogosphere, they have got to be the biggest make or break factors that will determine whether you will ever get to financial independence.  Or for that matter, any sort of a stable financial situation.

If only you didn’t have that avocado toast…

A State Of Emergency

There’s a time and a place for everything.  And yes, sometimes, the situation is so dire that you literally need to declare an emergency, batten down the hatches and weather the storm until it passes.

One such situation is when you have debt – especially the nasty, 25%+ interest rate, credit card or other consumer debt.

If that’s the case, that £50 you spend on lattes in a month is actually costing you another £15 in annual interest.  Those cement shoes weighing you down get heavier and heavier.  So unless you have a credible, fast way to dig yourself out of debt, it probably makes sense to cut out all non-essential spending.

Credit card debt

This is when you know you need a way out – and fast

Then there’s your spending in the context of your total net worth.  Not income, but net worth.

It doesn’t matter if you make six figures at work, but if you have a negative or very low net worth, you need to assess your spending in that context.

For example, if your net worth is only £1,000, spending 5% of that on discretionary expenses every month is absolutely crazy.

This was my situation when I was a junior investment banker in London about ten years ago.  My total comp was about £80k – but my net worth was hovering so close to zero, you basically couldn’t tell the two apart.

So I cheaped out on everything I could.  Crappy coffee from the office vending machine.  Using my dinner allowance to buy groceries at M&S instead.  Hitting up whatever internal events I could find – just to score some free sandwiches.

And while that certainly didn’t feel great, being able to grow my net worth by a double-digit percentage every month sure did.

But all emergencies end.  Mine did a few years in, once I’ve finally paid off my student loans.  And yours will, too.

And once your proverbial boat is no longer filling up with water faster than you can pump it out, the situation changes dramatically.

Taking A Long-Term View

Let’s say you have 10k in savings – and need another 40k for a down payment of 50 grand on your first property.

Assuming you are saving 5k per year, it will take you 8 years to get there.  You will note I am being very generous here and assume that housing prices won’t rise in the meantime.

If you cut back on discretionary spend of £500/year, you can reach your goal 8 months earlier.  But is it worth the sacrifice?

Perhaps – if you didn’t care for that latte or avocado toast or whatever else you’ve been blowing your money on in the first place.

But if you are already spending intentionally, chances are it will make a big difference.  Financial independence is important, but cutting all joy from your life just to reach a goal in the distant future?

Not only it’s sad, but it’s also unrealistic.

The bottom line is that past a certain level, you really shouldn’t agonize over spending trivial amounts of money on things that bring you joy.  Because the sad reality is that while saving is important, you can’t save your way to wealth on small-ticket items.

Instead, you need to take an objective view on the kind of expenditures that really move the needle.

The Big Questions To Ask

Can you realistically afford to buy a house where you live, or are you better off moving to a cheaper part of the country?

Is sending your kids to private school achievable for you?

Are you fairly compensated at work – or is there room to maximize the ROI on all the time you put in?

And most importantly, is your money working as hard as you are? 

Because if there’s one thing that really bugs me about Suze Orman’s ilk, it’s that they are very good at telling you how to leave more money in your pocket – all while reaching into it with their crappy actively managed products and high fees.

Large-cap fund performance

Not something you hear Suze or Dave talk about

The likes of Dave Ramsey pitching you expensive mutual funds you don’t need.

The Neil Woodfords of the world who deviate from their stated investment strategy – and walk away with millions while retail investors are wiped out.

And all the other “experts” who will do whatever it takes to scare you into giving them your hard-earned money.

If you are serious about reaching financial independence, it’s crucial to get off to the right start.  Spend less than you make.  Get rid of your debt.  Invest.

But please don’t ever let someone tell you that the only way forward is to suck all the joy out of your life.  Especially when that someone has their own agenda – and zero interest in your success.

Move forward on your own terms.  It might take a bit longer.  But it will also be much more enjoyable.

About Banker On FIRE

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Banker On FIRE is a London-based M&A (mergers and acquisitions) investment banker.  I am passionate about capital markets, behavioural economics, financial independence and living the best life possible.

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