You CAN Buy Lattes, But Only If You’re Mindful About It… with Budgets!

How many of you have heard of the latte factor?

It’s a well-known idea in personal finance that puts something like your daily coffee intake into monetary perspective. At its most bare bones, this factor explains how the small amount of money you might pay for a daily coffee is costing you more than you may realize, especially once you figure in how much money you’d have if you invested the amount and waited some years. Usually it’s an eye-popping sum of money meant to make you glance at your Starbucks cup and vow not to get it anymore.

This “latte” can be substituted by the beer you tend to grab every evening. Or the breakfast you tend to buy on your way into work. Or any small, recurring expense that’s ingrained into your day-to-day routine.

Am I also going to tell you to stop buying so many lattes?

Nope!

I’m cool with it. Go nuts. Date the Starbucks mermaid, I don’t care. But ONLY if you do so because those lattes are accounted for in your budget.

Why?

You are not a zombie.

Oh, you need your caffeine fix? Still not a zombie. You’ve still got a brain, and you need to use it. In this case, you can blow however much of your money you want to… as long as you do so with a plan.

For most, that plan translates into a monolith thing that, once you get used to it, becomes the cornerstone of your success.

Enter The Budget

You do have one, yes? If you don’t have one, you need one. Today. Build a budget NOW. There’s a whole company dedicated to that which has dug thousands of people out of their debt and to greener pastures. For those of us that DIY a budget, there’s a process to take on what that looks like. Because everyone has different life priorities, no two budgets look exactly alike. The only things your budget needs to do is give you enough money to get everything you need while also ensuring you don’t go overboard on any one expense.

For example, if you decide to set aside $70 a month for lattes, you’ll know that’s a reasonable amount of money for you to spend on them. If you realize you need to pay more, you adjust your budget. If you’re staring at your computer screen in outrage at that high $70 number, then for YOUR budget you’ll know not to allocate so much to lattes. It’s not complicated, I promise.

To reiterate: you really do need to build a budget. You need to keep track of what’s coming in and out of your bank account if you’re ever going to get rich. Climbing that mountain requires you to get sticky with your money – as in, so money’ll stick around instead of flowing out on who knows what (which you won’t know if you don’t build a budget!)

Besides that, budgets also work. They lay your income and expenses bare without trying to sugarcoat the flaws or praise the achievements. It’s a lot harder to justify spending outside of your budget when you’ve already reviewed it and enthusiastically agree this is what gets you to a better place.

How to Build a Budget

The first step to build a budget is to keep track what you’re spending money on. We’re not trying to change your spending just yet; what we want here is a barometer of what you normally fork your money over for. We’ll need at least 3 months’ worth of expenses so we can plan out the budget accordingly.

If you put all of your spending on a card, that means all of your spending is reflected on your monthly statements. Dig those out and look over everything you see. Does anything surprise you? Like, do you actually spend more on eating out than you thought, or you notice an embarrassing amount of money goes towards White Claws?

Good, we’re getting somewhere.

Next, take your post-tax income (i.e. how much money is actually in your paycheck) and compare that to how much you’re spending. Does your income cover your spend? If so, move on to the next step. If not, you now know your spending levels are not sustainable and doing you dirty; you cannot build wealth if you have none left over, full stop. Something has to change so you won’t end up drowning in debt and feeling hopeless – another reason why budgets are good for the soul. No one should feel hopeless.

Now, look over your spending and see how much it will cost you to just exist. No lattes, no nights out, no new clothes and no fun*. Solely your housing costs (i.e. rent/mortgage and utilities), your grocery bill, and the transportation cost to get you to work and the grocery store. Then, I want you to look over it again and see if you can cut that even further. That grocery bill is looking mighty big, bet you can decrease that if you lived on soup and frozen burritos. That utility bill can cover your winter heating, but it’ll be cheaper if you lowered the thermostat a few degrees. And so on.

The number you’ll then arrive at is your baseline, the absolute minimum you can live on without moving elsewhere or dying from exposure. If this is STILL higher than your income, you’ve got a lot more work to do than just make a budget. If this now falls within your means, however, we can add more items to the budget while knowing the basics are taken care of.

Now that we’re choosing what to add to your monthly budget, you need to decide what’s a priority to you and what is not. Be brutally honest with yourself as you look back at your spending. If something doesn’t directly serve you or bring you joy, axe it. That gym membership you don’t use? Axe. Subscription you’re not obsessed with? Axe. The lunches from that great diner that aren’t so great for your health? Axe. Some of these things will be low-hanging fruit to get rid of. Others will make you hesitate. That’s okay. Everything worth doing requires something to sacrifice. At least here we don’t need to sacrifice, like, a lamb or something. The gods of finance do not require blood offerings, just mindfulness.

So by this time you should have a list of things you’re willing to allocate money to, which is now YOUR BUDGET!! Moving forward it will need tweaking, but it will now act as a baseline for your spending needs. If you want to get advanced it you can budget every single line item; if you’re lazy like me than do what I do and assign buckets to everything. Here’s my monthly budget for comparison to yours:

$1800  Rent and utilities
$125    Groceries
$200    Fun money/eating out/nonessentials
$50      Phone bill
$80    Public transit (subject to change)
$155    Groceries for family friend

Monthly Spending (Minimum): $2,255
Income: At least two paychecks a month, or $5,192

My spending is covered by my income, thanks in huge part to my sticking to a budget.

Budget Options and Results

I like putting everything in buckets when I build a budget instead of being detailed because it’s simple and streamlined. Having line items for every little thing (“Electricity” then “gas” then “water” etc) would make it too complex for my taste. For you it might be different. Choose whichever one you like the most and stick with it.

Now, in the coming days and months you are going to experiment with this new budget you’ve made. You will need to stick to it, and you will need to be smart about it. Gone are the days of you forgetting about the $30 you spent at Target or at the bar. Your budget will show you where every dollar is going after it leaves your hands. If you’re still in your 20s, this is the perfect time to do your budget so you’ll get in the habit now and start building for your future.

If you’re in your 20s and doing this, you’ll be enjoying wealth in your 30s.

If you’re in your 30s, let’s get you there by 40.

And so on!

What’s great about finance is that the earlier you start, the better off you’ll be. This means that you need to start where you are, as this is the earliest it’s ever gonna get. Nobody like us gets to coast through life. Wherever you are in life, you can get somewhere better if you do things like budget and have a plan. That’s what I did to get my six-figure net worth; even when I was working a receptionist position, I did it smartly and I had a plan. I didn’t wake up one day and go “… holy shit” at my successes, because I was awake the entire time I was building it. I marvel that I created something so incredible, but never because it’s suddenly there. Success isn’t sudden, as much as “overnight success” stories might make it seem.

Your success is tied to your budget. So drink the latte if it fits in the budget. If not, break up with the Starbucks mermaid. It wasn’t a great, relationship, anyway.

*I kid here – it’s actually very easy to have fun while spending zero dollars. This is another thing you must be mindful about, if you’re not already.