Spend intentionally and save
If money decisions were straightforward and logical, it wouldn’t be so hard to save. When you first start full-time work, you will have more money than you ever had before, and probably more expenses!
Plan your budget so that you know how much discretionary spend you have left each month after essential spending and saving, then try to stick to your agreed level of discretionary spend.
What is intentional spending?
Intentional spending is being aware of where your money is going and using it towards things you value. Determine what makes you the happiest and then plan your finances so that you can afford this lifestyle. Control costs to enjoy better holidays, great nights out, or new tech…whatever you enjoy most! Learn the pleasure of delayed gratification – delay spending in the short term in order to enjoy greater rewards in the long term. This is spending intentionally!
Watch out for Lifestyle Creep!
Lifestyle creep occurs when your standard of living improves as your discretionary income rises and former luxuries become new necessities. You were happy with a Dacia Sandero, but now you want a BMW! That’s fine if you are budgeting and spending intentionally.
When you get a pay rise or bonus, review your budget…..or stick it all in savings as you won’t miss it - and it will help to pay for the BMW!
Remember, no income is big enough if you can’t live within your means. Robert De Niro recently admitted he was broke, even after earning millions each year!
It isn’t about being frugal or tight, it’s about spending intentionally. If you enjoy the £3.50 latte on the way to work each morning, or that M&S lunch, etc., fair enough, so be it! That is your choice and is intentional. But, could you have coffee at work for free, cheaper brands, or take a packed lunch and still get as much enjoyment from it???
Don’t try to “keep up with the Joneses” and do small easy tasks yourself rather than paying for them: mow your own lawn, clean your own car/house, and make a packed lunch (tastes better too!).
These are small examples of Lifestyle Creep; more costly examples would be a bigger car, better holiday, expensive phone, etc. These are OK if you have chosen to spend intentionally!
What is The Latte Factor?
The Latte Factor concept is simple. Small amounts of money spent on a regular basis, unintentionally, cost us far more than we can imagine. The Latte Factor isn't about latte; it’s about any seemingly trivial discretionary expense we incur unintentionally.
Take the daily latte as an example. By cutting this out, you will save £3.50 a day, that’s £75 per month. If you were to save this, set up a monthly DD into an Equity ISA paying 5% pa, by the time you retire you would have…£115,000!
If you were to put this into your pension, with tax back and employer contribution, by the time you retire you would have...£287,000!
One latte a day! Small amounts matter.
Some people dismiss the Latte Factor because they want to "enjoy life”, "life is short" and we must "live for the day." These clichés certainly have some truth. Yet rarely do I hear people say, "life is short, I'm going to read a good book" or "life is short, I'm going to spend time with family." For some reason, these clichés are always used to justify spending money.
Here's the point; we spend money on stuff that doesn't make us happy. It may give us some immediate gratification, but no lasting joy. If we ran an experiment and shunned our "latte" for 21 days... would we miss it? That's true whether we are talking about a cup of coffee, a new shiny pc, or a new car.
It’s easier to spend today than ever before...but it’s also easier to track your spending. Track your expenses for a week and find your 'latte factor'. Keep in control of your discretionary spend. Spend Intentionally!