What’s the similarities between a cup of coffee, economics, and financial planning?
Americans love to drink coffee on average consuming two cups per day. Getting coffee on the go is common, but this can cost $3.50, or more, for a Cup of Joe, which costs around $100 per month or $1,200 per year on coffee! By pocketing the $3.50 for coffee each day and investing it instead in a low-cost, diversified Roth IRA, you’d have an estimated $106,000 after 30 years.1
Affordable financial planning can be around the same amount as purchasing coffee, as low as $100 per month. With financial planning, unlike coffee, you over the long run get better at managing your money and making smarter choices with your personal finances. With coffee you just keep awake! Using a CERTIFIED FINANCIAL PLANNER(TM), you learn more about your personal finances and make better financial choices. You can move from being overwhelmed and confused to be focused and empowered about money.
Understanding more about what you spend your money on is important as we make better choices the more informed we are. In economics, they call this opportunity cost, what other things you could do with your money. Just like in economics we are all dealing with scarcity in our lives, we have limited budgets but unlimited wants. What we do under scarcity makes a big difference in our personal finances and our lives. For instance, think of some of the monthly purchases that may take for granted.
Online Shopping: This provides a lot of convenience for our lives, to order something online and it shows up the next day! You don’t have to go anywhere and so easy to pay for the purchases on credit cards, creating wish lists, and so forth. But with too much convenience in our lives, we may not be aware of what we are spending our money on which impacts our long term finances.
Eating Out: Being able to go to a nice restaurant and not have to cook for yourself is a real convenience. Just to experience different restaurants is a real joy of life. But just like online shopping we tend to go into the restaurant with no bumpers attached, where a simple meal becomes really expensive. Similarly, fast-food provides real convenience for a hard day at work when the last thing you want to do is cook.
Subscriptions: This is an easy one. The Internet has made it so easy to sign up for all sorts of online subscriptions from movies, television, games, and so forth. Some of these are a necessity for our lives such as the Internet. But others we occasionally use, and really don’t notice since they are automatically credited each month. It has gotten so bad that there are apps to comb your subscriptions and cancel them.
The point is to be aware of what we spend your money on. Always visualize what the implications are of any purchase. We should ask will this purchase improve my life or is it something we can really do without? Focus on your short and long term goals and lose the purchases that are not in line with your true values.
Maybe spending $1,200 on coffee per year is something that you truly value, but being aware of opportunity costs will make us better at our finances. Work with a CERTIFIED FINANCIAL PLANNER(TM) who is able to match your goals with your finances.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.