Tag: latte factor

My personal tips to save money

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At the Money Savvy Blog, we regularly receive questions on “how to save money”.

Here are my own personal tips to do so. They may surprise you!

DON’T BUY OR RENT TOO MUCH HOUSE

You can save hundreds of dollars each month by doing so. Everything is negotiable, and that includes both rent and mortgage. Not all rents are the same amount. It may be cheaper to move to a different neighbourhood.

Same goes for home prices. Despite being in a raising-rate environment, you can still find low-rate mortgages. It is also important to buy the right amount of space for your needs. Unless you plan on having 10 children, you most likely don’t need a 10-bedroom mansion.

And because a lender qualified you for $ 500 000, does not mean you have to buy a $ 500 000 property! You actually would be better off buying a $ 250 000 one.

DON’T BUY OR LEASE TOO MUCH CAR

A car is a depreciating asset. It starts loosing value the minute it leaves the dealership. I never understand why people would spend thousands and thousands of dollars to buy such item.

And I shake my head when I hear people calling their cars “an investment”….

CAA has a very nifty little tool to estimate car costs. This depreciating asset also happens to cost a lot of money to maintain!

For example, a compact or subcompact car will cost around $ 9 000/year in British Columbia. A pick-up truck will cost around $ 14 000, and an “executive” vehicle (BMW, Audi) will cost around $19 000.

You will see a lot of the latter two in the Lower Mainland….Unless you work in a farm, in forestry or image is a crucial component of your income, you don’t need these types of car.

If you ditched the pick-up truck for a compact car, you will save $ 5 000, right off the bat.

If you are in a multiple-car household, try to see if you could live on 1 or 2 cars, instead of 2 or 3. You will save even more money!

SHOP AROUND

In this day and age, comparing costs of products and services has never been so easy. Unfortunately, most companies also do not reward loyalty anymore. It is always worth obtaining several quotes before purchasing, particularly on products like insurance, cable, cell phone or services like home repairs.

You could save big time. Case in point with my own home insurance: my former provider, with whom I had been for several years, kept increasing my rates; this despite me never filing a claim. I shopped around and switched to my current provider for half the price.

COOK MORE OFTEN

Much has been said about the latte factor and the avocado toast. While I agree that occasionally indulging in these will not put you in financial jeopardy, I believe it is problematic when indulgences become a daily, new necessity.

On the very first post I wrote on this blog, I had estimated someone eating 3 meals out 5 days a week would spend about $10 000 per year.

You can slash that amount in 2 by cooking and eating at home more often. You would still be able to eat out from time to time, just not on a daily basis.

FINAL WORD

By cutting expenses on big-ticket items like housing, transportation and food, you can save 10 to 20K per year fairly quickly and easily.

In comparison, how much do you think it would take to save the same amount of money on your own, solely relying on your income?

Book review: Pound Foolish by Helaine Olen

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Please note I did not receive any compensation for reviewing this book.

As a personal finance aficionado, I always enjoy reading blogs and books on the subject.

this week, I will review Pound Foolish by Helaine olen

Helaine Olen is a journalist, writer and columnist. As she admitted in her book, she did not know anything about personal finances when she started writing about the subject. She does not have academic qualifications in Finance, nor is she a CFP®.

pound foolish does not give financial advice

And it is refreshing. Olen actually challenges some of the conventional, financial wisdom we have been reading and hearing for decades such as the Latte factor or the fact that owning a house is automatically a sound financial plan.

Most of all she challenges the concept of financial literacy, particularly when those who wants to teach it are banks, credit card companies and other financial entities making profits on our hard earned money.

the book was written just after the 2008 economic downturn

It makes its content even more relevant, as it is backed-up by actual events and facts.

even if it is primarily geared towards the US, you can still relate to it

Helaine Olen primarily focuses on the personal finance industry in the US. That being said, some of the concepts she talks about are fairly common in many countries, such as gender inequality, wages stagnation, rising costs of housing, education and healthcare.

final verdict: buy

I gave this book a definite buy. I really like the way Olen challenges and shakes up the personal finance world. Not too mention what she writes is very true.

 

It is not just the latte (factor)

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David Bach popularized the “latte factor” term. The concept emphasizes the long-term cost of small, everyday purchases such as coffee, cigarettes, magazines and so on. There are lots of debates in the PF community as to whether this concept is valid. I personally believe it is, to some extent.

The very first post I wrote was about the cost of eating-out. I had estimated that someone eating 3 meals out five days a week will spend over $ 8 000 per year on food. For simplicity, let’s say this amount never changes for a period of 25 years. The cost will be $ 200 000. I sure could find a lot of better uses for that amount of money!

For simplicity again, let’s say that half of it is invested, i.e. $ 100 000, for 25 years at a conservative 5% interest rate. At the end of the 25 years, it would turn into close to $ 194 000. I don’t know many people who can pass up $94 000. Do you?

No, the latte factor won’t make you a millionaire, but it can certainly help your financial goals. That being said, in order for this to work, you need to actually save and invest the money. If you spend it somewhere else, it will get you nowhere financially.

You also need to look at bigger expenses, namely house and car. Don’t buy too much of these, they can drain your accounts in no time and prevent you from replenishing them. It is also a good idea to review and compare insurance quotes or call your cable to company and ask for a discount. You will be surprised at how much money you could save by doing all the aforementioned.

To put together a successful financial plan, you need to look at the bigger picture and at other elements such as your income – does it exceeds your expenses?-.

Spending an occasional $ 4.00 on a fancy latte will not derail your retirement plans. Spending $ 8 000/year on take-out or taking on a too large mortgage might.

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