Written by: Corey Janoff
This post was originally published on our previous blog website on June 6, 2017 and has since not been revised and/or updated.
Will Rogers had a good quote: “Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.” It was true when he said it and it rings true today, almost a century later.
I’m all for splurging once in a while and spoiling yourself from time to time. However, if you treat yourself to a cookie every day, it is no longer a treat – it is part of your daily routine. So many people regularly spend money wastefully and then wonder why money is always tight. This post will look at some areas that many people could afford to cut back on.
Housing
I understand in major metropolitan areas housing has become quite expensive in recent years. But do you really need to spend as much as you do on housing?
I spoke with one individual who lives in Tampa, FL and earns about $50,000 per year, which is just above the median household income in Tampa. He is spending $1,800/month in rent. I have never been to Tampa to look myself, but according to RentJungle.com, as of April 2017, the average rent for a one bedroom apartment in Tampa is just over $1,000/month.
Here we have someone making average income who is spending almost double the average cost for housing. He is considering taking out a loan for the next year to cover his living expenses, because after rent, he doesn’t think he will have enough money to pay for everything else.
I casually asked if there were any housing options available that were a little less expensive so he wouldn’t have to take out a high interest rate personal loan and go into more debt (he already has a large student loan balance and some credit cards that carry balances). He justified his decision by saying the apartment is in a good location that is close to where he works.
I understand the benefit of convenience, but would it kill you to move ten minutes away so you can save an extra $10,000/year?
I see a lot of people who stretch their budgets to live in housing that they really can’t afford. Move further away. Lower your expectations. Is an updated kitchen with new appliances a need-to-have or a want-to-have? Do you really need a guest bedroom? Your guests can stay in a hotel if they want to come visit. Are you really happier having a five acre lot as opposed to one acre, or a quarter acre? My readers from L.A., San Francisco, and NYC just Googled what an acre is.
I was just as happy sharing a bedroom with a roommate in college as I am now. Your house alone won’t make you happy. As long as you have a roof over your head with lights and running water, you will find a way to be happy.
Vehicles
I have never been a car person. I view a car as something that gets me from point A to point B. As long as it runs well and doesn’t require frequent maintenance, I’m good with it. If you can truly afford it, then go ahead and splurge on a nice car. However, if you don’t have ample funds, it doesn’t make sense to spend a lot of money on a depreciating asset.
The Financial Samurai blog has a 1/10 rule of thumb for car buying which says you shouldn’t spend more than 1/10 of your gross annual income on the purchase price of a car. So if you make $100,000, you shouldn’t buy a car that costs more than $10,000. Personally, I think that might be a little extreme, but I totally support the logic. Depending on the financial circumstances, if you have all your other bases covered and are on track to reaching your financial goals, then go ahead and spend whatever is left on a car. Thanks to the internet, it is easy to find a pre-owned vehicle that fits your needs and is within your budget.
I once spoke with a physician who just finished her medical training and entered practice. She was making a decent income, however she was swimming in student loans, credit cards, and personal loan debt. On top of that she wasn’t saving a dime for her future. She spent close to $70,000 on a new Audi. When I asked why she chose that car instead of something more economical, she replied “Because I work hard and a physician deserves to drive a nice car.”
That sense of entitlement can lead to your financial downfall. If you’re not careful, financial problems will find you, regardless of how much money you make. We hear stories all the time of professional athletes going broke shortly after their playing careers are over. Actor Johnny Depp’s lack of financial discipline was recently uncovered in a lawsuit and countersuit between him and his ex-managers.
Spend less on a car. Bike to work. Utilize public transportation. It will free up money that can be used much more productively to help reach your real financial goals.
Clothes
Obviously you need to wear clothes, but how often do you need to upgrade your wardrobe. My wife makes fun of me all the time for wearing t-shirts that I’ve had since high school and college. But who am I trying to impress? She married me and agreed to be the mother of my children, so clearly she can look beyond my lack of fashion.
We’re not celebrities. We don’t need a new outfit every time we leave the house. We don’t need to rock the latest, trendiest attire for every occasion.
Buy things you need when they’re on sale. Don’t just go shopping and then justify the purchase because the item was on sale.
Wear your old shirts to exercise or do yard work in. You will look just as good in a $250 suit from Joseph A. Banks as you will in a custom-made one for $1,000. Contrary to popular belief, you actually can wear the same dress multiple times. Put on a different pair of shoes, do your hair different, or wear a different necklace – no guy will notice it was the same outfit you wore to last year’s New Year’s Eve party.
Dining Out
Reserve it for special occasions. We don’t need to be waited on for dinner three nights a week. This doesn’t mean you have to prepare all of your meals at home. Grabbing a burrito at Chipotle for dinner on the way home from work isn’t going to break the bank.
Sunday brunch is nice, but when it costs $17 for your breakfast hash and $10 for the bottomless mimosas, plus tax and tip and possibly paying for parking, brunch ends up costing you close to $40. $80 if you are paying for your significant other, too. Well over $100 if you have kids and take the whole family.
Dinner out with friends is great. It is also equally as fun and significantly less expensive to pick up a pizza and a case of beer (or a couple of bottles of wine) and have a dinner party at someone’s house. For a group of four, instead of $50/person, it costs about $10/person. You can also play Cards Against Humanity without any disgusted looks from the table next to you.
Cooking a meal together can be a great date. It gives you something to do while you’re waiting to eat. You also don’t have to listen to the conversations of the tables around you like you do at a restaurant (although that can sometimes be highly entertaining).
When you do go out to dinner, there are ways to do it economically. Go to a restaurant that has food specials certain nights of the week. Have a drink at home beforehand or only have one with dinner instead of multiple, to avoid the restaurant markup. If you are truly a wine connoisseur, bring a good bottle from your cellar and pay the corkage fee. You’ll enjoy a much nicer bottle at a much lower price than you would get from the restaurant.
Food/Groceries
It is very doable to eat healthy and well without draining your bank account. There’s nothing wrong with a plate of spaghetti. Dice up some zucchini and bell peppers to throw in the sauce if you want to make it healthier.
I ate a lot of top ramen, Kraft mac n’ cheese, and peanut butter & jelly sandwiches back in the day (and still do occasionally!) and I am in pretty good health. I’m not advocating you eat like a broke college student every meal, but every once in a while won’t kill you. Your wallet will thank you.
If you’re on a health kick, grab a head of lettuce, a can of beans, some oil, vinegar, salt & pepper and have yourself a nutritious, filling salad for only a few dollars. If you really want to get fancy, chop up a carrot, cucumber, tomato, or whatever other veggies you like and throw it on there.
Eating organic food feels great, but sometimes I’m convinced that slapping “organic” on the label is merely a marketing ploy by the food manufacturers to double the price they charge. There is no scientific proof that eating organic food is healthier for you. Besides, none of us ate organic food as kids and “organic” wasn’t even a word in the dictionary for our parents’ generation and most of us turned out alright. All else being equal, organic food is probably better for you than non-organic food. However, cutting out fast food, sugary drinks, staying active and making sure to exercise regularly will likely do way more for your health than eating organic bananas instead of regular bananas.
Vacations
We all need a break from work every once in a while for some quality R&R. However, that doesn’t mean we need to drop $10,000, spend two weeks in Europe, or travel to Tahiti every year.
You can have a stay-cation and explore your own city. Visit the local breweries, wineries, and restaurants. I know, I just finished talking about going to restaurants less often, but I also said to reserve it for special occasions. This would qualify as a special occasion.
Stay at home for a week, sleep in, and get the much needed closet reorganization and Goodwill trips completed that you have been meaning to do for two years.
Take the kids to the zoo. Have a picnic. Go on a hike. Eat ice cream in the park. If you have young kids, they can’t tell the difference between the hotel pool in Maui and the pool at your local community center.
If you’re into the outdoors, going camping and fishing can be a very relaxing vacation. Once you have the necessary equipment, it costs practically nothing to go.
Nowadays, it almost feels like you’re expected to take a big international vacation when you take extended time off work. Gotta get that photo of you at Machu Picchu uploaded to Instagram – that will get way more likes than the photo of you unloading the trunk of your car at Goodwill.
If you can afford it, I’m all for traveling. Seeing the world and how different cultures behave and interact can really open up your mind. But if you are just getting started in your career and trying to save up for a house or pay down school debt, is it really wise to blow all your savings on an international adventure?
Weddings & Bachelor/Bachelorette Parties
Weddings have always been expensive, but lately, the whole production leading up to them has gotten out of hand. According to a survey done by TheKnot.com where they polled over 13,000 couples who wed in 2016, the average cost of a wedding last year was over $35,000 (and that doesn’t include the honeymoon). It varies by region – for example, the cost of a wedding in New York City was close to $80,000.
The median household income in 2016 was about $56,000, before taxes. So essentially, the cost of an average wedding is the equivalent of an entire year of after-tax income.
It’s great if parents pay for the wedding, but that means they are draining their savings…so that’s not good for them.
Beyond the cost of the wedding, there is now the engagement party that you go to when the couple first gets engaged. You need get a small gift for that. Then there’s the bridal shower that the bride’s friends are expected to throw for her and everyone gets the bride a gift. This is a different gift than the wedding gift you are also expected to purchase for the newlyweds for their wedding day.
Oh and if you’re in the wedding, you get to spend money out of your own pocket to help your good friends tie the knot. For the groomsmen, you need to rent or purchase a suit – bridesmaids need to purchase a dress….and likely pay to get your hair and makeup done. Between the attire and the gift, expect to spend a few hundred dollars simply to attend the wedding. That doesn’t include flights and hotel if you’re out of town, or the Uber ride home because you had a few too many drinks.
Then there’s the bachelor/bachelorette party. Bachelor parties used to be a single night where the local guys would take the groom out to some bars and engage in harmless shenanigans. And vice versa for the gals. Now they have turned into long weekend vacations with flights and rental houses involved for several nights of harmless shenanigans. I’m all for it, because it is a good reason to get all the guys together again. When else are you and your high school or college buddies all going to get together for a weekend getaway? I would be in favor of going big on the bachelor/bachelorette party, and not having a wedding at all. Just sign the papers at the courthouse.
The cost associated with all of this can add up. Let’s run through it. If you are the one getting married, you will spend $35k on average, plus the cost of a honeymoon. If you invest $35,000 at the age of 30, leave it invested until you are 65, and average a 5% annual rate of return net of fees and taxes, you will have almost $200,000 at age 65.
If you are in the wedding, you will spend:
- $200-400 on attire
- $50-250 on gifts
- $1,000 to travel to the wedding if you have to fly, get a hotel for two nights, and you bring a date
- $1,000 going to the bachelor/bachelorette party, if flights and lodging are involved
If you’re popular and have a lot of friends, this can get quite costly in your late 20’s/early 30’s.
It’s all fun. We only live once. We’re only young once. Live it up while we can, right? I guess, but it goes against everything the book says about making smart financial decisions.
Let’s Be More Disciplined
Our parents, grandparents and generations before us worked their butts off and made real sacrifices so they could afford to put a roof over their heads and food on the table. They didn’t take annual international vacations. The first time my dad flew on a plane was when he was in college and flew across country for a summer school program he enrolled in. They didn’t wear designer jeans. There was no such thing as brand apparel.
With the evolution of the internet and social media, keeping up with the Jones’s has taken on a bigger, more inflated meaning. People seem more concerned with getting likes on a photo they post of themselves from a rooftop bar in Paris than trying to max out their 401k each year.
I’m all for having fun and enjoying one’s self, but let’s do it in moderation. It will make us appreciate those special events and moments and our savings accounts will look a lot better. We’ll also be able to afford to continue having fun in our golden years.
I’ll end this post with a short story of two coworkers.
Two coworkers were chatting with each other in the breakroom at the office one day. One worker said to the other, “Funny, I never see you out at the club.” The other worker replied, “Funny, I never see you out at the bank.”
Let’s try and bump into each other at the bank more often, and less often at the club (even though nobody under 40 goes to a bank anymore).
Disclosures:
These are the opinions of Corey Janoff and not necessarily those of Finity Group, LLC or Cambridge Investment Research Inc. Any examples are hypothetical and for illustrative purposes only. Any investment involves the potential loss of principal.
