How many times have you heard that you can save millions of dollars over the course of your lifetime by cutting out your morning coffee at your favorite local coffee house? Ever since David Bach made his Latte Factor famous in his best selling book, “The Automatic Millionaire“, we all have been going without our favorite nonfat vanilla lattes or have been feeling guilty about our pack-a-day smoking habit and the money that these vices cost us.
Bach’s math is very sound unfortunately. The average fancy cup of coffee with your local neighborhood barista can cost you up to $5 per cup of Joe. And, that is assuming that you do not have a muffin on the side to go with it every morning. You can do the math, but a $5 coffee every morning on your way to work will cost you $25 per week, $100 per month, or $1,200 per year. $1,200 invested at 8% ever year over the course of your working life can equate into over $365,000 in lost savings and investments. And, don’t get me started on smoking. At $4 per pack in many locations around the United States, a pack-a-day smoking habit will cost you $1,460 per year or $444,000 invested over a lifetime, and with smoking, you don’t get to even take the weekends off like you theoretically do with fancy coffee on the way to work.
But, I love my peppermint lattes at Starbucks during the holidays darn it! And, I’m not going to give them up. So, if you are not going to quit, how do you budget for your vices?
Gift Card Approach.
One interesting idea is to buy a gift card for your purchases. Buy a $100 Starbucks gift card at the beginning of every month, and only make your purchases using that card, not cash. When the card is out of money, you are out of luck for your daily cup of coffee. This will help you curb your splurging on that muffin or bagel in the morning. Maybe some days you might have to buy regular coffee or brew a cup at home instead of having the best.
You can even do the same for your smoking habit as well. Buy all of your cigarettes at a retailer that offers a gift card such as Wal-Mart. Buy a $120 gift card every month ($4 x 30 days), and only use that to buy your cigarettes. You can use this method to track all of your spending on your vices. You might be surprised at how much money you spend on them if you are accurately keeping track of your vice spending. Most people just run into the store a throw down some cash for their purchases, but you will be able to tell right away how much you are actually spending on them when it is registered on a gift card balance.
After you get the hang of routinely using this gift card method, you can begin to cut back on your vice spending if that is a goal of yours. After a few months, start cutting back on how much money you put on the gift card. Start reducing your coffee budget from $100 a month to $75, and keep whittling it down. Eventually, you can break your bad habit and really start saving your money for your financial goals.