February is Savings Month!

With the focus for February being around spending we thought it would be insightful to discuss the opportunity cost of spending habits and the importance of living for today and planning for tomorrow.

You may recall a recent study by Acorns centered around millennials and their spending habits. In their study, they found that the average 25 to 34-year-old reported spending $2,008 per year at coffee shops, and that 41% of millennials admitted to spending more on coffee in the past year than they had invested in their retirement accounts.

If someone were to invest their coffee money over time instead of spending it on coffee, it can amount to hundreds of thousands of dollars by the time you retire. For example, if you were to invest $2,008 from age 25 through age 34 and never added money after that, you would have contributed a total of $2,080. However at age 65 it would be worth over $600,000 with a 10% return.

Don’t get us wrong, we love a good cup of coffee and caffeine is not the enemy here, the point is to bring to light how daily behavior that often goes unnoticed can have a large impact on your financial future.

To truly know how your actions are affecting your financial goals in life, our challenge to you is to track your spending. If you were to follow every dollar you spend this month we guarantee you would be surprised where the money goes. Sometimes we spend too much money on dining out, when we could have eaten at home for pennies on the dollar.

Once you have followed your money the next step is creating a budget which gives each dollar you earn a purpose and puts you in the driver seat of your financial life. Lastly, a budget helps you be mindful of what you spend and how you save, which maximizes both enjoyment in living for today and peace of mind that a fun and comfortable future is on the horizon.

When creating a budget there are a million ways you can do it. The best budgets follow the principle of paying yourself first, taking care of bills next, and the residual money being spent on the things that bring you joy.

Paying yourself first means things such as contributing to your employer's 401k, adding funds to an IRA, or even replenishing an emergency fund. Taking care of bills is just like what it sounds. This is paying your monthly expenses. This would include things like rent, insurance, and debt. Finally, the remaining income you have each month can then be used on things like eating out, shopping or even that cup of coffee.

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