Curb Your Spending: Brew vs. Buy

Us twenty somethings are serious about our coffee. And while this is okay with me...we need to be equally serious about our spending habits early on...

While I drink for taste (always getting decaf because I don't consume caffeine)...I'm still as addicted (ok maybe slightly less) as my peers who cannot go a day without their morning (or afternoon) cup of joe. Since I've made my job transition, I've picked up a very bad habit...spending $4 a day on my 'grande decaf no foam skinny vanilla latte' from Starbucks. If I'm in a good mood, I'm getting a pastry too.

A regular coffee from Stabucks runs about $2.20 (I've got the specialty drink disease). I hear some smarty pants out there rolling their neck and saying, "Well that's why I get my morning cup from McDonalds or Dunkin' Donuts. It's good and slightly cheaper. I spend less than $2 a day on my morning cup of Joe." You think you've outsmarted me. Think. Again.

A morning cup of coffee brewed at home cost about $.17/cup (6-ounce cup). So let's say you get 12 ounces with your store-bought cup...that same cup, made at home would cost you $.34/day.

I'll cut to the chase.

By buying ground or whole bean coffee from the grocer you would spend about $80 a year on coffee.

By going to McDonalds or Dunkin'Donuts everyday you are spending $480 a year on coffee.

Andddd for me, the specialty coffee whore...by buying a $4 flavored latte from Stabucks on the daily, I am spending $960 a year on coffee.That Howard Schultz is a fawkkkking genius. By the way, Starbucks sells a pound of whole bean coffee for about $12. This makes about 45 6-ounce cups which converts into $.58/day for a 12-ounce cup. This means $128 a year. Still a come-up.

You know what you could do with an extra $880 a year? No...not save it...

Buy a pair of really nice, red bottoms.

(Although for those of you who thought "save it" first...nice work, you're learning. I needed to make a bigger point though. The red bottoms make a big point.)

Note: These calculations are assuming Mon-Fri, 48 workweeks in a year (bc most folks get 4 weeks vacay and holiday time off)...so 240 days. If you get coffee on the weekends and your off-days...you can recalculate for 365. I just would prefer NOT to see those numbers. smh.
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*Introducing: Curb Your Spending*
I received an email from a reader and she would love to see more on spending. She asked for one post. I decided, wouldn't it be fun to have a segment called "Curb Your Spending" where I talk about spending habits and advice on a regular basis.

Debit Diet: "Where da, where da cash at?"

I'm in complete reform mode. Last night I did my federal tax return, started on my FIVE state returns (traveling all of the time has it's cons), and put together my debt snowball budget! I'm happy to say that my snowball has me paying off all of my debt (with the inclusion of my private school loans and the exclusion of my federal school loans) by the time I'm 30. I will see my first major payoff (credit cards) by May 2011 and I will have paid off a small school loan by the beginning of 2012. My car loan and larger school loans take a little longer but either way it goes...I'm stoked!

In addition to implementing the snowball, I came across another one of Dave Ramsey's amazing ideas that I am very excited to share! Dave Ramsey's....

Cash Envelope System

The way it works:

1. Label envelopes with different budget categories such as, food, miscellaneous, entertainment, gas, etc. Dave says you can do this for all of your budget categories but for me, I'd probably only want to do it for the ones I actually spend money on throughout the month. I have no need for a bills envelope because I pay all of my bills via automatic debit, which many of you may do as well.

2. Once you get your paycheck, you cash the amount of money you are to spend on these categories, and put each respective amount in its envelope.

3. As the month goes on, whenever you make a purchase, you take the money for that purchase out of its rightful envelope and you record the purchase on the envelope. Once all of the money in an envelope is gone, you can no longer spend money from that category.

For those of us who don't want to carry a lot of cash on us, or fumble around with 5 or 6 cash filled envelopes, we can do the same thing with our debit card. Instead of putting cash in the envelopes, we can make a debit card purchase, then record the purchase on the respective envelope and insert the purchase receipt in the envelope. Once we've reached our monthly max in any category, we can't use our debit card for those purchases anymore until the next month.

I'd like to add a component to this that I don't think Dave came up with. Once putting this into practice for maybe three months or so, I'd like to challenge us to deposit any excess money unused at the end of the month into our savings account. Of course that money could rollover to the next month but in order to help with discipline I think it would be more beneficial to get used to being limited to a specified amount of money each month. If you don't use it, you save it. Just a nice way to beef up the savings over time as well.

I'm going to implement this spending system in March. I shall let you all know how it goes! And  for those who would like to take the journey with me, let me know!

P.S. I wanted to name this post...Don't be surprised when she ask...."Where da cash at?"...and I would've, but it was too long.

Ta ta!

Keeping Me Honest

So today was my first pay day of 2011. I have been looking forward to this day for approximately 14 days because I was excited to see how much my pay check would increase due to the lowered Soc. Sec. payroll tax. Instead of doing the calculation early on so I will know exactly what I have coming (like I normally do), I decided to surprise myself. Boy was I happy when I woke up to my pay stub email on my Blackberry this morn! A whopping $45 extra dollars ON DECK! After I got over my excitement, I remembered what I said I'd do with this money. Save it. So 10% goes to the Head of my life and the rest gets added to my automatic transfer to my savings account. This took my excitement level down a notch but it does feel sorta good to do something responsible with this extra money. Honestly, if it wasn't for this blog, I may have convinced myself that $80 extra per month in savings wouldn't make that big a difference...in fact it may have needed to go to my monthly spa fund...and I probably would've completely forgotten that 10% is supposed to go to my tithes! But lucky for me...I have you guys to keep me honest :-)

heheh - like my graphic additon? I really want this blog to be more than words. However, there aren't a lot of interesting pictures about finances soooo I'm still working the kinks out on that one.

Do it while you're young honey...

I've been exploring a lot of retirement investment options in addition to my 401k. As most of you know, generation y, you, me, the Millennials...won't be able to count heavily on Social Security benefits. Sucks for us! Some financial analysts predict that we're in for a rude awakening when retirement arrives. Because a lot of us don't take this as seriously as we should, they predict that our generation won't live very comfortable lives as old timers.

I am not claiming that mess, and I don't think you should either. So you can have a kitty litter of kids to take care of you orrrrr you can make some wise choices now to prove those analysts WRONG. I've read over and over again that one of the smartest things for young adults to invest in is a Roth IRA (of course this is after you've set up your emergency savings and are contributing as much as your company matches, to your 401k).

Another 2011 Resolution: by my 25th birthday...I'm going to be finished building my emergency savings and I'm embarking on the Roth. Let us explore....

One of the best things about the Roth IRA is the tax advantage! (oh how I love tax advantages) Because you can only contribute after-tax dollars into the Roth, you are able to withdraw the money tax free. Remember that with your 401k and a traditional IRA, the money goes in before it's taxed and therefore is taxed when you withdraw it out after retirement. Yeah...Unc Sam be bout his money. 

There are a few more big advantages of a Roth IRA:

1. Roths are much more flexible than your 401k because you can invest in pretty much anything you want...stocks, mutual funds, real estate...you name it, your Roth can put money into it for you.
2. You can withdraw any contributions you have made to your Roth whenever you darn well please without incurring any taxes OR penalties. (This is not true for either the 401k or traditional IRA)
3. You can use up to $10,000 of your Roth IRA to buy your first home (tax and penalty free). This not only includes your contributions but you can take out earnings also (TAX AND PENALTY FREE!), to go towards your first home. And this rule is for each person...so if you're a couple, each of you can take out $10,000 for the first home.
4. You can use money from the Roth towards the education expenses of your children. Although any earnings used are taxed...there is no penalty.
5. My absolute fav advantage is that your Roth can be as low or high risk as you'd like. Because you can invest in anything you want...this allows you the flexibility to be risk averse or risk seeking. I love that this gives me the ability to have a little fun and switch it up when I feeeeel like it!

 Next up...Roth IRA disadvantages. Yesss yesss...as wonderful as it is...Uncle Sam ain't plain dumb.

Stay tuned!