All the petty spending is so small in comparison to your rent. Cut out the vape and save $16 a week all you want, thats not making or breaking anything. This is the classic “5 dollar latte” fallacy: that older generations think the youth is foolish for spending $5 on coffee, while not knowing thats an absolute drop in the bucket relative to lifes big costs today, and also probably returning more than $5 in not feeling totally depressed and miserly.
The boring reality is that small things done consistently over time seriously add up. It's true for health and exercise. It's true for relationships. It's true for finances. A $5 pick-me-up every now and then isn't a bad thing by itself. But if it becomes a daily habit, then you're missing out on other choices with better long-run returns. The immediate costs are small, but the eventual opportunity costs are huge.
Younger people have a resource older people don't: time. That's time for habits to compound. May as well choose good ones to compound, because you're never getting that time back again.
> because you're never getting that time back again.
Which can also as easily be used as an argument to actually spend that money and enjoy it. In the end, it's important that the money is well spent: If you enjoy that 10$ coffee or 25$ takeout, it's awesome. If it's a daily habit that you're used to and doesn't give you much joy anymore, it's wasted money.
It's not the $5 latte or $10 avacado toast that's keeping young people broke. I think we can all agree that that number is a drop in the bucket compared to huge expenses they are struggling with.
The problem is the mindset of "I should be able to have a luxury because it makes me feel better" which, if you accept it, starts to pervade all of your spending. It justifies the Netflix subscription. Then it justifies the weekly beer bill and food delivery. Then it justifies a few video game DLCs or virtual items. Then it justifies blowing $500 on a banger birthday party or a nice vacation somewhere. Before you know it, you're buying a new wardrobe and a pickup truck you don't need. All because "You only live once and I deserve those little luxuries that bring me joy."
> if it becomes a daily habit, then you're missing out on other choices with better long-run returns
If you quit that habit, it might make you miserable enough to make even worse financial choices.
These petty expenditures are a tax on misery.
Anecdote: My father's criminal history (racketeering) more-or-less forced him into a career in backbreaking construction in order to support his family when he got out of prison. He would come home after work with burns from creosote and often looked as if he had gone balls-to-the-wall in the gym all day. Back then, I wouldn't dare think to try to separate him from his cigarettes and lottery tickets. It would have been cruel.
I was almost 30 when I decided to put all my money-flow on paper and discovered that all the savings and spending, compound interested or not, having car problems and being broken for a while, everything up to almost that time meant absolutely nothing for my financial future.
I guess most people just get the signal empirically, so they discover it in real time.
Now, after that time savings started to matter. But must people are completely unable to relate to people that aren't an exact copy of themselves. Even when they once experienced the same thing. And yeah, people tend to get worse on this when they age.
It's not a point of view, it's just math. $5 every day is $150/month, $1800 per year, save that for 30 years and maybe you can have a down payment on a house (assuming the interest on your savings has kept pace with the increase in housing prices, which is likely but not certain). There's no one weird trick to get rich from no income.
Saving $1,800/yr for 30 years for a down payment is extremely hyperbolic. Loads of people manage to buy a house for far less than 10% down. The average is 8%, and one can get an FHA loan for only 3.5% down. 3.5% of $200,000 is 7,000, which you'll have more than that in under 4 years. For a $300,000 house you'd have that in under 6 years, assuming you only saved that $5/day and ignored any interest or other gains.
Using this as a retort is totally missing the point.
Ok so I only have to save up 7,000 now, so I can do it in 6 years, I guess. But that extra 1800 a month I'm continuing to save each year afterwards by forgoing my late doesn't actually cover the 7% APR on the additional loaned 33,000
(interest rates only high as of recent, but still)
Using this as a retort is totally missing the point.
The person I was replying to was saying it would take 30 years at that savings rate to have enough money for a down payment. You do agree, it wouldn't take 30 years to have a downpayment right? Like, we've now both done the math, and found its significantly less than 30 years, right?
And actually, at 6.96% for a 30 year FHA loan, the added payment for the additional $33,000, is ~$218/mo. $1,800/yr is $150/mo, so it covers 68% of that amount if you're looking at it that way. Cut out another ~$2.26/day or $68/mo and you'll have completely covered it while owning a house. But I'd look at it this way, your mortgage taking out a $293,000 loan is ~$1,950. Property tax rates vary a lot, but we'll add ~$3k/yr to that (250/mo), budget $3k/yr for repairs as well, so $2,450/mo in the end. What are you paying for rent? How much of that are you keeping as equity?
And yeah, property taxes will probably tick upwards a bit, you might need more repairs than budgeted here, but chances are you'll refinance your mortgage and cut that part down to like $1,300/mo or even less in several years if interest rates fall to like 4% or lower. Is your rent going to get lower?
No amount of skipping lattés is going to add to make a dent in that difference. (I say this as someone in participates in /r/PersonalFinanceCanada who helps people educate themselves on living with-in their means and saving for the future (while enjoying the present).)
Each piece is pretty small, but added up it can be pretty significant.
I'll take your $16/wk for vaping costs, I don't have any hard data but I think that's probably a bit low.
$5 for coffee 5 times a week, that's $25/wk.
Looking around me, its hard to get a meal delivered with a food delivery service for less than $18. Making a meal at home, even a frozen pre-cooked dinner, is usually like $5 or less, so we'll say an additional $13 meal 4x a week so $52/wk.
52 + 25 + 16 * 4 weeks in a month is $372/mo. Over $4,400/yr, on just eating out/delivery, one coffee 5 times a week, and vaping. And somehow I doubt its really just 5 coffees a week, its probably not just $13 additional cost per meal only 4 times a week, I doubt a vaping habit is really only $16/wk.
Is an extra $4,400/yr in their budget a big deal to the people in question?
How many people do you know that order from a food delivery app 4 times per week? $4,400/year isn't much to me and I order maybe 4x/month.
Housing is incredibly expensive these days, and there's really no way to make that cheaper other than live someplace terrible or spend hours and hours extra commuting. Both make huge differences in quality of life.
I'm sure there are many people throwing money away for no good reason, in fact many of those people are rich. But at a certain point you just need more income.
$4,400 / year is not much. But accumulate it over 5 years and is $22,000. Take this a step further (like buy groceries in bulk and on sale, never pay full price for clothes, buy used skis, do not lease a car and if you have a friend who is a mechanic ask him for help to buy a used car). It becomes more than $4,400 / year. 6 years later you can put 5% down payment on a 1 bed room condo. 2-3 years later you sell the one bedroom condo and buy a 2 bedroom condo.
From my personal circle of friends, the people that I know that own the most real estate are people who are disciplined (think accountant in a 500 Fortune company, or an engineer working for Boeing, or a web developer slinging some internal Asp.Net website at some company you never heard of). Meanwhile some guy working at my current huge-tech company sold all his stock when it vested and "invested" the proceeds in options... He was taking uber to work even though you can show up anytime you want (maybe take the bus? maybe some days you work remotely?) and he was complaining to me that he will never be able to buy a condo...
I personally know 6 people who order food delivery 5-6 times a week and generally eat out lunch and dinner almost every meal. Another handful of people I know do food delivery 3-4 times a week.
Minimum wage is netting you nearly $45k a year in some parts of this country. Is a 10% bump in minimum wage going to appreciably change your situation? Hell no. Buy some moments of happiness today, you might get hit by a bus tomorrow.
> Is an extra $4,400/yr in their budget a big deal to the people in question?
Well, since you saved it by excluding a lot of pleasurable spending, you can't really count it as "fun" money and therefore it's not that great, really. With the current market, it's also not nearly enough to get you anywhere near buying a house or an apartment. It can be used for a car, but then again, is a car a better investment than nice coffee and food?
While I do see the value in saving and I get why spending this money looks wasteful, I can also see the other side of not bothering pass on convenience for a bit of extra money. Of course, it all depends on how well you're set up generally (i.e. if you don't have an emergency fund, those 4k$ are a lot more important).
We're talking about kicking a vaping habit, not eating out or doing food delivery four times less a week and making your coffee at home. Its not like they're now no longer doing anything fun in their lives.
Saving only that for 3 years and you've got over $13,000. While not a ton of money, $13k is more than enough to qualify for a down payment on a small house or condo in many housing markets in the US. Sure, probably not NYC or LA or SF, but doable in DFW, KC, San Antonio, Houston, Oklahoma City, Cleaveland, Rochester, Syracuse, Utica, Philly, Wilmington, Tallahassee, Corpus Christie, Albuquerque, and more.
I think the issue is actually bigger than this. The economy seems to continue to be white-hot despite everyone claiming its doing terrible and everything costs too much etc.
people are eating out more than ever before, getting delivery more than ever before, and vacations are also booming. consumption is up no matter how you slice it.
i think a lot of the younger generation have completely given up on the idea that they are ever going to own a house and instead of saving for that are just blowing it on food, booze, vacations etc.
I'm in the UK and just before the banking crisis you could get a decent house for £50k with a 120% self-certified mortgage. These are the same people who often resort to the coffee/netflix argument.
Yes. Managing your budget is important. But it's difficult to manage your budget in a way that "fixes" a huge increase in housing costs even relative to baseline inflation.
