Senior financial planner at Omniwealth Andrew Zbik has told coffee addicts that while cutting back on the caffeine could see someone save $72,794.76 over a 40-year career, adjusting for inflation, the cost-benefit analysis doesn’t necessarily stack up.
Noting that he was drinking a flat white as he spoke, Mr Zbik said, “With two young children my $4.50 day habit improves my productivity and attentiveness – I’m sure I could complete a cost-benefit analysis that this little habit provides a far greater level of productivity far beyond the cost.
“So what am I getting at? If you did drop your coffee habit and save that money, after 40 years of depriving yourself of one of life’s little pleasures, the money saved and kept in the bank would provide an extra annual income of $4,640 at retirement. Really not much extra for such great sacrifice.”
With this in mind, Mr Zbik said these are three ways people can “properly” budget in 2018.
1. Use a tracking tool
Referencing budget tools like MoneySoft or MyProsperity, Mr Zbik said tools can help users understand how they are going financially.
“Once you know exactly where you spend your money it will help you better prioritise what spending habits you will change,” he said.
“I always remember the first year I properly tracked my expenditure. The amount I spent on alcohol on my first year of University was enough to pay for a trip to Europe.”
Once Mr Zbik realised this, he cut back on his alcohol consumption and travelled overseas every year.
2. Put aside a portion of your income towards an investment plan
Calling this the “real crux” of budgeting, Mr Zbik said his personal budget sets aside 10 per cent of his net income to go into his investment plan.
“This money is put aside each month without fail and what is left over is what is available to spend on our household necessities and discretionary items,” he said.
3. Get advice
“Seek advice on what your percentage of deliberate contributions towards investing can achieve,” Mr Zbik urged.
“Is it enough to service the loan on an investment property? Or to make regular contributions to a diversified investment portfolio in shares, property securities and bonds?”
Continuing, he said that using cash flow to buy assets that grow in value while producing long-term income will help savers to grow their wealth.
“Saving money alone will not make you wealthy,” Mr Zbik concluded, noting that life should be enjoyed.
He said a deliberate plan to put a portion of net income into a dedicated investment strategy is the key to actually building wealth while ticking off personal and financial goals.