Your Personal Financial Journey starts with passively learned interactions with money from your parents, their day-to-day actions and transactions.  As you grow, and depending on how open your family is about money matters, your parents try to actively teach you financial lessons.  However, they cannot teach what they do not know.  This is where you would expect our education system to step in to assist.  Unfortunately Personal Finance isn’t a topic that is covered in any meaningful way in public school, College or University.

When I was growing up my Mother was very open about our financial situation.  She taught me how to manage the day-to-day money matters like deposits, withdrawals, chequing accounts and savings accounts.  When I got my first job as a Teller in a Bank I realized just how lucky I was for this education as so many clients were unable to fill out a simple deposit slip.  There is a very good reason why many Millennial readers won’t know what a deposit slip is, and that is because Banks realized their clients couldn’t list out amounts on a piece of paper and total them up accurately.  Thankfully computers have also removed the need for Tellers to do this as the general education around money matters has declined across the board.

It was about this time in my life where I was desperate to learn more about Personal Finance so I could further improve my personal situation.  So I asked my Mother, and she admitted that the “Next Level” of learning would need to come from books as we were on a similar level of knowledge.  She did have the advantage of having done some reading herself and directed me to “The Wealthy Barber”.  When it comes to books on Personal Finance, and Blogs as well, the vast majority are aimed at Americans.  So the fact that “The Wealthy Barber” is Canadian is a wonderful bonus.

There was one passage that I found particularly enlightening:

“…’a business only has to budget for needs.  It’s in the best interest of the business to limit those needs as much as possible.  An individual, on the other hand, must budget for both needs and wants.  It is the rare person who can do that successfully because, for too many people, a want becomes a need.’”

As a result of this insight the Living Within Your Means (LWYM) equation has Expenses reflect Needs, and Living reflect Wants.  By making this segregation we stand a better chance of being able to manage our Needs more similarly to the way a business would, by limiting the cost as much as possible.  There will of course be a bit of lifestyle inflation hitting this category as you travel further along your Personal Financial Journey, but we will develop ways of monitoring this.

Expenses are made up of the necessities of life:  Food, Shelter, and Internet.  If you live at home, even if you are paying room and board, you have a great opportunity to save significantly in this area.  Opportunities are to be embraced not squandered.  Saving on expenses needs to be reflected in your Savings, maybe not 100%, but don’t short change your Savings.

Food is a difficult category to manage.  Everyone needs to eat.  Eating isn’t limited to survival, it is also an integral part of socializing.  Cutting Expenses can also be an exercise in skill building.  It doesn’t take a lot of initial knowledge or effort to learn to cook some basic meals.  Every meal you cook yourself improves your skills and saves you money you would otherwise have spent out at a restaurant.  And if you are still living at home you have a wonderful opportunity to learn to cook all the meals you grew up eating.

When I was in High School my friends and I would host parties when someone’s parents were out of town.  Regardless of who’s house was free 3 of us would always take over the kitchen and do all the cooking.  To this day the dishes I was responsible for during High School are my best culinary creations.  Your cooking skills will slowly improve, and it doesn’t take long for you to be able to make consistently tasty meals for much less than a restaurant.

As for social eating, do you go to a restaurant with friends for the food or the company?  Sometimes it is about the food, but it is always about the company.  So don’t feel you can’t go out and socially eat, but that is covered under Living.  Most social groups just need someone to offer to cook and provide the place to gather.  Be that person for your social group and everybody wins.  Or offer to host a pot luck event to reduce your time in the kitchen.

You have often heard financial types go on and on about the “Latte Factor”.  There are many people who are pro Latte Factor, and just as many who are anti Latte Factor.  The Latte Factor does a nice job of pointing out how a relatively small purchase repeated frequently, and more importantly, unconsciously, can turn into a significant amount of money over time.  And those opposed to the Latte Factor will point out that if you derive enjoyment from it you should direct your spending to it as the small amount won’t bankrupt you. Neither side is entirely right, nor are they entirely wrong.

In “Your Money or Your Life” (YMOYL), and the previous post, you were encouraged to work out your real hourly rate.  Later in the book they use this as a measure of enjoyment and alignment with your goals and beliefs.  Take your monthly Latte Expense and compare it to your real hourly rate.  For this example we are going with a Tim Hortons coffee, because on minimum wage you cannot afford Starbucks:

            Tim Horton’s Large Coffee:  $2.00

            Business Days in the Month:  21 (typically)

            Total Monthly Cost:   $42.00

            Real Hourly Rate:  $10.60

            Hours of Work Spent on Coffee Per Month:  4 Hours (with 0.40 change)

Are you happy with working for 4 hours a month just to enjoy your Tim Hortons coffee?  But wait!  Since time is money, haven’t we overlooked something?  If you are a morning coffee drinker you have to spend 15 – 30 minutes in line every day to get your coffee.  Being kind we will calculate based on a 15 minute wait time, you spend an additional 5 hours and 15 minutes a month to get your daily fix.  Over 9 hours of your month were spend getting and affording your daily coffee fix, and that doesn’t include any weekend coffee addiction.

If you purchase a coffee maker, ground coffee, filters, sugar, cream, and a thermal travel mug you will save time and money, over the long run.  There is a bit of an upfront cost, but your starting coffee pot can be as cheap and reliable as the “Black & Decker Digital Coffeemaker, 12 Cups” for $27.99 CAD.  As with cooking skills, your coffee making skills and tastes will evolve the more you brew your own coffee.  Over the years I have changed from pre-ground coffee to roasted beans and do my own grinding just before I brew.  My quality of bean has also evolved and I mix my own blend before grinding.  Even with this evolution, my cost per cup is still less than half that of a trip to Tim Hortons.

There used to be other monthly expenses that were categorized as Needs, but are no longer as relevant, such as cable TV and landline phones.  Some people might argue that cable TV is alive and well in 2018, but I would argue against it being even remotely close to a Need.  Personally I haven’t had cable TV since University when it was included in my rent.  There are so many other options like Netflix, Crave TV and Hulu that are subscription based services best categorized under Living rather than as Needs.

Internet, however, is definitely a Need in our modern world.  And having a smart phone with a good data plan is quickly becoming a Need.  Taking a look at the minimum wage example we have been following, if you are trying to fit either internet or smart phones into the picture you need to be aggressive about finding a cheap and effective plan, and avoid upgrading hardware for as long as possible.  The newest flashy model isn’t going to revolutionize your life.  The move from flip phones to smart phones was a significant change, to the point of creating a have / have not divide.  But the move from iPhone 7 to iPhone X isn’t going to do much but put a dent in your financial well-being.

Expenses that are truly based on Needs lend themselves to be minimized in price and maximized in value or enjoyment you receive from them.  The key to success here is making the choices that are right for the situation you are in right now.  Take the opportunity to evaluate every Expense and make sure it makes sense for where you are in your life.  Many of my financial difficulties were a direct result of choices I made in this category.  After University I insisted that I have my “own place”, ie. I rented a one bedroom apartment instead of cutting that cost significantly and sharing rent on a 2 or 3 bedroom place.  Also, as soon as I transferred my work location from the suburbs to the downtown core I insisted on moving closer to work instead of commuting.  At that time in my financial journey I didn’t have the funds to support that move, but I didn’t let it stop me.

We are our own biggest roadblock to Personal Financial success, and the cornerstone of that roadblock is the choices we make.  It is NEVER too late to review those choices and determine what is really best for us, both now and for our future goals.