Deciding whether or not to cut out your venti, blonde vanilla latte with an extra shot from your discretionary spending is becoming an age-old debate in the world of financial planning. As a financial advisor, this conversation comes up repeatedly in meetings with clients of all ages. People are trying to figure out where their money is going, how they’re going to save enough to meet their future goals, all while trying to enjoy life now.

Should we replace the traditional “latte” debate with something frothier?

The “latte” debate is a good one to have, but there’s another one brewing that deserves more of our attention - subscription payments. While convenient, these auto payments are modern day magicians that are making your hard-earned money disappear.

Before you scrutinize your daily latte spend, consider adding up your monthly and annual subscription payments to outlets such as Apple Music, Crave, Netflix, Google, Amazon Prime, and more. These small automated debits could be best described as a little Pac-Man, eating dollars instead of dots from your credit card every month. Do you have a sense of much of your money is going towards monthly subscription payments? Multiply that number by 12, and you might be startled to see how much you’re spending.

Is cutting out your morning latte the answer to financial freedom?

Whether you keep or cut your fancy coffee from your morning routine is an interesting debate that has been going on for more than a decade. On the one hand, those types of small splurges can quickly add up to be an extra $200+ each month; money you could be putting towards your retirement. That said, just like trying to follow the latest fad diet, trying to implement a financial strategy that involves cutting out your simple pleasures can quickly lead to resentment, and abandonment of your goals - it becomes too much. The trick is to create a financial plan with balance: allowing room for life’s pleasures today, while working towards your longer-term goals.

Needs, wants and then save?

Once you figure out all of the places your money needs to go and the bills you absolutely need to pay, it’s time to start addressing your long-term goals. The power of compounding is potentially the most important financial concept you can understand. Save early, and let the financial markets do your heavy lifting over time. Putting money towards your long-term goals often falls in line after your needs and wants, but after your wants - there often isn’t any money left! Putting some money towards your long term goals before you get distracted by your “wants” is in your best interest - pun intended!

Is budgeting really necessary? It’s so blah.

Nobody wants to budget! It’s like laundry: no one wants to do it, but it needs to get done. Let’s change the ideas of budgeting to “mastering your cash flow”. This means you understand where your money is going, and you become a master at paying your bills, while having some fun today and saving for your future. Choose the method that works best for you, whether it’s a traditional budget worksheet, calculators, using an app or ATB’s track it tool.

When it comes to budgeting, we often set goals and then look at our bank statements to see where we are overspending and we start to make cuts - this is the bottom-up approach. The top-down approach is to take a simple financial planning method of looking at your money:

• Money in: Figure out all of the money coming into your bank account
• Fixed bills: Mortgage, rent, heat, property taxes - non-negotiables that have to be paid.
• Peace of mind: Emergency fund, Invest (pay yourself first), Insurance (protect your family and your wealth)
• Spend: Spend everything left on whatever you want! If there is no money to meet step 2, then yes, you may have to give up a latte or two.
  
  

How can I reduce my stress around money and gain peace of mind?

• Have an emergency fund: Make sure you have access to 3 months of your gross pay in case you lose your job, or you encounter a surprise repair bill.
• Pay yourself first: 15 percent of your gross monthly income should be saved to help you achieve your longer term goals, such as retirement. You can think of it as saving one working hour per day, which would work out to about 12.5 percent of your pay cheque.
• Automate your life: The moment your paycheck is deposited into your account, an automatic debit should be set up to retrieve those funds immediately. Ideally, if you can have all of your expenses and savings come out of your account within a couple days of your pay cheque being deposited, then mastering your cash flow becomes easier to achieve.
• Insurance: A small percentage of your income should go towards protecting your wealth and those you love, by preparing for the unexpected. A good rule of thumb is to allocate 3 to 5 percent of your monthly income towards life, disability and critical illness insurance.

Tip: If money is tight, you can look at starting with a term insurance policy, which can be a more economical option. The younger you are when you put insurance in place, the cheaper it will be. Insurance costs are determined by your age and health.

Just buy the latte

Having a great time today while achieving your future goals won’t come down to your Starbucks order. In fact, cutting out your daily latte may challenge your endurance to stick with your plan. Become the master of your cash flow and take a top-down approach to your finances. By doing so, you will discover ways to tweak your spending, which will set you up to enjoy retirement, with your favourite latte in hand.