"Lattes get a bad rap. Every few months, it seems like someone else is shouting that lattes are making you broke and wreaking havoc on your personal finances. A few years ago, Suze Orman proclaimed that if you buy coffee, you’re throwing $1 million down the drain.
Yes, a latte is an expensive cup of caffeinated goodness. And sure, it’s probably a good idea to cut back. But cutting out your latte isn’t going to help you as much as fixing some other financial missteps. There are some basic things we are all guilty of doing that are holding us back financially more than our daily caffeine fix.
Here are seven things that are more detrimental to your finances than your Starbucks addiction and how to fix them.
1. Not creating a budget
I know I’m starting off with the least popular word in personal finance: budget. But this is the best first place to start, and for good reason. Though Dave Ramsey’s advice isn’t right for everyone, he hit the nail on the head when he said, “When you have a budget, you’re telling your money where to go rather than wondering where it went.”
If you don’t have a budget, you might find yourself blowing too much cash on little things, like Ubers and eating out, or on bigger things, like a car or a vacation you really can’t afford. When you have a budget, you can put a plan in place to spend money on the things you value and stop wasting your money on the things you don’t. If you want to create a budget and you’re not sure where to start, this guide can help you.
2. Not asking for a raise
While cutting back how much you spend is a smart strategy for building wealth, increasing how much you make is equally as important. When was the last time you checked to make sure you were being paid fairly for the job you do? Negotiating for a well-deserved raise can change your financial situation dramatically.
In a 2009 negotiation research study, participants who chose to negotiate increased their starting pay by $5,000. And while that extra $5,000 can more than pay for your Starbucks habit, it’s worth even more over the course of your career. A 25-year-old who negotiates their starting salary up from $50,000 to $55,000 will earn $634,000 more over the course of their career (assuming annual 5% raises). That’s a lot of lattes.
3. Buying a home you can’t afford
I remember graduating from college and, along with all of my peers, happily renting a small, dingy apartment. But suddenly, one by one, people started moving into houses, and I started feeling the itch to be a homeowner as well.
Buying a house because you feel some sort of societal pressure to do so isn’t the best decision. Financial experts are split as to whether it’s better to rent or buy a home, but most will agree that buying a home that stretches you too thin isn’t a good idea—and it’s not just the down payment and monthly mortgage payments that you need to consider. You’ll want to have enough to pay closing costs, annual property insurance, and unexpected maintenance (because something will always come up).
4. Going to grad school without a purpose
It’s no secret that higher education is expensive. But even though it’s expensive, going is sometimes a great idea—it can open doors and help you further your career goals. And in some fields or situations, it’s not only a good idea, but it’s also absolutely necessary. But going to grad school and racking up a lot of debt without a clear picture as to why is going to cost you a lot more money than a latte.
Before you submit those applications, take a step back to ask whether grad school really is the right move. And if it is, are there online or part-time programs that may ease your financial burden?
5. Not building credit
If you ever want to get a loan to buy a car or a house, get insurance, or borrow money, a good credit score will be part of the equation. Not only will a good credit score help you qualify for a loan, but it can also save you money by helping you score a lower interest rate. Unfortunately, you won’t have a good credit score if you haven’t taken the time to build your credit history.
Credit isn’t built overnight. If you haven’t started building (or improving) your credit score, now’s the time to start.
6. Not making (or writing down) your goals
We all have goals and things that we want to do in life. Most of those goals come with a financial impact. For example, do you want to travel the world, move cities, or change careers? Money is going to be the thing that helps or hinders you. To do those things, you might need to pay off debt, save a bigger emergency fund, or learn to live on a lower income.
Setting financial goals will help further your big life goals. Without goals and a plan to help you get there, you’ll likely spend your money on things that don’t matter as much to you.
7. Putting things off to “tomorrow”
This is one that I’ve always struggled with. Financial to-dos always have a way of making it to the bottom of my list—things like invoicing, contributing to retirement, finding a bank account with a higher interest rate, and canceling unused subscription services. The problem is that tomorrow can turn into a year from now, and then you’ve spent months missing out on investment growth or paying for a service that you no longer use.
Break things down into smaller, more doable tasks that you can do today. If you want to open a retirement account, spend today reading about how to do that, spend tomorrow researching the best accounts, and open your retirement account the next day. Future you will be so thankful you took the initiative today.