A Wealthy Person is Made $20 At A Time


In my opinion a budget is the most important part of a financial plan. An old school approach is pen and paper. Modern methods include an excel spreadsheet, software, or online platform. I prefer an annual budget on a spreadsheet and monthly budget on EveryDollar. MintPersonal Capital, and YNAB are viable options too.

The linked spreadsheet above is not all encompassing but provides a frame work to begin. Categories include income, charity, savings, housing, transportation, food, lifestyle, and insurance. When we started budgeting we saw the impact each $20 provided because each time we stumbled on money we put it to work. Remember the post about compounding returns and the impact of time?

Every January we identify spots in our budget to find additional cash. We value these acquisitions and attempt to locate inefficiencies in the form of wasted money. Negotiating and/or shopping internet service, axing cable for SlingTV, shopping car and homeowners insurance, changing grocery store, dining out less, and brewing home coffee are a few examples.

Last year GITG did a budget series. We identified coffee, dining out, cable and internet, car payments, groceries, and auto/homeowners insurance as areas to modify to increase saving. The content in these articles has allowed us to save 35% of our gross income. Not Mustacian or Fientist level but a pretty solid savings rate.

A high savings rate (e.g. 25%) is powerful for many reasons. Simply put, the less you spend the more you save and financial independence (FI) is attained earlier. Another component is your number (i.e. the amount needed to retire) is secured earlier because you have kept expenses in check for many years. My goal is FI in ten years. This does not equate to retirement but provides flexibility to pursue the things in life providing fulfillment.

Two Important Concepts

Lifestyle Creep

Investopedia defines lifestyle creep as, “A situation where people’s lifestyle or standard of living improves as their discretionary income rises either through an increase in income or decrease in costs. As lifestyle creep occurs, and more money is spent on lifestyle, former luxuries are now considered necessities.

Maybe something you used to consider a luxury has transformed into a need. Do you remember the beater driven to your first job? After all, an old car is not suitable for new found social position! Recognition is the key to dealing with lifestyle creep. These behaviors will prevent you from becoming a victim.

  • Boil The Frog: Set tax deferred retirement savings on auto-pilot. Each raise will automatically increase contributions by that rate (i.e. 3% raises equals a 3% increase to 401k). Also, increase total contributions by an additional 1% per year.
  • Budget: The initial portion of this post validates the importance of a monthly budget.
  • Question each purchase: Determine if the purchased matches your values and is it going to provide happiness?
  • Ignore the Jones’:  Their amazing home, family, and luxury items can create envy but do not let it alter spending habits. They could be making sacrifices in order to pursue these pleasures in the form of delayed retirement and living paycheck to paycheck. Of course it is not our place to judge and we must only focus on our situation.

The Latte Factor

David Bach, the creator of the Latte Factor writes, “The Latte Factor® is based on the simple idea that all you need to do to finish rich is to look at the small things you spend your money on every day and see whether you could redirect that spending to yourself. Putting aside as little as a few dollars a day for your future rather than spending it on little purchases such as lattes, bottled water, fast food, cigarettes, magazines and so on, can really make a difference between accumulating wealth and living paycheck to paycheck.”

Know anyone who loves Starbucks, Caribou, or Dunn Brothers? Hello, my name is Ryan and I love coffee. The aroma, taste, and of course stimulating nature of caffeine are three simple reasons to fall in love. If the barista says, “Hello Mr. or Mrs. ____, would you like the usual” it is time to consider how much money is being spent in the coffee shop. A $5 daily latte habit equates to $1800 per year. This  habit could be worth more than $200,000 (assumptions: years- 30, return on investment-8%).

Key Lessons

  • Habits Matter: We have heard Y.O.L.O and that term makes me sick. You do only live once but it does not justify poor money management.
  • Independence: Many have no control of their money. They pursue things that provide short term gratification and lack sustaining quality.
  • Compounding: Small amounts invested over a long period will provide a mountain of money.


One of the reasons I enjoy writing here is the posts become a journal. I have lofty goals and counterproductive vices which impede my progress. When I feel a large purchase looming I refer to posts like this and other financial blogs to calibrate back to reality. After a few minutes it becomes clear that a polar white Mercedes C300 4 Matic with the premium and multimedia package is a poor choice.

The concept of FI is important to me. At 35, I do not dream of an early retirement. Rather, I dream of working late into life on assignments providing substance to my life. Have you considered the freedom of walking into work without debt and having enough money socked away to last the rest of your life? Sounds freeing does it not? The process is arduous but the journey will make victory sweet. At least that is what I continue telling myself…

This week I would like readers to perform an exercise. What would you like your finances to look like 10 years from now? Do not be afraid to create a BHAG. The term ‘Big Hairy Audacious Goal’ was proposed by James Collins and Jerry Porras in their 1994 book entitled Built to Last: Successful Habits of Visionary Companies. Simply put, create a goal that will cause you to sweat and require sacrifice(s).

After identifying a goal, write down action steps you are going to take to achieve the goal. Reward yourself for success along the way and find an accountability partner to provide honest feedback and keep you motivated. This Chinese proverb is applicable to today’s post. The best time to plant a tree was 20 years ago. The second best time is now. Twenty years from now, let this moment be the day you planted the tree of financial independence!

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