In May of 2017 the news media, blogosphere, twitter sphere, and almost every other sphere went crazy when Australian Real Estate Mogul Tim Gurner suggested that avocado toast was the reason a lot of millennials were not able to buy a home. Similar eruptions have happened whenever someone, usually a rich someone, suggests that a daily latte, etc is the reason people cannot afford things. I confess at the time I did not look too much into the Tim Gurner statements, but I had a feeling there was more to it than people were admitting. I also had a feeling he was probably right.
One thing that amazes me about humans is we have this great ability to claim we want something, but then ignore all the advice and/or the framework of those who have achieved what we want. I place myself squarely in this boat. There was a point in time as I was growing up that I wanted to be an olympic track athlete as I ran track, cross country, and summer track through my high school years. While I claimed that I wanted this, and even read a few books about the athletes I admired, you know what I did not do? I did not train or follow nutrition programs like they did. I did the minimum training that my coach required and somehow expected to become world class.
I see people doing this all the time with their finances as well. They claim that they want savings, or don’t want to live paycheck to paycheck, but then are eating every meal at a restaurant and partying with their friends at the bar on the weekend and then attack those who aren’t living paycheck to paycheck for suggesting that eliminating this spending could buy their freedom.
So, let’s examine this case that Tim Gurner presented and see if it has any merit, or if as all the spheres claimed he was just not aware. In his interview Tim said, “When I was trying to buy my first home, I wasn’t buying smashed avocado for $19 and four coffees at $4 each.” So, already all of the memes and commentators ignored the $16 for coffee that he included. While he did not mention a time frame in the comments I found, I believe this being a weekly expense would be reasonable. So, I believe Tim is talking about a $35 a week expense.
We as humans also have this wonderful ability to compartmentalize things and not extrapolate them out. You may be looking at this $35 figure and saying to yourself, well that’s not enough to buy a house, case closed. But, let’s look at this as those in the FI community would. $35 a week leads us to $1,820 a year. Again not enough to buy a house, but we are getting closer. Now, one of the major components of the FI lifestyle is investing.
The average return of the stock market over a 10 year period is 6-7%. So, if we were to invest this $1,820 each year instead of spending it on coffee and avocado toast, assuming a 7% compounding interest rate, at the end of 10 years we would have ≈ $30,000, enough for a down payment in a lot of the US, and that is just cutting $35 a week! Of all of the articles I read about Tim Gurner’s comments, only one mentioned this $30,000 figure.
This is why I focus so much on tracking your expenses and examining every dollar you spend and it annoys me when people suggest that cutting out your daily latte won’t make you rich. Cutting your latte may not make you a millionaire, but every dollar saved is another dollar that you can add to your system to buy your freedom.
*Photo by Daria Shevtsova from Pexels
