How going to Starbucks can help your budget

In our April 2016 issue of MoneySense, we introduced you to Lindsay Tithecott, a 29-year-old who is trying to pay down debt, build up savings and buy a larger condo. Throughout the year we’ll be giving her a financial challenge every two weeks to help her get her finances in shape. For her latest challenge we asked her to read Robert Brown’s Wealthing like Rabbits and to write about three money lessons she learned from the book. Here’s what she had to say: I read author Robert Brown‘s Wealthing like Rabbits this summer and found it a very helpful book. The biggest lessons I learned were related to three things: long-term saving, day-to-day banking, and spending. I liked how the book was organized, and that it was written in what feels like a casual conversation. The topics covered seemed pretty basic, but I enjoyed going back to the basic framework of a healthy financial life.

Lesson 1: Save early, save often

Author Robert Brown does an excellent job of explaining financial concepts like the power of saving over the long term. I find that I’m just socking away money hoping that this compounding thing people are always talking about will work in my favour. To see just how well compound savings can work was eye opening. The example used showed that if someone contributes $244,795 to her RRSP over 40 years, when she retires (assuming a growth of 6% annually) after 40 years there will be $970,504 total waiting for her. That’s $725,709 of free money earned thanks to starting to save early. I like free money!

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Lesson 2: Start building a $500 “self-imposed balance” for minor emergencies

Brown also talks about combatting overdraft with a “self-imposed balance.” I’ve rarely gone into overdraft but the idea of keeping a minimum amount in my bank account seems like a great idea. Anywhere from $500 or $2,000 is recommended to ensure you have money for emergencies. Still, I have never liked the idea of keeping the common ‘emergency fund’ in a regular account. Instead I keep it in my TFSA. But keeping it in my savings account seems like a great way to financially manage an unforeseen expense without going into overdraft, pulling out my credit card, or digging into my TFSA.

Lesson 3: The latte factor is good—sometimes

Lately, I’ve noticed that my daily spending is growing. Brown champions Starbucks in his book (yeah, that’s right)! He talks about using Starbucks as an alternate to dinner out and I think this is genius. Rather than going out for a big meal to celebrate a special occasion, eat at home and then go for coffee and desert. It’s similar to something that I already do, which is meet friends for appetizers rather than dinner. It helps keep my monthly expenses down while ensuring that special occasions are just that, special. I’d recommend this book to anyone wanting a good primer on personal finance. It covers all of the basics well and entertains along the way. That’s a winning combination. Read more of Lindsay’s challenges! She’s already been challenged to cut her fitness expenses as well as to determine if she should prioritize debt-repayment over saving. And her third challenge was all about condo-buying.

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