Enjoy Your Latte and Retirement, Too

Don't feel guilty if you treat yourself almost every day. It's not the little indulgences that will sink your retirement plans. It's the big things. Focus on the following big-ticket items, not your daily cappuccino.

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Throughout the year I meet with dozens of new clients who have a variety of financial concerns and objectives. Interestingly, one of the most common confessions I hear among this eclectic group is about purchasing coffee. It goes something like this: “I buy a latte every morning. I know I shouldn’t. I should really invest that money instead of wasting it on coffee. I’m bad with money.”

It’s fascinating that so many people believe that spending money on a daily coffee is going to derail them from achieving their financial goals. It won’t.

This misconception actually points to a much bigger problem with the way investors view their financial decisions. Many people are so focused on pinching pennies on small purchases, yet they often neglect the much larger money decisions. It’s far more important to get the big financial outlays right and establish a disciplined process for your savings.

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Get the Big Spending Decisions Right

Spending money on a cup of coffee every day is not a life-altering decision unless you are living paycheck to paycheck. However, taking out too much debt to finance your lifestyle can be devastating. Some common areas where people overextend themselves include higher education, housing, automobiles and credit cards.

Student Loans

According to the College Board, the average cost of tuition for the 2019-2020 school year was $36,880 at private colleges and $26,820 for out-of-state residents attending public universities. Those figures exclude the cost of room and board and school supplies, which can easily add another $12,000 annually. Furthermore, some students go on to graduate school, which can be another large sum of money.

Education is an important part of any person’s development, but it’s important to not overlook the financial implications of such a decision. This may make college seem less glamorous than what is marketed to the public, but the reality is that the college experience should put someone on track to enhance their earnings potential and not burden them with a pile of debt. It’s not uncommon for me to meet with young couples who are both successful, but are half a million dollars in debt. In some instances, these individuals will finish paying off their student loans only a few years before their own retirement.

If you are deciding on college or counseling a student who is in the application process, one of the best pieces of advice you can give them is that they should view their education as an investment. Students who take on too much debt with no game plan on how to repay it may feel the negative financial impact of that decision for the rest of their lives. Thankfully, there are many excellent, cost-effective options for higher education, including in-state schools, certificate programs, spending a few years at a community college, or pursing options where financial assistance is provided. Considering these options will put the student on track for a great career without having to start life saddled with a mountain of student loans.

Home Purchase

Similar to higher education, homeownership is romanticized as the American dream that everyone should pursue. According to Zillow, the average home listing price is $226,800 and can be a multiple of that depending on the location. Buying a home is the biggest purchase many Americans will make, and it should be considered carefully. In addition to the upfront expenses like down payment and closing costs that potential homebuyers focus on, it’s also important to be mindful of the ongoing costs associated with owning a home.

Besides mortgage and insurance payments, there are also myriad costs to maintain a home when something inevitably breaks. It’s important to factor in these annual upkeep costs to ensure you are purchasing a home that you can actually afford. In the meantime, there is nothing wrong with renting for longer or buying a smaller home to get into the market. It’s far better to take your time with this decision than rush into the “American dream,” which may turn into your own personal nightmare.

Automobile Lease or Purchase

Aside from a home, one of the most important and largest purchases for many families is an automobile. According to automotive information site Edmonds, the average new car price now tops over $36,718. Furthermore, a AAA study found that it costs the average American about $9,282 per year to own a new vehicle when factoring in fuel, maintenance, insurance and borrowing costs. This number is up from $8,849 in 2018.

Given the average American household has two cars makes this decision even more significant. Fortunately, there are many choices when it comes to obtaining an automobile to help manage costs. This includes buying a used vehicle, avoiding luxury brands and not getting the fully loaded version of any model. It’s important to keep in mind that the ultimate purpose of a car is to get you and your family from point A to point B. Thankfully, this can be accomplished without breaking the bank.

Credit Card Debt

Every financially literate person understands that credit card debt is a cancer to personal net worth. The debt grows exponentially and becomes increasingly harder to manage. There are many legitimate benefits to utilizing a credit card, including rewards programs, discounts, safety measures, such as fraud protection, and building your credit score. However, credit card balances should be fully paid each month.

If you are unable to afford an item, then overextending yourself using credit card debt is never the right approach. In August 2019, the St. Louis Federal Reserve found that the average credit card interest rate in the U.S. was a staggering 16.97%. Working through the math using these high rates makes it clear that the level of debt will become insurmountable, and will lead to financial hardship, in a very short period of time.

Automate Your Savings

“Pay yourself first” is a phrase often used in the personal finance industry to emphasize the importance of saving regularly. Allocating a portion of their income to savings first allows investors to prioritize their financial future and then focus on other goals.

Implementing a long-term savings strategy is easier with “nudges.” The concept of a nudge, which was popularized by Nobel Memorial Prize-winning economist Richard Thaler and Harvard Law Professor Cass Sunstein, is a way of influencing behavior. This is accomplished by making it easier for individuals to make certain decisions. An example of a nudge is when a company automatically enrolls new employees into their 401(k) plan. Employees can always opt out of such an arrangement but, more often than not, the employee’s inertia will ensure that they are contributing to their 401(k) every paycheck.

Another nudge is automatically escalating one’s saving’s rate every year. This feature allows employees who are not yet maxing out their 401(k) to get closer to that goal by automatically increasing the amount the employee contributes annually. Again, hopefully the individual’s own inactivity will result in them sticking with the plan for their entire employment.

Finally, in an effort to ensure that the monies contributed into the company plan are invested prudently, a default investment option should be available. It’s quite common for plan participants who do not have a background in personal finance to leave their 401(k) money sitting in cash or, equally bad, invested in inappropriate funds. The two popular default options are a target date fund based on an employee’s age or a balance fund between stocks and bonds. While many professionals may point to the lack of customization or other flaws with these investments, there is no question that either option removes the complex investment decision-making process for the employee and prevents them from blowing up their portfolio with bad investment selections.

Avoiding the daily coffee purchase or other penny-pinching gimmicks may make great sound bites, but it really won’t have a meaningful impact on the ability for one to achieve their financial goals. In fact, these small indulgences should be encouraged among prudent investors since they make life more fun without having a meaningful impact on their finances.

Individuals should instead spend more time focused on making the right decisions regarding debt and establishing a savings strategy. Doing so will allow investors to take solace in the fact that they can enjoy their daily latte and retirement too!

Disclaimer: This article authored by Jonathan Shenkman a financial adviser at Oppenheimer & Co. Inc. The information set forth herein has been derived from sources believed to be reliable and does not purport to be a complete analysis of market segments discussed. Opinions expressed herein are subject to change without notice. Oppenheimer & Co. Inc. does not provide legal or tax advice. Opinions expressed are not intended to be a forecast of future events, a guarantee of future results, and investment advice.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Jonathan I. Shenkman, AIF®
President and Chief Investment Officer, ParkBridge Wealth Management

Jonathan I. Shenkman, AIF®, is the President and Chief Investment Officer of ParkBridge Wealth Management and serves as a financial adviser and portfolio manager for his clients. In this role, he acts in a fiduciary capacity to help his clients achieve their financial goals.