Op-ed: The Unlimited-Starbucks Budget

You can do all the situps you want, but without a healthy diet you will never end up with a six-pack. The same can be said for your finances: Without healthy spending habits you will never achieve financial independence. You may try to cut back on going out or go without lattes for a bit, but if you're still spending too much on your housing, car, travel, and clothing, you may still find yourself falling off track to reaching your financial goals or, worse, in crushing debt.

Do you want to buy a house? Dreaming of traveling across Europe? Thinking about retiring early? You can do those things if you set your mind to it, but it may take a little work.

You may have heard that daily trip to Starbucks is what's making your poor. No more Starbucks = problems solved, right? In reality, it's more likely to be your bigger fixed expenses that are doing more damage to your bank account. Even if you ordered a fancy latte and some food every single day, that's maybe $3,600 a year spent at Starbucks. By no means a small amount, but it's probably less than many of us should be saving toward our financial goals on a yearly basis.

Here are a few rules of thumb to get your spending in line, and get on track to reach you goals. Depending on your current financial situation you may need to work toward these allocations, but ideal spending looks like this:

Pay Yourself First: Save 20 percent of your income through retirement accounts, and other long-term savings goals.
Essential Purchases: 50 percent This is mostly your big fixed expenses like housing, utilities, transportation and other necessities.
Everything else: Spend 30 percent Travel, clothes, barhopping, or even Starbucks. (Pretty much all the fun stuff)

I know some of you may be adding up your big fixed expenses and may need to make some hard decisions to get your spending in line. How do your expenses compare to the ideal budget above? Can you really afford that car lease? Do you feel house poor? Are you drowning in credit card debt or student loans?

I often tell clients, "If you're on track for your financial goals, I don't care where you spend the rest." If you have the money saved up to fly first class to Europe then by all means, pack your bags. But if you are in credit card debt, and not contributing to your 401(k), you might want to put that trip on hold, or at least see if you can save up some airline miles to pay for the flight.

Right: David Rae

Generally, if you spend more on one area, you will need to cut back on another. A goal should be to spend no more than 30 percent of your take-home pay on rent (though certain tax deductions may help if you own your home), 10 percent on utilities, and transportation, and 10 percent on groceries are also good starting points for your budget. If you cut a little on housing, you can afford more for the fabulous car or your next vacation.

I am aware that hitting these numbers will be harder for some of you in cities with a high cost of living. If you go over the 50 percent mark on essential purchases, you may need to cut back on the "everything else" category to keep you on track for your financial goals. Don't, and I repeat, don't waver on the 20 percent saving number! This will drive you closer to reaching your goals. It also can help provide a security blanket when life happens (whether you lose your job, or your car breaks down).

Look for ways to save money that don't really require cutting back. Can you save a few bucks with a better cell phone plan? Are you watching all the premium movie channels that drive up your cable bill? Even raising the deductibles on your insurance or using miles to save some money on your vacations will save you some cash (look, I know you're going to travel, no matter what I say here).

If you aren't able to get the budget in line without going into starvation budget mode, you may need to look at some of the tougher choices; can you afford where you are living? Maybe it's time to find a more affordable mode of transportation. I know that it's nice to drive that luxury car, but is it worth risking your financial future? What's more important to you: Driving to work in a fancy car or a fabulous vacation? You may have enough money for one, but not both.

Just like it takes a bit of work to get six-pack abs, getting your financial house in order can take a bit of work. Making smart choices may be able to get your there a little faster and easier. The easiest way to develop the habit of accumulating wealth is make it automatic. Set up automatic contributions to your 401(k) (your employer may even help with a match; it's like free money), and a long savings or investment account. You may be surprised how you don't even miss the money.

Now that you've made it to the end of the article, sit back and enjoy your nonfat-soy piping-hot favorite Starbucks-coffee.

DAVID RAE, CFP(r), specializes in comprehensive financial planning for the LGBT community. He lives in Los Angeles with his fiance and two Chihuahuas. Follow him on www.facebook.com/davidraecfp, on Twitter @davidraecfp or via his website, www.DavidRaeFP.com.

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