I’m old-school, I guess. I’ve never had avocado toast – I wouldn’t even know where to get it.
What I do know is that Millennials get quite a bit “tsk-tsk-ing” from the financial news when it comes to the subject of guacamole-on-bread, I mean, avocado toast. Why? Because it’s a symbol of financial indulgence, and some money writers and advice-givers believe that such small luxuries stand in the way of wealth building. One recent article, for example, claimed that Millennials couldn’t afford home-ownership because of their too-often brunch dates and frivolous foods.
Are these slaps on the wrist really warranted? My answer is no. And, in fact, these nuggets of “financial advice” are horribly misleading.
Here’s what I know. It does pay to keep an eye on spending. Budgets are terrific, and you should watch the small luxuries that you treat yourself to, like a trip to Whole Foods or other places where you’re likely to make impulse buys.
But, I’m here to tell you, little indulgences aren’t what’s keeping folks from getting rich. You can’t simply save your way to becoming a millionaire. As the years go by, you have to earn more money.
Take the example of buying a house. In order to do that you’ll need a hefty down-payment. Depending on the selling price, you could need cash in the $35,000 to $55,000 range. How many orders of avocado toast would you have to buy to get to this level? (For perspective, avocado toast can reportedly cost anywhere from $2 to $18 per slice.) More than 2,000. That’s a lot of brunches to skip to impact your savings level significantly.
So, avocado toast isn’t your biggest impediment to growing your savings to this level – your salary is.
While your bottom line is important, your top line matters a lot, too. This is because there is a limit to how much you can save with a particular salary, but there isn’t a limit to how much you can grow your salary, thereby affording you the opportunity to save more.
If your goal is to become a millionaire, there are certain steps to take that will help get you closer to your goal. Like anything worthwhile, these things take time. In the end, once retirement rolls around, you’ll have a nice, fat nest egg, and can treat yourself to all the avocado toast you want.
Some of these steps include investing as opposed to just saving, typically by way of your employer’s 401(k) plan and (hopefully) their juicy match. No 401(k)? That’s okay. Use another retirement savings plan to fuel your portfolio, like an IRA. And when you get a raise? Don’t shout “Brunch on me!” and run to the nearest café. Put that money (or at least half of it) in your savings/investments.
Another critical step is to create a plan. This plan is like the budget you create, but it’s more holistic and for the long-term. Where do you want to be financially in a year, five years, ten years? Write these goals down to memorialize them. Then, roll up your sleeves and set about hitting your specific mileposts.
And, yes, keep an eye on your spending, both big and small. Keep your purchases reasonable. If you need a new suit and can afford it, buy one. Just know that you don’t need a $5,000 suit.
Our bottom line is that we as investors and savers do well to focus on both how much we save and how much we earn. If you’re early in your career, plan for how you’re going to grow and mature in your field. Think about how to work your way towards that next raise or promotion. And then, once you’ve hit that goal, do it again. By continually growing your earning power, you’ll grow your saving power at the same time. So, more is more. Except when it comes to avocado toast.