Financial Myths Debunked: Why Skipping Your Latte Won’t Make You an Overnight Homeowner

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Last Updated: 12/7/2022
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Reasonable sounding financial advice can be repeated so often that we come to accept it as truth. It’s only upon further consideration that we begin to rethink these financial platitudes.

What do we mean? We’ll take a look at several pieces of monetary wisdom that you’ve likely heard over and over – and maybe have even uttered to yourself – and explain why these cash credences are false.

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Skip the Latte To Save for a Home or Retirement

This advice has been fairly popular for a few decades, but in the last few years, some financial advisors have pushed back. If you’ve been hearing this your entire life, you’ve probably accepted this as gospel. Maybe you’ve even preached it to your adult kids or younger coworkers.

The sentiment goes this way. Buying high-priced coffee at a coffeehouse is expensive, so instead of spending $5 or $7 on a drink, you’d be better off investing that money in a retirement fund. This belief does have merit.

According to data from the market-research firm, the NPD Group, an average cup of coffee costs $4.90. If you spend $4.90 every day, for a month, that’s $147, which may not sound bad until you realize you’re spending $1,764 per year on coffee. That’s a significant amount of money that could have been invested in your retirement fund. As any financial advisor will tell you, money invested will grow, thanks to the magic of compound interest.

For instance, if you run a compound interest calculator set for 147 months and a 5% rate of return, after ten years you would have $22,827, $17,670 from saved money and $5,187 from investment returns. Over 20 years, that same approach would net you $65,318. Not a small amount of money at all.

On the other hand, that’s 20 years. Do you want to forgo coffee shop meetups with friends for a good duration of your life? That’s 20 years of quality conversations shared over coffee, gone. With the median home sale price at $440,300, skipping coffee for 20 years won’t get you a 20% down payment on a home either.

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Look for ways to trim your budget – but focus on expenses that aren’t going to remove joy from your life. How you spend your money is often similar to dieting. If you sacrifice everything you like, you’re probably going to give up on eating healthier. If all you do is save money, you may become discouraged and blow your savings on an impulse purchase.

So, instead of ditching your coffee, maybe you stop getting your car professionally washed and do it yourself – and put that money into savings. Or if you hate that idea, you could spend a day looking for new health insurance or comparison shopping for new car insurance, preferably purchasing plans that still offer quality coverage but are less expensive than your current plan.

Because your coffee habit is reinforced daily, it may be the first thing you think of to remove. However, considering less commonly thought of expenses, like your homeowner’s insurance policy, can help you save even more money.

The bottom-line is, if you feel like you’re overspending, trim your budget. But don’t be mean to yourself. You shouldn’t feel guilty for spending money on simple things that bring you joy.

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Renting Is Flushing Money Down the Toilet

You hear that a lot from a lot of people – and it’s an argument a lot of renters make to themselves when they’re trying to justify spending a lot of money on a new house.

But whether you really are “throwing money away on rent” depends on where you are in your life. If you’re not ready to buy a house because you don’t have enough saved for a downpayment, you aren’t wasting your money on rent. You have to live somewhere, and people save a lot of money by renting – since the landlord or apartment manager will be taking on expensive and time-consuming tasks like replacing old appliances or repainting walls.

It’s true that a house is an investment; it will likely increase in value over the years, and one day you could sell it for a lot more money than what you initially paid. Also, if you have a fixed-rate mortgage, your mortgage isn’t likely to significantly climb over the years. It can still go up, thanks to things like property taxes, but chances are, if you buy a home, as time goes by, your mortgage payment will stay relatively steady. The same can’t be said for your monthly rent, which may significantly increase over the years.

So there are plenty of smart financial reasons to buy a house. But if you do it too soon, you could find that your salary isn’t sufficient to care for a home. You also lose the ability to be more mobile after you purchase a home. If you want to leave your community and move elsewhere, it tends to be far easier when you’re a renter instead of a homeowner.

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Stop berating yourself for “wasting” money on rent. If you want a house, great, but there is no rule that you have to have one, or one right now, just because you think the timing is right. If you’re trying to figure out if you should be a homeowner, then you should do what everybody should be doing:

  • Keep saving money. If you want a house, you should start saving money for a downpayment. Banks and personal finance experts typically recommend 20%. Though you can buy a house with far less than this gold standard, you should evaluate if your salary is sufficient to make your scheduled payments. If you aren’t sure if you want to buy a home, save money anyway. You can never have too much money.
  • Try to pay down your debts. This will put you in a better financial place to buy a home in the future.
  • Work on building your credit score. If you have a high credit score, you’ll receive the best mortgage rate available.

In short, a solid financial foundation is the best bedrock for your future home.

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You Don’t Need an Emergency Fund if You Have Credit Cards or a HELOC

It’s true that if you have a line of credit or credit cards with a lot of available credit, you could use that if you were in a financial jam. But it isn’t a smart way to manage your money.

After all, if you’re suddenly hit with a $5,000 car bill that you put on a home equity line of credit, also known as a HELOC, you have to pay the loan back. If you pay for those car repairs with your credit cards, again, you need to pay those back, too. Even if you have an 0% APR credit card that allows you a lot of time to pay off the loan before accruing interest, you still have to pay off the card eventually.

Ideally, you’re only going to use your credit cards for short-term loans. You’ll pay them off every month, and you’ll get cash back rewards or miles in exchange for doing that. In other words, use your credit cards responsibly. Let your credit cards pay you back for using them.

Your home equity line of credit, if you have one, can be used to fund an emergency, home improvements, your kid’s college tuition or that $5,000 car bill, but you shouldn’t use a HELOC casually. You still have to pay it back, and because it’s a line of credit, you will pay interest on any money you borrow against the equity on your house.

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Obviously, create an emergency fund. You could do it in an interest-bearing savings account, too, and then you’d make a little money as you put it away.

If you have $5,000 in a savings account, and you drain that to pay your mechanic, you only have to pay yourself back. And you should pay yourself back. That way, you have money for the next emergency that inevitably arises. Even if you take a while to pay yourself back, chances are you’re still going to be nicer to yourself about the delayed payment, than a credit card company would. And it’s just a hunch, but you probably won’t charge yourself a lot of interest, either.

About Geoff Williams

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Geoff Williams has been a personal finance journalist since around the time of the Great Recession of 2008. He's been writing professionally since the 1990s about a variety of topics, including personal finance, credit cards and loans.

Williams is also the author of several books, including "Washed Away: How the Great Flood of 1913, America's Most Widespread Natural Disaster, Terrorized a Nation and Changed It Forever" and "C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America."

Born in Columbus, Williams now lives in Loveland, Ohio, with his two teenage daughters.