Blog | Entrepreneurship, Personal Finance

How You Can Have Your Avocado Toast…and Eat it Too

Why the solution for millennials isn’t saving more money

The so-called financial experts never cease to amaze. Not content with attacks on simple pleasures like the morning Starbuck’s run, the latest fad they have in their sights is the humble avocado.

“When I was trying to buy my first home, I wasn’t buying smashed avocado for $19 and four coffees at $4 each,” says Australian millionaire Tim Gurner. “We’re at a point now where the expectations of younger people are very, very high. They want to eat out every day, they want to travel to Europe every year. The people that own homes today worked very, very hard for it, saved every dollar, did everything they could to get up the property investment ladder.”

It’s a simple formula, in Gruner’s mind. Stop buying avocados, good coffee, and trips to Europe, and you can buy a house.

In reality, what he’s saying is stop spending and start saving.

How do millennials really spend their money?

Despite the fact that avocados are very good for you—and so probably worth spending a few extra dollars on—the reality is that reality doesn’t match Gurner’s criticisms.

As Mother Jones points out, Gurner’s “not literally complaining about avocados on toast, but about a cavalier attitude toward money in general.”

They go on to show that, as a generation, millennials spend 10% less of their total income than baby boomers did in the 1980s. What is more, they only spend 8.6% of their income on dining and entertainment, compared to 10.5 percent by the boomers in the 1980s.

“So what do millennials spend their money on each year?” asks Mother Jones. “They may have $3,000 more in disposable income than young families of the 80s and 90s, but they also spend:

• About $1,000 more on health care.
• About $1,500 more on pensions and Social Security.
• About $2,000 more on overall housing (rent, maintenance, utilities, etc.).
• About $700 more on education.”

Another recent study of financially-stressed Americans shows that those worried about their standard of living enjoy saving money (64%) over spending money (35%).

The problem with saving

So, in reality, millennials are more “responsible” with money than their preachy baby boomer counterparts and are saving in greater numbers even though life is much more expensive for them than it was for their parents.

And this is a problem.

As I’ve said over and over again, savers are losers in the new world economy. Just last month I wrote about Carl and Mindy, who saved over $1 million in four years in order to retire by age 42. I pointed out that their reliance on savings was fundamentally flawed…and could hurt them later in life:

While it is great for Carl and Mindy to retire today—and having $1 million in the bank is certainly better than most—their retirement plan is not future proof in my mind.

They use what is called the 4% rule, assuming if they take out 4% of their retirement money per year, they won’t run out.

Perhaps this makes sense for them now in their 40s while they are relatively young. But what will happen when they get older and require more medical attention? Or what if their property taxes go up significantly over the next twenty years? Or what if inflation continues to grow over the next forty to fifty years at 2% a year? Or what if they get tired of living so frugally after all?

Without significant income, they won’t be able to stay afloat. They may enjoy life at $30,000 a year right now, but it will not be sustainable for their entire retirement.

The idea that skimping on avocados and good coffee will secure your financial future is ludicrous.

Building your financial intelligence

The solution isn’t to stop spending on things you enjoy in order to save. The solution is to increase your financial education—and by extension, your income—so you can continue to eat your avocado toast while building true security for your financial future.

This starts with understanding the difference between an asset and a liability, as I wrote last year in my article “Dear Millennials, Experiences Are Still Liabilities”.

In “Rich Dad Poor Dad”, I took pains to simply define the difference between an asset and a liability. An asset is something that puts money in your pocket. A liability is something that takes money out.

For the baby boomer audience I was writing to, I dismantled one of their great myths that a house was an asset by showing through these simple definitions that a house takes money out of your pocket and is therefore a liability. Only if and when you sell it, if you’re lucky to have made money, will it become an asset. Many people who lived through the Great Recession and saw their property values drop significantly finally understood.

The lie that a house is an asset is alive and well today. That’s why people say you should give up on liability (avocados) so you can afford another liability (a house). The reality is that you need both food and shelter, but the way you approach your finances will determine the quality of both.

Your move

Rather than save, invest in cash-flowing assets, such as rental real estate, a business, or technical stock market investments.

As I wrote last year:

The beautiful opportunity the millennial generation has is to turn their love for experiences into opportunities to grow their financial intelligence and assets. This is not about owning more stuff. It's about securing your financial future to do things you love and be the generous people that you are for the entirety of your life.

Some quick ideas:

• Turn your trips into opportunities to get to know the local real estate market and identify potential cash-flowing properties
• Take advantage of sharing economy services like Airbnb and Uber to create income opportunities
• Form an investing club with your friends and make the idea more appealing by giving it a social-good component such as using part of the funds to support a charity together
• Find ways to sell the goods you create from your hobbies to fund them and build a business

If you do that, you’ll be more than able to have your avocado toast…and eat it too.