When standing in line at the grocery store, how frequently does your eye wander over to the checkout counter racks? Suddenly, you develop an unstoppable craving for a chocolate bar, or decide to quench your thirst with a cool bottle of water instead of waiting to fill up a glass from the tap at home. Maybe your curiosity is piqued by the headlines screaming from the tabloid magazine? You grab the item of interest and throw it into your cart. After all, what's a few more dollars? You can afford it, right?
These decisions may seem harmless, but those “few more dollars” can really add up. Often, it is the small expenses in life that combine to knock your budget completely out of whack.
The Coffee Example
Gourmet coffee often gets picked on in examples of frivolous spending, but for good reason – many people spend far more than they realize on it. It is a great example of how little expenses can get out of hand quickly.
An average cappuccino or latte costs about four bucks. Let's say you pick one up on your way to work each day from that quirky cafe around the corner from the office. Four dollars doesn't seem like much at first, but what about $1,000? That's a lot, right? Well, that's how much you'd spend if you repeated your four-dollar habit every work day for a year. It's definitely a large sum, especially when you think of how much less you would spend by brewing your joe at home, which costs pennies per day.
To really hit home the point, consider this: If you took that $1,000 and, instead of spending it on lattes every year for your 40-year career, you invested it with an annual rate of return of 8%, you'd have a healthy retirement fund of $250,000.
Other Small Mindless Expenses
Coffee is a prime example, but there are many other small purchases that add up over time. Do you smoke? That's a hefty sum of money thrown out each day. What about account maintenance fees that crop up on credit cards, bank accounts and prepaid debit cards? Those can also add up quickly, and there are many financial institutions that have done away with them. Are you paying for 500 cable channels but spend most of your free time surfing Netflix? Can you read your magazine subscription online now instead of paying for it each month? How often do you pack your lunch instead of going for take-out?
Write down these “harmless” expenses for the next month – you may be surprised how quickly they add up!