This is a guest post written by Brian. Identifying his poor everyday spending habits helped Brian get out of debt several years ago.
When he is not reading or writing about personal finance topics, he can be found in his vegetable garden pulling weeds and pawning zucchini off on the neighbors! Brian shares his gardening adventures at Meadowwood Garden.
The Big Purchases
Often when we become interested in personal finance and saving money we do something that is human nature — we focus on the big stuff like houses, cars, etc. It makes sense too – armed with careful research and smart negotiating tactics you can save large amounts of money on big-ticket purchases.
One of the ironies of personal finance is that all-too-often the money saved on those savvy big ticket purchases ends up being thrown away on a bunch of smaller purchases we usually never think about.
Those smaller purchases are what I like to call “everyday purchases.” Everyday purchases are those you make on a consistent basis — not necessarily daily but often enough that you can identify a pattern to them. Examples include lunch at work, coffee every morning, cigarettes if you smoke, that pizza you have every Friday night, a soda at break time, etc.
Take a second and jot down a few of the everyday purchases you make. Next to each item write down how often you buy it and what it costs each time you make the purchase. Average prices are fine. We’ll use this list a bit later.
Annualize Everyday Purchases
Now that we’ve identified what everyday purchases are, the real question is — what are they costing you? Really costing you? Do you know? Have you ever thought about it?
Here is how you can find out. A great way to gain some perspective on these purchases is to annualize them. Knowing what your everyday purchases cost on an annual basis it makes much it easier to compare them to your other spending.
Ready to give it a try? The numbers might surprise you!
Using the list you made a couple minutes ago, grab a calculator and figure out what your everyday purchases are REALLY costing you. Follow this example:
- Lunch out at work $8/day, 5 days a week = $2080
- Cigarettes $5/pack/day = $1825
- Morning Starbucks $5/day 5 times a week = $1300
- Friday Night Pizza $25/week = $1300
- Soda During Break $1/twice a day, 5 days a week = $520
- Cable TV $65/month = $780
I threw Cable TV into the list to show you that this trick works for any item or service you pay for on a regular basis.
Do some of these numbers surprise you? More importantly, do some of YOUR numbers surprise you?
Doing this exercise can help you identify where you can make some adjustments. Want to save $1000 a year? Eat out at work half the time instead of every day. Need to free up $600? Have pizza every two weeks instead of weekly. Caffeine buzz not worth $520 a year to you? Drink water during your breaks instead.
The point is the more you know about your spending habits the more control you have over your finances. These purchases are not necessarily bad. If you don’t want to make changes that is perfectly fine — at least you have some idea of where your money is going and if you are happy with your choices stick with them!
Now you have an easy way to figure out how small, regular purchases impact you financially. Based upon what you have learned, will you be making any changes to your everyday spending habits?