The Little Things Will Hurt
You’ve heard that by avoiding the $5 a day Latte will help you build wealth. It makes perfect sense when you run the numbers; $5 per day times 365 days per year equals $1,825 per year. If you only purchased a taste Carmel Latte on work days and assumed you have 3 weeks’ vacation the total would still be $1,225 per year.
Just like the latte, they are many other things that we do every day that destroy our wealth building potential. Running into the 7-11 to grab a $1.29 cup of coffee and a package of Hostess donuts will cost you 3 bucks. Grabbing a quick snack from the vending machine at work is an easy 2 plus dollars including the soda. Purchasing a pack of $6.00 cigarettes will definitely break the bank (I’m so glad I quit this habit).
The little things are what add up bringing down your financial house of cards. The best way to stop the downward spiral of nickel and diming is to record your spending. I know I know, you don’t have the time to record every expense the moment it happens. It’s only a few dollars here and there right? Nope, those few dollars are stopping you from make your money work for you instead of you working for your money.
There are plenty of ways to track your daily spending. Some people like to write them down in a notebook. Others like to record them in an Excel spreadsheet. Everyone else loves using the vast array of financial/budgeting software available. When I was getting a handle on my spending I recorded the amounts in a notebook. I did it for 1 month, in an effort to understand how my “disposable” money was being spent.
I found that carrying the notebook was a pain my… I decided to collect the receipts instead of using the notebook at the point of purchase. I was able to keep the receipts in my pocket until the end of the day. Each night I would review and record my daily burn. I understand some people will not like this method because old Mr. Redwood was sacrificed to produce the paper on which the receipt is printed. That’s ok; you could use an electronic method. One that uses energy derived from coal. The point of the exercise is to capture your daily cash burn so you can make adjustments to save money.
The beauty of the receipt is its ability to capture data quickly and completely. If you don’t have the time to reconcile your spending daily you can collect the receipts and enter the data later.
Once you have some data it’s time to start reviewing it. Look for patterns, like the latte a day pattern. Your pattern might be a newspaper and a cup of coffee for the trek to work. Add up the spending on these “pattern” purchases and carry them across the whole year. We can use the paper and coffee example to illustrate the point. The coffee costs $1.29 a day and the paper is $0.75 a day. This daily spending pattern is $2.04 a day. I’m sure that you usually don’t have the 4 cents so you’ll get $0.96 in change that will probably be collected in a jar and forgotten about. The $2.04 a day times the 245 working days from the previous example shows us this little habit will cost $499.80 a year. That may not seem like much but once you record all the data for each day, you’ll notice you are spending too much on crap that isn’t doing your wallet or your body any good.
Here’s your challenge. Take one week to record all of your spending and see what your are really spending your money on. If you’ve never done this exercise you will be very surprised at the results.
Remember, the less money you spend the more money you’ll have. You can use the extra money to pay off debt, invest for retirement, or even save it for a vacation. Good luck