Little Things Add Up (to BIG spending!)

by Marily | More from this Blogger

30 Mar 2006 02:47 PM

Sometimes we rationalize buying unnecessary small-ticket items. We don't always see it as a big deal to buy pick up some unneeded junk food or to occasionally order out for lunch. The truth is that five or ten dollars really won't make a big difference in our spending.... BUT, five or ten dollars multiplied over the course of a month or a year makes a HUGE difference!

Say for instance that you routinely buy small unnecessary items throughout the day. These purchases could be anything that you could do without: junk food, eating out, Starbucks coffee, candy, cigarettes, whatever. David Bach, a finance expert with the Oprah Winfrey show, calls this your Latte Factor. He explains that saving just $10 a day adds up to $3600 a year that can be put towards debt or savings. To calculate your Latte Factor click here. The calculator shows you how much you could put towards debt in one year by saving your Latte Factor. It also has a calculation that factors in interest for the amount you could save in an investment.

I did a simple calculation using the online calculator. If you spend an average of ten dollars a day, that adds up to about 300 dollars a month. Let's say you invested that money instead. 300 dollars a month invested at 10 percent for two years would yield $8,316. Pretty good, right?

The first step to figuring out how to reduce your spending is to keep track of what you do spend. One simple way is to carry a small notebook around with you to jot down your expenses. Write down what you buy, how much you pay for it and whether it was wasted money or not. A large part of reducing our spending begins with being aware of where our money is going. Then, calculate your own latte factor and motivate yourself to get out of debt or increase your savings.

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