This scenario may seem familiar to you. Your child or spouse says they need a few dollars for a trip to the corner fast-food place, Starbucks, a quick trip to the convenience store, etc. "It's only $10," they say. However, when it comes to finance, little things can mean a lot.

Everyone knows they should have an emergency fund. Perhaps you are saving for a large-ticket item like an appliance, or you are saving for a down payment for a new home. Ten dollars certainly doesn't seem like it will get you anywhere. But, over time, those small expenditures add up.

If it seems like there is always "too much month at the end of the money", don't comb your check book for the large expenses. Chances are, the large expenses coming out of your bank account are regular household bills such as rent, car payments and utilities. Instead, you could literally be nickel and diming yourself to the poorhouse.

Ten dollars a day, every day, over the course of a year, adds up to $3,650 over the course of a year, or about $304 per month. If that same amount of money were invested in a high-interest savings account at say, 4 percent per year, you would have about $25,000 in your account after five years. That ten dollars certainly seems like it adds up now, doesn't it?

Not everybody basically throws away $10 a day on something insignificant like lattes or Big Macs. Some people spend more, but others may spend half of that. The point is, those small expenses, the ones you may not even take notice of, can really chip away at your finances. Think about the short-term gratification you are getting from spending "only" ten dollars, and then think of what you could do with $25,000 five year from now. You might think twice before making that late afternoon run to McDonald's.

5 comments

  1. Rachel @ Master Your Card // May 29, 2008 at 5:22 AM  

    You make a very valid point. I think most people look in their purse or wallet and wonder where their cash went, these small indulgences can add up a lot and I wish I could carry no cash at all but some places I shop at still need cash.

  2. Andy // May 29, 2008 at 11:50 AM  

    While I agree you need to be aware of ALL your expenses, minor and large, you do need to live a bit and life is pretty dull without some short term gratifications. I recently wrote about why my morning coffee is something I will not do without and similarly if I take my kid to Mcdonalds once a week and see the happiness on his face, that $10 is so worth it. The small change does add up but so does the quality time spent over a coffee or lunch.

    If you do a good budget and account for these expenses then I see no harm. Also, in your savings scenario, you forget the cost of tax (30%). No tax on having quality time with your spouse or child.

    Hope the above comment is not too harsh, but I did like the overall message the post is trying to send about how small amounts can add up over time. I just think some short term gratfication for the right reasons is not a bad thing.

  3. SavvyFrugality // May 30, 2008 at 9:55 PM  

    Hi Andy,

    Actually, I'm not saying someone should avoid a small indulgence now and then, just to manage their daily spending. In my case, I actually budget those trips to McDonald's or some other restaurant. I allot roughly 10 percent of my take-home pay for "fun money" or entertainment expenses. It's the 5 or 10 dollars here and there that people don't keep track of that get them in trouble.

    Of course, you have to pay taxes on your interest income. I was using rough figures, not trying to write a detailed investment plan. Still, I appreciate your feedback, and you're right...it's the little things that make life enjoyable. You just have to plan for them.

  4. Kevin // June 8, 2008 at 11:56 AM  

    I agree--its the small expenses, often unnecessary ones, that you can control and that can make a major difference in your bank account.

  5. K // June 30, 2008 at 9:01 AM  

    Nice article, and a very good point! I've tried for years now to hammer this into my spouse's head . . . to little avail, it seems. This is why he gets an "allowance" and I manage the rest of the funds.

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