Habits Really Add Up
When thinking about finances and expenses we tend to think of the big-ticket items like mortgage notes, car payments, holidays, etc. We are programmed to pay particular attention to those items because they are larger than other expenses. Unfortunately, many of the expenses that do the most damage are the smaller ones that manage to go unnoticed. Those small expenses are what we will refer to as habitual expenses.
So what are habitual expenses? There are quite a few things we buy almost daily without ever giving it a second thought. If you smoke, you buy cigarettes and probably don’t consider the cost. Some people enjoy the convenience of take-out and think nothing about popping into a fast-food joint at lunch. If you are a like most everyone else you probably buy a candy bar or bag of chips with your newspaper on the way to work.
The Average American Consumer
A wise man once said, “Averages are like having one foot in the fire and the other in ice…on average you’re comfortable.” For the next few paragraphs we will use John, a debt burdened average consumer.
John is your everyday American consumer; his favorite things are Mama, baseball, and apple pie. John works at a factory in Cullman and earns approximately $32,800 per year. Unfortunately, John is also burdened with more than $9,000 in consumer credit card debt. He has found himself paying minimum payments due to a shortage of cash around his house. His minimum monthly payment is approximately 2.00% of the balance (or $180 per month on $9,000 debt at 20% interest) and will take him 108 months, or 9 years to pay off. Finally, just like other average Americans, John has nine open credit card accounts.
John occasionally goes out with his friends, but doesn’t buy a lot of consumer goods like his friends. He considers himself a somewhat conservative spender. For some reason, he just can’t bring down his balance. He blames his job, saying that he doesn’t make enough money to live on, although he does make the average wage for the area.
John’s Spending Habits
Below are a few habitual spending habits that John pinpointed after reviewing his bank statements and debit card receipts.
- Double-shot espresso every morning before work at a cost of $4.50 each.
- Lunch every workday at fast food establishments at a cost of $7.00 each.
- Golf outing once per week with friends costing an average of $32 each.
After adding this all up, John realized that he spent $90 per month on coffee. $140 was spent on lunch outings and $128 on golf outings; for a grand total of $358 per month.
Upon this realization, John did a little better in the habitual spending category. He did find one more excessive expense that he made regularly.
- His grocery bill typically exceeded $150 dollars per week.
This may not sound like a large grocery bill, but seeing as how John is a bachelor, a grocery bill of $600 per month is extremely excessive.
So, between John’s habitual expenses and grocery bill, he was spending $958 dollars each month.
What Should John Do?
In the above exercise, there are a few different things that John could do to save greatly in the coming months. The following are a few suggestions:
Cut Out The Coffee
Rather than purchasing his morning cup of espresso each day, cutting back to just two per week would save $54 per month. An even better idea would be to eliminate this expense altogether, which could be done by brewing his own coffee at home. With the amount of espresso that he goes through, an espresso maker would pay for itself quickly with the cash saved and could be considered a viable alternative.
Limit Those Lunches
John eats fast food 5 days per week; making a lunch and bringing it to work or eating last night’s leftovers would save John considerably. According to health professionals, this would also be good for his cardiac health. It will likely save him in clothing expenses (pants alterations) and medical expenses in the long run. Expensive and bad for you…two great reasons for getting rid of this habit, and remember this also costs him $35 per week.
Substituting the weekly golf outing may not be something he is willing to part with, but will save him dearly in the long-term. He should at least consider dropping off to twice per month.
These few ideas, if taken seriously, will allow John to be out of debt in the half the time as previously mentioned.
Buy The Groceries, Not The Store
As for the groceries…there is money to be saved here as well. John will substantially lower his expenses by going to the store with a list of needed items, which will eliminate some of the more expensive junk foods he was buying before. He should also consider only going to the store when he has a list, not going on an empty stomach, and purchasing non brand-name items. This will lower his overall grocery bill to a more typical food bill for one person which should be around $250 - $300.
In limiting his espresso, golf, grocery bill, and take-out, John has managed to save some serious money. John will now have room for drinks and refreshments for movie night once a week and still save $435 per month.
If John Can Do It, You Can To
After reviewing John’s circumstances and the potential outcome, I hope you recognize that a very small sacrifice was made for extraordinary savings over the long-term. This scenario reinforces the importance of implementing a budget and sticking with it in order to isolate areas where you can save money and lost ground against consumer credit debt.
More Habitual Expenses
|Cup of coffee||1 cup per day||$4.50||*$1,125.00|
|Smoking||1 pack per day (mid-range brand)||$3.50||$1,277.50|
|Reading||2 books/month (1 paper, 1 hardback)||$26.00||$312.00|
|Lunch take-out||5 days per week||$35.00||$1,820.00|
|Snacks & Drinks||2 per day (1 drink, 1 snack)||$1.50||$375.00|
|Dry Cleaning||Once weekly (5 shirts, 5 pants)||$16.25||$845.00|
|Manicure||Every 2 weeks (not acrylic nails)||$20.00||$520.00|
|Pedicure||Once per month||$15.00||$180.00|
|Golfing||4 rounds per month||$32.00||**$1,152.00|
*Numbers account for 250 working days per year (No Saturdays or Sundays, 10 days vacation)
**Number based on 4 rounds per month, 9 months per year.
***Not an all-inclusive list. Most individuals will have other habits not listed here.
These particular expenses begin to add up and when they become habitual purchases they can get very costly over time. If you are purchasing the above-mentioned goods on a daily basis, think about the costs in terms of months or years or possibly a lifetime. These amounts are absolutely staggering and also non-essential, frankly, you could do without most of them.
In times like these, when money is tight, you must pay particular attention to the non-essentials and find a way curb your “need” for them. Ask yourself the question, “does purchasing this item bring more pleasure than the financial difficulties it will cause over time?”
Tips To Avoid Habitual Spending
- Avoid The Small Stuff
Chronic “spend-aholics” deny the amounts they actually spend. If you realize how much you spend on various items, this amount by itself may reduce your desire to spend. For example, a night out can easily cost $75, especially if you pay for drinks and food. The problem is in the relatively cheap items that we buy often; coffee, fast food, etc. Go through your bank statements and debit/credit card statements, add up the amount you spend on these insignificant items and decide whether they are “wants” or “needs.”
- Avoid Impulsive Purchases
If you habitually spend on impulse, take a moment to reflect before making a purchase. If you are married, you might suggest that your wife asks you a few probing questions about your need for the item. Try waiting a full day before making a purchase of something that you really want. This will give you time to reconsider, research for the best prices, or find other things that may be better.
- Stay Away From “Areas of Easy Spending”
If you spend lots of time in a certain place, you will be drawn to spend money. Typically, this is done to relieve boredom and not because of a need. Therefore, stay away from your favorite shopping areas during lunch breaks. Go somewhere that there is little temptation to spend.
- Set Clear Objectives
Prior to a shopping trip establish a clear objective of what you need. This will take some planning, but means that you will only buy items out of need.
- Set Strict Limits
Set a strict amount of income per week if you have trouble controlling what you spend, it will be very effective in the short-term and should lead to patience in the long-term. This is most effective when dealing with cash, simply because it’s easier to monitor.