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One of the keys to wise money management is to understand the math behind small daily expenses, and how they add up to big money. Each individual purchase decision you make — a fancy coffee drink, a lottery ticket, a sandwich and soda on the run — doesn’t come with a big enough price tag to damage your annual budget. However, when you look at the accumulated effect of these small decisions over the course of a year, you realize they lead to major spending.
Whether you’re buying a $2 can of your favorite energy drink or a giant $5 coffee drink, you’re spending dollars you don’t need to spend. Buying that energy drink every morning adds up to more than $700 at the end of the year, and a daily indulgence in fancy coffee will set you back $150 per month, for an annual total of about $1,800. If you applied that amount to your mortgage or saved it in a 12-month CD towards a dream vacation, your financial health and quality of life would be greatly improved. If you’re hitting those caffeinated drinks because you’d otherwise drop in your tracks from exhaustion, you’d be better off rearranging your schedule so you can get some extra sleep. You may end up saving big on your health bills, too!
People eat out for lots of reasons, and occasional lunches with co-workers are important for team-building. However, it’s too easy to just grab your wallet and jacket and head out the door in the morning. Workweek lunches add up to serious money when you include beverages, tax and tips. Lunch bills of $50 each week aren’t unusual, and over 50 weeks that adds up to $2,500. Packing your own lunch at home with good planning and bulk recipes can easily help you save $1,500 or more in a year. A single cooking session is enough for you to make a couple good-sized stews or casseroles to divide up into a week’s worth of thrifty, wholesome lunches.
Winning the lottery is a favorite dream for many, but as a financial strategy lottery ticket purchases are never a good idea. Research shows that the country’s poorest households (those with incomes under $13,000) regularly spend $645 each year on lottery tickets. This amounts to 9 percent of their annual household income. Your unnecessary spending habits may center around cigarettes or chewing gum, but any dollar spent on unnecessary items is a dollar that could be better applied to reducing your debt or building up your savings.
A good way to keep your daily spending in check is to draw up an annual budget. Write down your spending categories and list the annual expenditure that you feel is appropriate for each category. Chances are good you won’t budget $1800 per year for elaborate coffee at your local drive-thru espresso stand, or $600 for lottery tickets. Once you divide this annual budget into monthly and weekly amounts, you’ll have a much easier time resisting those “innocent” daily purchases.