How Micro Expenses Can Destroy Your Finances

Key Takeaways
  • Small purchases can have a substantial impact on spending and your overall budget.
  • A budget review tends to focus on large purchases when the small ones are the easiest to eliminate or reduce.
  • Instead of thinking in terms of a single charge, multiple the purchase price over a year to gauge the true costs of daily habits.

On your way to work, you pick up your favorite cup of coffee at the drive-through,$4.50…

Getting gas at a convenience store, you run in a grab a drink and a few snacks, $8.20…

Co-workers gather for lunch at your favorite watering hole, $12.00…

Meandering through the grocery store, you throw a few low-cost items into the cart, $14.68…

Your favorite channel just became available on a new streaming service, $5.99…

Each of these purchases, in isolation, is trivial and has no direct impact on your financial future. The problem is that insignificant purchases are not made in isolation. In most cases, you make multiple small purchases every day, but they go unnoticed because of the dollar amount. Do you have a category in your budget for morning coffee or lunches with co-workers? No, you toss it into another major category and call it a day.

Why Small Costs Matter

Subconscious purchases matter because they can easily ruin your budget.

Consider if you bought a cup of coffee for $4.50 every day on your way to work. You would spend $1,080 in one year and over $10,000 in 10 years. Not an insignificant amount of money.

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What if you bought a morning coffee and ate lunch with co-workers every day? The total now adds up to $16.50 a day, $330 a month, $3,960 a year, and $39,600 over ten years. Invest that $330 each month at 7%,and it could grow to $56,447 in that same ten-year period of time.

Now suppose you had $40,000 in outstanding credit card debt at 18%. Paying $800 a month for the minimum monthly payment could take over 30 years to pay off the balances, even if you never used the cards again. Add the $330 a month toward debt reduction, and you could accelerate your debt payoffs.

Paying Attention

How do you find these subconscious purchases and eliminate them from your budget?

The first step is to pay attention every time you buy something, no matter how small. Apps that track spending can help you identify the small purchases you make on a regular basis.

Second, find an acceptable alternative that lowers costs. Habitual purchases are part of your daily routine and can bring comfort and enjoyment. However, you can often reduce costs without sacrificing the pleasure it brings. For example, if you like specialty coffee, buy a coffee maker that allows you to make it at home.

Third, lower your spending threshold. Everyone has a spending threshold that guides purchases. If the item you want is under the subconscious point, you don’t put any thought into the cost. For some, the spending threshold is $5, but it might also be $25 or even $100. The lower your spending threshold, the easier it is for you to catch these small purchases that can sink your financial ship.

Fourth,stick to a budget. A budget helps you track costs and uncover aimless purchases that add little or no value to your life. When you want to lower expenses, most people focus on the most significant items in the budget. But small purchases are easier to reduce or eliminate to get your budget in line, freeing up money for longer-term goals.

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Use an App to Automate the Budget Process

Budget tool apps can track expenditures automatically, making it easier to catch errant purchases. When you use an app that connects directly to your bank account or credit card, you can see at a glance where you spend. When used regularly, you will become more aware of where your money goes and allow you to identify expenses you can eliminate.

  • What can ruin a budget?

    Impulse purchases are the number one reason you overspend. Other causes could include failure to compare prices, buying wants rather than focusing on needs, and not tracking purchases.

  • How can I cut costs?

    One of the most effective ways to reduce spending is to identify the small purchases with little or no value. These could include impulse buys or minor daily purchases that add up to significant amounts over time.

  • What budget categories are easiest to reduce?

    Food and entertainment are the simplest places to cut costs.