18 Apr How Small Dollar Transactions and Subscriptions Add Up to Mountains of Debt
After filling your car with gas, you run inside to get a drink. Five minutes later you emerge having spent $12.62 on that drink, plus a snack, newspaper, or replacing the charger you left at home.
Small, impulse buys feel insignificant, and you become comfortable making them without considering the accumulated costs. This factor is especially true when you make a lot of them.
The problem is that those $5.00 and $10.00 purchases, over the course of a month, can add up to hundreds of dollars. A $5 daily coffee habit can add up to over $100 each month. Add a breakfast sandwich or pastry, and the cost could double.
Often referred to as the “Latte Effect,” minor purchases can be the death of the most well-planned budget when you fail to calculate the impact of small dollar transactions.
Here are a few of the most common culprits:
- Recurring monthly subscriptions. It could be a smartphone app, a gym membership, or a hobby subscription ranging from 0.99 cents to $30 or more. Set on automatic, you could forget you are even paying for these services you rarely use.
To eliminate the cost, do a detailed statement check on your debit and credit cards looking for recurring charges. Consider whether you are using the service and receiving any value from the subscription. If not, cancel and transfer the savings into a savings account or put it towards debt reduction. If you are getting value from the service, see if you can reduce the cost through an annual subscription rather than the monthly payments.
- Habitual daily purchases. Whether it is a latte, the newspaper, or a quick purchase from a convenience store, daily purchases can add up quickly when multiplied across the month.
To eliminate the cost, review your daily and weekend routines. Find where you spend money and look for cost-effective alternatives. If you want to read the daily paper, consider a monthly subscription, which could shave 70% or more off the cost. Online subscriptions for newspapers and magazines are often less than a physical copy, saving you even more. If you enjoy your daily latte, buy a high-quality coffee maker, and create your own.
It’s not necessary to give up your vices, if you can find a more cost-effective way to enjoy your daily pleasures.
- Daily lunch habit. Lunches out can be one of the highest work costs, averaging $10 a day. You may think lunch with colleagues is good for your career, but it can take a chunk out of your wallet to the tune of $200 or more per month.
To eliminate the cost: Bring lunch most days and make eating out the exception rather than the rule. If you enjoy a restaurant only once a week can lower the monthly tab to $40, saving an average of $160 per month in lower food costs. Finding lunch specials and discounts can further reduce the cost of eating out.
Small dollar transactions may cost you hundreds of dollars each month but add up to thousands of dollars in accumulated costs each year. Cutting out small expenses on items of little value will not only prevent needless debt accumulation, but when you redirect the savings, you can pay down existing balances faster.
About Titan Consulting Group
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