Financial Advisor in Raleigh NC: Small Expenses that Add Up

If you want to spend less each month, it can help to look at where you're spending too much. If you often go over your budget, it can also help to look at where you're spending too much. Being aware of small expenses and realizing that you might spend more money than you expect is very important. Such seemingly insignificant purchases can accumulate rapidly over time.

Small Expenses in your Budget 

Every day, various sources contribute to our small expenses. It could be the irresistible pleasure of a freshly brewed customized coffee or a delectable pastry during the commute to work.

Perhaps you spend a few dollars daily on DVD rentals from Redbox or a similar service. It might be the energizing afternoon soda or the occasional purchase of a new e-book for your e-reader. Some people make many in-app purchases or eat out for lunch every day.

These expenditures often go unnoticed in your budget, as their individual amounts seem insignificant. You can also choose to exclude certain expenses from your budget. For example, you may decide to stop eating at restaurants to save money. You might think you'll go grocery shopping, but end up eating out instead, wasting more money.

What Little Purchases Really Cost

Gaining insights into the actual amount you spend within these specific categories of small expenses holds significant importance. There are several approaches you can take to achieve this. 

First, consider documenting all your expenditures within a particular category over the course of a week or month. You can write them or record them on your phone, which helps you know how much you spend and why.

Alternatively, you can employ budgeting apps to monitor your expenses. Applications such as Mint.com and Acorns.com serve as mobile trackers.

Mint.com provides categorized spending reports, while Acorns.com incentivizes behavioral changes by offering investment opportunities based on your spare change.

If you prefer using cash, you have two options. You can either write down your expenses or keep receipts. This will allow you to check them later in the week. For credit card users, daily online reviews of your spending can be easily accessed.

How Much is Too Much

The threshold for what constitutes excessive spending varies from person to person. It becomes crucial to assess whether certain expenses align with your individual circumstances.

For instance, let's say you find out that you spend approximately $70 every month on coffee. This is equivalent to buying one cup every day. In total, this amounts to $840 per year. 

Once you have this information, you can determine if this expense aligns with your budget. However, if you find yourself barely making ends meet, that $70 monthly expenditure can significantly impact your ability to achieve goals or cover essential bills.

Likewise, if you dine out for lunch every day at work, you might believe that your spending is justified. Yet, you might be surprised by the cumulative effect. Opting for a value meal each day, costing around $6, would amount to $30 weekly, totaling $1,560 annually or $130 monthly. However, if you choose to dine at pricier establishments and spend approximately $10 per day, the expense would reach about $216 monthly or $2,600 annually.

When considering these overall figures, you may identify expenses that appear excessive to you. However, the notion of excessiveness truly depends on your current financial situation. Even an expense of $6 per day can make a significant difference in your budget if you are struggling financially. Conversely, if you are free from debt and actively saving for retirement, you might have more leeway to afford additional daily expenses. 

The key lies in comprehending your present financial circumstances and recognizing how seemingly insignificant purchases can impact your overall financial standing.

Matching Spending to Priorities

Lastly, it is crucial to align your spending with your priorities. Once you become aware of the amount you spend annually, you can assess whether it truly aligns with your desires or if there are other areas where you would prefer to allocate your funds.

This is where budgeting software or apps can be valuable tools. They simplify the process of monitoring your expenses and provide a holistic view of your financial landscape. Observing the total amount spent each year can serve as a powerful motivation for initiating change.

Bottom Line

Everyone has different priorities and comfort levels when it comes to spending the money they have earned. Perhaps you have the money in your budget to continue spending on small expenses, but are curious how much you would save if you cut back.

If you are trying to pay off debt or put more money into savings, however, you will most likely need to make some adjustments in your spending habits. The impact of starting with small changes may have you surprised. You could realize it may not take an extra job or overtime to meet your financial goals.

Sources:

https://www.bankfive.com/blogs/december-2020/small-expenses-that-could-be-adding-up

https://www.fool.com/slideshow/50-everyday-costs-youre-overlooking-are-adding/

Disclosures:

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. 

All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed.  All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.