Here is a trick to prevent yourself from buying something you don't really need. Whenever I really
want something, I always think about just how much money it is actually going to cost me down the line.
The alternative to buying something is to not buy something and save the money. You then put the money
to work for you and suddenly that small purchase really starts to make a difference.
Take lattes for example. Say you buy a latte at $5 a pop everyday you go to work. Figure that there
are about 230 work days in the year and you see that lattes will cost you about $1150 a year. Now say
instead of buying those lattes, you save the money and at the end of the year put the money in an index
fund. After 30 years, assuming a 10% rate of return, that money turns into $20,000.
This is even more true for big ticket items or things that are reoccurring. That $3000 LCD flat
panel? That cost you $52,000. Want to buy a new car instead of just keeping your current one? That could
cost you almost $500,000. This is not to say that you should live like a miser and not buy anything. You
should of course enjoy your life; you just need to be aware how current consumption will affect your
future net worth. The latte example only considers one year. Imagine if you don't do it over 30 years. The numbers get staggering.
Want to try it out yourself? Just enter the cost of some item above, and it will
calculate what the real cost of that item is 30 years down the road. If you want to adjust the numbers
from the default, you can do that too.
I remember doing something similar when I was in college. Part of the school loan process was to go through an information meeting. When the advisor did the math on how much two mochas would cost me in my freshman year, I decided it was okay to go to classes slightly sleepy.
ReplyDelete[...] Journey has a neat little calculator to tell you how much your lattes cost in future years. I’m sure we will spend much less money if we can take this calculator with us [...]
ReplyDeleteI'm telling you... I'm seeing shorter lines at Starbucks. People are slowly facing the harsh reality that they've tried so hard not to face: Starbucks is a luxury and not a necessity.
ReplyDeleteThought you might find this article interesting: http://www.slate.com/id/2180301/?GT1=10837
ReplyDeleteThe most expensive ingredient in a coffee shop is the milk.
ReplyDeleteI often wonder what the mark up is on a cup of espresso is and I always think it is kind of absurd to be paying $3 (they tend to be about £1.50 a cup here in the UK) when I could buy a whole jar of instant (OK - not quite the same) for the same money. Then they hit you with the cross-selling of the paninis and pastries. It does sometimes feel like daylight robbery.
[...] the thing is, I not only save money not buying the TV (and not buying something is as good as earning that money), but I don’t pay for cable. I would probably get satellite and I would get an HD setup since [...]
ReplyDelete[...] too long ago, hitting the local Starbucks was one of the easiest luxuries to dump for financially-pressed consumers. Now it’s roared back in true contrarian fashion, as one of the [...]
ReplyDelete