Saving Money by Minding the Small Stuff

The key to proper money management is the creation of a budget. Many families get into financial problems because they have no idea where their money is being spent. Without a plan, it can become very easy to waste your money on a bunch of small items of no consequence.

Perhaps one of the most popular examples of how little costs add up over time is your morning coffee routine. If you stop at the local coffee shop every morning for a $4 latte, it may not seem like much of an expense. However, this adds up to nearly $1,500 over the course of a year.

This cost is multiplied several times if you take into account the opportunity cost of that money. Had you invested that money with a five percent return instead of spending it, that $1,500 would multiply to nearly $6,000 over the course of 30 years.

This example clearly demonstrates the significant cost of small, regular purchases: the missed savings opportunity of that money. The money spent today cannot be saved for the future to achieve long-term goals like retirement or travel.

This effect is only exacerbated once you consider all the additional little costs you may incur on a daily basis without much thought. This might be going out to lunch every day instead of packing a lunch from home, a couple of drinks at the bar after work, weekly shopping trips for new shoes or clothes, or buying all the latest video games as they are released.

Indeed, there are nearly an infinite number of such expenditures, but they all have the same effect on your finances. Of course, there is nothing inherently wrong with spending money; that is the whole reason you make money in the first place. However, it is important to make sure that you can actually afford those purchases. Otherwise, you risk the very real danger of debt accumulation, which could lead to financial ruin.

Of course, it is one thing to create a budget; it is an altogether different thing to actually develop the discipline to maintain your budget through good times and bad. This can be especially difficult when you find something you really want to buy, but for which you have not saved any money.

One way to make a budget sustainable is to make it as automatic as possible. Thankfully, the internet has made putting your savings plan onto autopilot very easy. Before you do anything else, set aside a portion of your income to use for either debt reduction, if you are currently in debt, or for savings.

Most financial institutions allow you to automatically transfer a set amount of money every month into a savings or retirement account. By doing this, you will be far less tempted to spend that money on something frivolous, thereby endangering your financial future. If you can’t automatically transfer money, then try writing a check to yourself at the beginning of every month, then take that personal check and deposit in your savings account directly or mail it in (yes, you can mail checks in for deposit).

Once your savings obligation is out of the way, you can start to make decisions about the rest of your budget. Decide how much you want to spend on different things that are important to you. In addition, look for ways to reduce your expenditures in different areas without seriously reducing the enjoyment you get from that expenditure.

Although budgeting may seem daunting at times, it is a critical piece of any family’s financial well-being; and it can be done with just a little thought and discipline.