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Start the Decade Off Right: Cut Out Unnecessary Expenses

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Ten years from now, how do you want to look back on this decade? In terms of my finances, it would be hard to top the last ten years. This was the decade my net worth as I measure it for Consumerism Commentary soared from below zero to $300,000. Sure, that progress pales in comparison to some people; this was also the decade that Mark Zuckerberg made his fortune, and I won’t be appearing on any Forbes list any time soon. I also progressed from earning an income of less than $30,000 while working for a non-profit organization to a six-figure income in addition to my day job.

In the next ten years, it will be a challenge for me to surpass the my progress over the past decade. But when I look back on the 2010s I want this to be the decade my life takes a leap forward in more than just my financial condition. The key to making the most of the next ten years is to start the decade off right.

It’s easy to forget the impact that habitual spending has on your net worth over long periods of time. I admit I was much better at watching my small, unnecessary expenses several years ago. At that point, at the start of the last decade, I was barely earning more than I was spending. I started tracking everything I was spending and I realized I could make some changes to help myself save money at the end of every month.

The small, unnecessary expenses

In an upcoming Consumerism Commentary Podcast, we’ll hear from David Bach who discusses his concept of eliminating small recurring expenses called, “The Latte Factor.” This concept is helpful for recognizing repeated small expenses that could be replaced with something less expensive.

Saving four dollars every weekday doesn’t sound like a lot, perhaps it isn’t worth the trouble. But the calculations tell a different story. Over thirty years, $80 a month saved by making your own coffee rather than buying a gourmet version from a store will save you $28,800. But thanks to the magic of compounding returns, $80 invested in the stock market each month, with an average annual growth of 8%, will provide you with almost $120,000 more than you would have had otherwise. This calculation also assumes the price of the gourmet coffee doesn’t change over thirty years, though I expect it will continue to increase in cost above a self-made cup, resulting in even more money saved.

Even though $120,000 will be “worth” far less thirty years from now than it is now due to inflation, and even though an average annual 8% return in the stock market is not guaranteed, this kind of behavioral change is worthwhile.

Your expensive vice may not be coffee. It could be the two books you buy each month when you could get them from the library for free. It might be your cable subscription. It may be your expensive Faberg&eavute; egg habit. No matter what the repeated offense is, daily small doses hide the true effect. Careful spending analysis or just paying attention can help catch this practice and some slight changes, particularly if they don’t negatively affect your enjoyment of life, will allow your future self to thank your current self.

The large, unnecessary expenses

Although eliminating repeated small expenses will improve your finances over time, the progress you make can be overturned with just one move. The biggest flaw with the Latte Factor and anything that focuses on changing behavior surrounding repeated minor expenses is that it ignores much more powerful forces.

I mentioned you could be $120,000 richer just by saving $4 a day on coffee. But if you buy a house you cannot afford just once in your life, the $120,000 you would have otherwise saved could be completely eliminated. As over one million homeowners realized last year, buying a house more expensive than what you can afford could result in losing this “investment.”

Likewise, if you continue leasing a new car every three years, you’re continuing to pay more money than you need to. I understand that for some, cars are status symbols. That’s true regardless of whether the car is flashy and luxurious, fast and sporty, or eco-friendly. If you want to be part of the crowd and align yourself with the expectations for owners of these cars, you will have to pay for that privilege. The automobile industry came up with leasing as an alternative so those who could not afford to buy a status-symbol car could be trapped into an endless cycle of payments and easily-triggered mileage penalties.

The silent, unnecessary killer: interest charges

It is never necessary to pay any interest — just don’t take on any debt. (I’ve already listed getting out of debt as a way to start the decade off right.)

It’s a bit difficult to avoid debt in today’s world, however. Most people use debt to finance post-secondary education, a car, and a house. Going into debt isn’t absolutely necessary for any of these things, much less necessary for buying clothes and computers. The simple solution is to save money before buying anything until you’ve saved enough to cover the purchase in cash. You could also opt for a less expensive alternative like community college rather than Ivy League or the clearance rack instead of current designer-brand fashions.

Saving for a payment in advance in full is not always practical. Although it is socially acceptable to take on debt for certain large expenses it is in your best interest to eliminate any high interest debt as quickly as possible. Here are some insights about getting out of debt quickly and here’s an in-depth discussion of the Debt Snowball.

At this time, I am enjoying my life free of debt. At some point, I may buy a house, and will likely borrow some of the money to do so. But when I do, there is little (financially) I would want more than to own the house outright and to be free of interest payments.

Let me be clear

I have no problem with anyone who continues to buy daily lattes, expensive cars, or lives life in debt. These are all choices that people make, and every individual or family’s situation is different. We all have free will and we can exercise that free will differently. I think it’s worthwhile to think about consequences and weigh all options before making these decisions, however.

This article is part of a series called Start the Decade Off Right on Consumerism Commentary. Previously: Pay off debt, open a high-yield savings account, invest for the future, do something you love.

Photo credit: Irina

Updated September 17, 2011 and originally published January 11, 2010.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 13 comments… read them below or add one }

avatar 1 Anonymous

Wow, I didn’t realize that your six-figure income was on top of your day job — very nice.

And I totally agree about eliminating expenses both large and small where possible, although I had to laugh at the picture of the red Miata near the headline for the large expenses. My 20 year old red Miata is one of the expenses I choose to keep. It’s all about what works for us as individuals.

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avatar 2 Anonymous

Flexo, why not introduce the concept of “Net Present Value” to your readers and show them the calculation? When you talk about cash flows over 30 years (ie your “Latte Factor” example) it gives your readers an idea of what they would really save in today’s dollars.

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avatar 3 Luke Landes

Thanks, Dan. That’s a good idea.

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avatar 4 Anonymous

I really agree with you about the interest – I often wonder how much wealth people are losing over the course of their lifetimes paying interest charges on their mortgage, cars, credit cards, furniture, and/or whatever else they finance… When I started seeing how much of my money was going to interest charges it was sickening – now that I have most of my debt paid off, it is amazing how much easier it is to pay the bills…

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avatar 5 Anonymous

8% would be wonderful. I don’t know anyone whose stock investments has been so rewarding. My return has been 5.5 over my working career.

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avatar 6 Anonymous

Interest charges are the worst! It’s a killer because before you know it, the interest really adds up and it makes that item cost more than its worth.

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avatar 7 Anonymous

If you put your mind to it is possible to reduce expenses significantly. I’m looking for an early retirement (well work becoming optional) and my thought was that it was easier to reduce my expenditure than increase my earnings. In addition to this anytime I did receive a salary increase to cover inflation I tried to save this rather than spend. With time this means in a typical month I now only spend around 17% of my gross earnings on day to day expenses.

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avatar 8 Anonymous

Certainly getting to a low fixed overhead makes sense. Several small steps together equals remarkable progress.

John DeFlumeri Jr

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avatar 9 Anonymous

You’re way too hard on the debt issue – sometimes debt can payoff rather than burden. Case in point: $35,000 medical procedure and $34,800 held in an allocated asset fund (ETFs). The decision had to be made in June of last year as the market had just begun its recovery. Rather than sell the asset I borrowed the $35k using HELOC @ 3.25% interest. At the end of 2009 assets had grown over $3,100 but MORE IMPORTANTLY $768 had been received in dividends (real cash flow) while only $632 had been paid in interest expense. Even disregarding the unrealized gains this makes sense. The gains on the investments and equity I have to buy back from the bank are balance sheet issues, but cash flow is cash flow. Respect debt – don’t fear it. As for spending I agree 100%.

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avatar 10 Luke Landes


I feel the same way about debt — it’s not evil, and it has its purposes. But what if the market unexpectedly dropped while you took out the HELOC? Risk should be factored in as well. You were lucky you needed the $35,000 medical procedure when the market was recovering. :-)

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avatar 11 Anonymous

Good stuff Flexo! I actually think ull be able to at least double the pace of asset accumulation this decade.

Momentum accelerates! Just don’t buy a Ferrari.

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avatar 12 Anonymous

Great article. I never had a problem with large expenses, when I made them they were always necessary and beyond due, but I had a problem with small everyday purchases.

So important to figure out your “latte factor” and cut it out. Really makes a difference.

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avatar 13 Anonymous

Whether or not you should carry debt varies. If your choice is take on debt and go to Princeton versus take on no debt and go to a 2-year community college, 999 times out of 1000 you take on the debt.

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