Want an Eye Opener for your Finances? Do This

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In my planning for the year to see if I can reach the $385,000 or $400,000 net worth by the end of the year, I did something that I usually don't do.  I calculated my budget for the year on expenses that I usually pay (e.g. fixed expenses) and expenses that I usually spend.

As you know, I am a big fan of “setting it and forgetting it” where I do automatic deductions from my main chequeing account and move it to my savings account.  Since last year my net worth didn't increase as dramatically as I had hoped, I thought it might be prudent to calculate where my money is going.

Related: YNAB (You Need a Budget) Personal Finance Software Review

Want an Eye Opener for your Finances? Do ThisSo I did what any good personal finance fan would do, I looked at what I spend my money on.

  • I added up my car insurance
  • I added up the maintenance fees on my condo (the small fee adds up to a large sum at the end of the year)!
  • I added up the interest I pay on my mortgage (which was another wake up sign because I should really pay this down since I am paying interest, which adds to the cost of the home and affects how much I actually “take home” if I were to sell this home later on)
  • I added up my phone bill and my internet bill
  • I added up my hydro, my property tax
  • I added up how much I would usually spend on my pet
  • I added up how much I spend on beauty products, haircuts, and grooming (I already limit myself to pedicures only four times a year haha)
  • I also added up how much I usually spend on entertainment, food, and gas

The numbers sort of “blew my mind”…

On a monthly basis these costs aren't that much but when you multiply it by 12… that's a lot of money!

Geez, it's expensive to live here!

So to really get an eye opener for your finances:

Calculate the Long Term Cost

Multiple your monthly costs by 12!

So to really open your eyes on how much you are spending and how much what you are spending on is eating away at your future wealth, sure $56 a month doesn't seem like very much when you think about it on a monthly basis but when you multiply that by twelve, you get a different number.

I'm spending X amount of dollars a year on that? 

Is what you should be thinking.  This conscious awareness of your spending habits will influence you to change your current spending habits and propel you to change your behaviour.

Yahoo Finance also agrees, check out the post on 6 Little Things that Cost a Lot (I should add – in the long run).  Sure that $4 coffee isn't very much on a per day basis, but when you add it up over the year, it's kind of shocking.

I already avoid eating out for lunch regularly, I don't smoke, I'm not an alcoholic (phew!), I don't buy a latte or a Starbucks coffee every day.  I'm avoiding the Latte Factor (by the author of the Automatic Millionaire) and the Ghost Money (as Kevin O' Leary coins it), but there are still some things that I could cut back on if I wanted to.

For example, seeing how much interest I am paying on my mortgage had made me realize that I should be paying that sucker down as fast as I am able to.  If the annual mortgage interest overshadows what I am currently making in dividend income then it doesn't make sense to use my money investing in dividend income.

It's a good exercise to do from time to time, to raise your awareness on the unconscious spending that we do which inevitably adds up over time.  It certainly worked for me.

What I'm Going to Change

I'm going to reduce the cost of my haircuts (sometimes it costs over $200 to highlight and cut my hair) because I already go pretty infrequently.

I might look into an alternate way of spending my money on data.  I currently use a separate data plan for my tablet (tethering to my iPhone is too much of a hassle) and it has been costing me about $25 a month on average extra.

I am going to analyze different ways I get maximize the interest on my mortgage, perhaps looking at the Smith Maneuver or something like that so I can deduct the cost of it, since they recently cut interest rates.

Readers, have you calculated your “long term” cost of how much your seemingly unconscious spending habits are costing you?

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Young is a writer and former owner of Young and Thrifty and the main "twitter' behind Young and Thrifty's twitter account. She lives in Vancouver, BC and enjoys long walks on the beach, spending time with her anxious dog, and finding good deals. If you like what you read, consider signing up for email updates.

1 Comment

  1. Sean Cooper, Financial Journalist on March 7, 2015 at 6:06 pm

    I guess that’s similar to the Latte Effect. $2 a day on coffee may not seem like a lot, but over a year you’re spending over $700. Over 10 years that’s $7,000. Is that still chump change?



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