Everyday Cheapskate

Most of us think of spending money in the least painful terms. I suppose that's only natural. If we could see clearly how a simple purchase fits into the big financial picture, perhaps spending money on little stuff wouldn't be quite so easy.

According to Starbucks, the average customer spends $4.05 per visit for coffee and makes 18 visits per month. I'm fairly certain that most of these customers think of that as a series of $4.05 expenditures because it's less painful than seeing it as an $874 annual expense, spent $4.05 at a time.

Get into the habit of quickly calculating the annualized costs of things and you'll achieve an effective way to get mindless spending under control.

Here's the rule: Take a monthly figure, and then add a zero plus a little. Say you spend $5 a week in the vending machine at work. That $5 weekly expense is about $20 a month. Now add a zero ($200) plus a little (say, $50), which makes it $250 a year. Let's check the numbers: $5 x 52 equals $260. Pretty close! Do you get it? Adding a zero to a monthly expense gives you a 10-month equivalent. Adding a little accounts for the other two months in a year.

Here's another example. Heather gets her nails done every two weeks at a cost of $20 per visit. That's about $40 a month. Times 10, that's $400. Adding a little (say, $85) makes it $485. Again, let's check the numbers: $20 x 26 equals $520. Not far off — and shocking when Heather has been trivializing this as just a little something she does for herself.

Most people think of their incomes in loose, inflated terms. Take Tom and Susan. They live in the false security of a $50,000 income, as in "We make $50,000 a year, so we should be able to buy what we want without feeling guilty."

The truth is Tom makes $48,275 a year, which is close, but not exactly $50,000. Allowing for taxes and other payroll deductions, their take-home pay is something closer to $35,000. Of that amount, their actual discretionary income (what's left after allowing for essentials of food, shelter, insurance, transportation, etc.) is more like $5,000, hardly the fictional $50,000 on which they base their lifestyle.

With practice, Tom and Sue can get real about their income by thinking in more realistic terms. They might make close to $50,000 a year, but they have just $450 cash to spend each month. That makes blowing a hundred bucks here or $4.05 there more significant.

Start annualizing your spending, and think of your income in realistic terms. It's painful at first, but once you get past the shock, it will keep your financial feet planted in reality. Even better, money will stop dribbling out of your life.

Mary Hunt is the founder of www.DebtProofLiving.com and author of 18 books, including her latest, "Can I Pay My Credit Card Bill With a Credit Card?" You can e-mail her at mary@everydaycheapskate.com, or write to Everyday Cheapskate, P.O. Box 2135, Paramount, CA 90723. To find out more about Mary Hunt and read her past columns, please visit the Creators Syndicate Web page at www.creators.com.

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