Check out the results of a new survey that say it's the little splurges in life that derail most people's financial plans. The summary:
While Americans are finding it harder and harder to afford big purchases such as homes and cars, a new survey of household spending and savings indicates that it's not the big-ticket items that get many consumers in trouble.
Instead, it's the little things that consumers concede they splurge on that often prevent families from reaching their savings goals. Surprisingly, the biggest culprit isn't frequent trips to the mall, according to the survey, released last week by the Pew Research Center. Many consumers say dining out at restaurants is the thing they "splurge on most."
Money is meant for splurges. After all, what's the use in saving money if we can't enjoy ourselves along the way?
But when spending gets out of control and we spend so much on dining out that we can't save for retirement, then things have gotten out of hand.
And for some people, this happens with them even knowing it. It's easy for $5 here, $10 there and so on to get lost in the shuffle. This adds up over days, then weeks, then months, and finally years. By this point, it can become a significant amount of money.
Consider these examples. What happens if you splurge/waste/lose a given amount of money per day, every day, for 40 years? What would it have been worth if you had invested that amount at 8% instead? Look at these numbers:
- Losing/spending $1 a day for 40 years is worth $94,556
- Losing/spending $2.50 a day for 40 years is worth $236,389
- Losing/spending $5 a day for 40 years is worth $472,778
- Losing/spending $10 a day for 40 years is worth $945,556
Many people rail against David Bach's "latte factor" and say that spending bits and pieces here and there really don't matter much (or at least matter as much as saving on bigger items.) Of course you'll save more by cutting bigger spending, but I think David's point is well-founded by the results above. Saving a small portion day after day for years and years can really add up -- and be a significant key to growing your net worth.