Unnecessary expenses can be found on a regular basis as they tend to fall under the category of “comfortable items”. These are not the luxury big-ticket expenses that cost you more than $1,000 per transaction, but the five dollars here and the ten dollars there that could really be sidestepped with a little bit of preparation. By negating the Starbuck’s Equation, and applying that negation to every other convenience, one will notice an exponential change in their saving/spending power.
The Starbuck’s Equation:
The Starbuck’s Equation states that if one gets two cups of Starbuck’s Coffee (Caffe’ Latte – Tall / $3.15 or Café’ Misto – Tall / $2.20) per day, one will be spending $28 to $42 per week on coffee. This is an expense that can be cut down to a homemade coffee cost of $.0.39 per day as detailed in this wonderful article “The Math on Coffee | Homemade vs. Store-bought”. By utilizing this thinking in our everyday lives, we can easily begin to substantiate what’s necessary… and what’s not. Most people perceive avoiding unnecessary expenses comparable to avoiding the object altogether, but as just shown this is not the case. It is just a simple matter of substituting what is “easier” for what is definitely cheaper.
The easiest way to go about creating this change is to start labeling things in life that are luxury items, luxury meaning there is a cheaper alternative readily available. One such change may be switching to Netflix as opposed to keeping cable coverage. By opting to switch to just internet service, a person cuts down their bill by half, even more if they take away the landline phone service as well. That person can now still see their movies and shows on Netflix or any other streaming service online, which in most cases the premium channels now offer by way of circumventing the cable companies.
Lunches fall easily into the Starbuck’s Equation because the amount of money saved by bringing leftovers for lunch is exponential as opposed to buying a meal from a fast food chain, which now on average costs anywhere above $7. Even the store one shops at could be considered a luxury. Why shop at Banana Republic when their partner store Old Navy sells the same clothes for much less?
Knowing Where Your Money Is Going
A majority of Americans still attempt to save money while paying off credit card debt. This is a gross misunderstanding of handling money, because the interest rate of a credit card is usually 15% and up and the amount of interest paid monthly could be significantly reduced by using the money that’s not gaining any interest in the bank to pay off that credit. By doing so, one will be able to save a considerable amount more than if they let the interest get away from them.
Another problem with this electronic age is automatic payments. A person can sign up for something and not realize that they are making monthly payments for a subscription they never wanted! Checking financial records monthly is a positive step to controlling payments for unwanted services.
Avoiding The Extra
Getting big-ticket items usually results in getting a new monthly payment. For this, one can only refer to the wisdom passed from my father, “If you don’t have the money, you don’t get the item.” Saving the money for what you want is the most sure fire way to avoid falling back into the canyon of unnecessary expenses. The only exceptions to this rule are investments, purchasing things such as real estate or stocks that will create an additional income vehicle.
Sources:
Bankrate.Com: http://www.bankrate.com/finance/savings/should-you-pay-debt-before-saving-1.aspx
Frugal Mama: http://www.frugal-mama.com/