I was inspired to write today by the edition of Everyday Cheapskate I just received: A Simple Trick to Stop Mindless Spending.

Mary Hunt makes a couple of really great points is this article, which I would like to elaborate on and add to.

Many people don’t realize where the money goes. It’s not just a problem of budgeting, it’s a problem of not thinking about it in the proper perspective.

We’re not even talking about making the tough value judgements yet – we just want to be aware of what things are really costing us.

For instance, Mary shares:

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.

Figuring the annual cost of that “trivial” expense is a great way to look at what it’s really costing you.

It’s not hard to figure it out:

• Take your monthly cost
• Add a zero to the end (multiply by ten)
• “Add a little more” (per Mary Hunt), or, for us literal folks, it’s two monthlies more.

Another illustration of this from Mary’s article:

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 plus a little ($85) is $485. Again, let’s check the numbers: $20 x 26 = $520. Not far off, and shocking when Heather has been trivializing this as just a little something she does for herself. Don’t get me wrong. I’m not against nail appointments. I just want you and Heather to know the true cost of what you believe to be insignificant expenditures.

Here’s another trick I use a lot to put things in perspective:

How many hours do you (or the wage earner in your home) have to work to pay for that?

Going out to dinner is a great example of putting this one to use.

Taking your family out to dinner at even a moderately priced restaurant is likely to run you close to $50 with tax and tip.

Even if you earn $20/hour, that’s two and a half hours’ gross pay, probably three and half hours of labor to take that home with taxes taken out.

For someone earning $10/hour, that’s probably six hours or more.

You could easily work all day just to pay for dinner!

And Mary’s final tip for today:

Be specific about your income, rather than thinking of it in inflated, general 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 net 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 … They have just $450 cash to spend each month. That makes blowing a hundred bucks here or $4.05 there more significant.

This is huge!

Isn’t that just what you always hear people talking about – “Joe makes $40K”?

Even if Joe’s salary is $40K (and it may be $38,500), taxes and other withholdings take out about a third off the top.

And of course before you think about how much you have to spend, you have to subtract out the essentials – which in many cases eat up nearly the whole paycheck these days!

Working on reducing the cost of those essentials is a project for another day… For today, it’s enough to be dealing with them as hard numbers.

So, if we

• Think concretely about how much our income is, and
• Analyze the cost of a purchase as an annual expense, and/or
• Calculate the hours worked to pay for it

…we will have an accurate picture of the true cost of that “trivial” expense, so we can make a wise, informed decision.

(This post was not sponsored or endorsed by Mary Hunt. But if you’d like to get Mary’s tips yourself, sign up for her FREE Everyday Cheapskate emails!)

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