It's easy to not think about how little expenses add up over the course of an entire year. Use this simple mental calculation to quickly estimate the yearly expense and think about what better use that money could be put towards.
Photo by borman818.
Over at the financial and frugality blog The Simple Dollar, they highlight the importance of seeing the big picture behind small ticket spending. If you think of expenses in terms of their annual cost instead of their daily or weekly cost, you're more easily able to think of better places to spend the money than the coffee shop. They offer this simple technique for making a quick mental estimate when you're without a calculator:
First, they figured up how much a week of such purchases costs. If you do this thing once a week, it's easy. If you do it more than once, double it or triple it – whatever's appropriate. If you're unsure about the pennies, round to the nearest dollar. So, if you get a coffee and a bagel for $US5.46 three times a week, round the amount to the nearest dollar (down to $US5) and multiply that amount by three, giving you $US15.
Next, add two zeros on the end. That's easy enough. If your current amount is $US15, your new number is $US1,500.
Finally, divide that number in half. If you can't do it quickly, feel free to adjust the number from the second step. So, for example, if you have a hard time dividing $US1,500 in half (it's $US750), just add $US1 to the original $US15 and divide that resulting number in half – $US1,600 divided in half is $US800. I suggest adjusting up if you rounded down in step one or adjusting down if you rounded up in step one.
You may of course decide that whatever small expense you're incurring is worth it and justified, but at least you'll be aware how much you're spending and if it really is worth not making an extra house payment or 401k deposit. Check out the full article for more information at the link below. Have a tip or trick regarding quick mental calculations? Let's hear about it in the comments.
Mental Math and Good Spending Choices [The Simple Dollar]