Budgeting Trade-Offs And Spending

J.D. Roth over at Get Rich Slowly recently pointed out that every financial decision we make is a trade-off. While this may seem self-evident enough--i.e. if I spend $1000 on a vacation, then I can't spend that $1000 on a  brand new television. Usually, this relationship is most evident when we are dealing with large expenses. That is, we recognize that by choosing to spend five hundred dollars on one item, then we cannot spend that kind of money on another item. That's Budgeting 101. But it is with smaller purchases that it is easier to forget this truism. If you regularly go to McDonalds for lunch, you might think of it as a meaningless $4 purchase that won't affect your finances much. However, if you go to McDonalds three times per week, then you are spending about $12 per week, or $48 per month at McDonalds. Annualized, this comes out to a little less than $600 per year. This is neither a good nor a bad thing. All I want to point out is that it is important to remember that small, frictional expenses can add up over time, depleting your money gradually and relentlessly without you even realizing it. If you want to read a great article that points out how this applies to all areas of our life, be sure to visit Mr. Roth's article at Get Rich Slowly by clicking here: http://www.getrichslowly.org/blog/2011/07/05/every-purchase-is-a-trade-off/ .

The Financial Costs of Bad Habits

Jeff Rose over at Good Financial Cents recently ran an interesting article about the types of bad habits that suck the disposable income out of people. I always enjoy reading articles like these because it is helpful to remember to avoid the 'death by a thousand cuts' syndrome that can severely cripple your financial health if you're not careful. The typical example that those in the financial field like to use is the hypothetical $5 cup of Starbuck's coffee. There is a reason why this is the universal example used--if you get a $5 coffee every morning before working, you're looking at about $100 monthly expense, or a $1000+ annual expense that could easily be eliminated. If possible, you want to plug up all of these leaks in your financial boat. It is incredibly easy to fall into the trap of allowing $2 to $3 frictional expenses to slip out of your wallet with your really thinking about it, and that's what makes it so dangerous and tempting. Any regular expense that you throw your disposable income towards could threaten your financial future, and ultimately, you're going to have to decide whether you can afford to be blowing that kind of money in this economy, because often, the small frictional expenses can add up to be quite more than you realize. If you want to read Mr. Rose's great article on the subject, click here: http://www.goodfinancialcents.com/bad-financial-habits-how-to-breaking-them/