When you spend money instead of invest it you choose consumption today over a...show more instructions
The True Cost Of An Expense
If you believe the cost to buy something is just the money you spend on it, then read closely because you're in for a surprise.
The true cost to own a new car, gadget, or other item is much higher than you might initially imagine.
Why? Because the real cost is the forgone interest that could have been earned over your lifetime had you invested that money instead of spent it.
Some people spend money the moment they receive it. Others save as much as possible to build a brighter future.
These spending patterns are usually ingrained early in life by your family upbringing – children mirror their parents’ spending habits. Money-handling habits are based on training and the money management lessons we learned as kids.
Whatever your views and attitudes are toward money, it is important that you understand the real cost of spending. For example, when you buy a can of soda for $1, the true cost of the soda is not only $1. If you were to have invested that dollar instead of spent it, you could have earned interest over time.
This cost calculator will help you understand how much interest you could make if you skip an expense and invest instead.
Curb Your Spending Habit
If you're a compulsive spender, you probably can't wait to pay a visit to the local shopping mall after receiving your paycheck. With cash in hand, it's difficult to resist the urge to spend it instead of saving it. This is the reason why you don’t have any savings in the bank.
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Before you bury yourself in debt, you should slowly curb your spending habit. But how do you start? The time to start cutting costs is now. Below are some simple ways to curb your impulse to spend:
- Avoid using your credit card – Spending with a credit card can quickly lead to overspending. Try paying with cash when shopping. If you cannot pay cash for your purchases, this means that you cannot afford it.
- Check your account balance every time you draw money – There are probably times when you aren't sure how much money you have in your bank account. Seeing a low account balance can help discourage you from spending.
- Inform your family about your plan to save money – Ask for their support to help you change your spending habit – accountability is key.
- Give yourself a treat – Occasionally reward yourself so you don't feel deprived, but just make sure that you don’t overindulge.
- Avoid the mall – To keep yourself from impulse purchases, avoid spending time in the mall. Try to keep yourself busy or do other things that do not require you to spend a lot of money.
- Understand the difference between a want and a need – Before you take something off the shelf, ask yourself if you really need it. A want is something that you can live without.
- Set some goals – Write and post your goals where you can see them every day. Your goals should be your source of motivation for saving money.
The Spending Calculator is a great way to realize the true cost to own of just about anything. Calculate a few items you've been thinking of purchasing, and find out how much those items will really cost you. You'll be shocked at how much interest you'd miss out on if you were to purchase those items.
The forgone interest is the true cost to spend and usually exceeds the purchase price of the thing you want buy.
What Is Your Spending Habit?
Are you saving enough for your future or are you a compulsive spender? No matter how you view money, it is important that you keep saving for the future. Review your budget and cut back unnecessary expenses. The earlier you start saving, the better!
Spending Calculator Terms And Definitions
- Dollar Amount – The amount of money of an unnecessary, non-investment type expenditure you are contemplating.
- Annual Interest Rate – The annual return on investment (%) you could earn if the money were invested rather than spent.
- Number of Years – The number of years you would like to estimate your growth; either the estimated number of years remaining in your lifetime or the number of years until retirement.
- Forgone Interest Earnings – The money you could have earned if you invested the money rather than spent it.
- Real Cost of Expenditure – The real cost of your unnecessary spending after the given number of years.
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