The Weight Of Your Daily Expenses: How A Coffee Can Change Your Life
Your daily and weekly expenses have a major effect on your overall spending. Taking an interest is a simple way to spend less, enrich yourself and finance your projects and dreams. Find out how.
In a previous article, I reminded you of this excellent advice: pay yourself first. So that you can quickly build a financial security mattress and then start saving for real investments.
I’ve also provided you with a simple action plan. In just 2 steps:
- Open a Livret A or a Sustainable Development Booklet (LDD) ;
- Set up a monthly automatic transfer from your main account to your Livret A or LDD.
That’s a good start. Because you’ve done all this, haven’t you?…
If not, do it now! You’ll come back and read this article later.
The next level is to increase the amount of your automatic payments.
You have 2 options.
You can try to earn more
The first option is surely the first one that comes to mind: increase his income.
But it’s not the best option:
- First of all it doesn’t only depend on you: it depends partly on the goodwill of your boss, your HR department, your customers, … I’m not saying you can’t do something about it but you’re certainly not the only one who decides.
- Then it’s not the fastest solution. In the long term, you can very well implement actions. It is even advisable. But it will take time.
- Finally, because increasing your income without acquiring more financial discipline is like leaving a house that is too small for a bigger house: the bigger house will sooner or later be too small! You will have continued to accumulate useless things and you will have to change houses again.
Even if you already earn a lot of money, you may not necessarily accumulate a large fortune. Because the more money we earn, the more money we tend to spend.
You can try to spend less
The second option will not have impressive immediate effects. But it is much simpler and faster.
What is this miraculous option?
Simply to cut down on expenses.
This option has as many advantages as the previous one with its disadvantages:
- It’s up to you;
- it’s quick and easy;
- you discipline yourself.
So first learn to spend less by paying attention to your regular expenses, and most importantly, by paying attention to your daily expenses.
How to reduce your expenses
That’s where the coffee, tea, croissants, … that I mentioned earlier come in.
You necessarily have insignificant daily expenses. Both by their amount and by their interest and usefulness …
Instead of continuing to spend those few euros a day, what would happen if you cut back or cut short those purchases?
You could easily save £1 to £2 per day. Or 30 to £60 per month. Over a year, you could easily reach £600, or £6000 in 10 years.
It’s not astonishing. But it is already enough to finance a purchase more significant than your daily croissant :-). But let’s go a little further …
What would happen if you put in that £50 monthly? Well, you could get:
- 3156 in 5 years with a 2% investment;
- 3,320 in 5 years with a 4% investment;
- 6641 in 10 years with a 2% investment;
- 7,359 in 10 years with a 4% investment;
- 14736 in 10 years with a 2% investment;
- 18252 in 10 years with a 4% investment;
Did you imagine you could build up such capital by cutting your daily expenses by less than £2?…
If you look hard enough, you could even make more than this £2 per day…
Do you play Lotto or any kind of game of chance? Do you smoke? Do you drink bottled water? Watch TV? Do you read Gala, Voici or any magazine?…
There you go! You’ve gone to £5 per day in 5 seconds of reflection!
Spending £5 per day for 20 years, is to lose £36500 for good.
Saving £5 per day for 20 years and investing them at 4% is building up a capital of £54755.
You can go a little further and automate all this: every day, program an automatic payment of 2, 3, 5 or even £10!
First of all, you transfer this money to your Livret A savings account or to an interest-bearing passbook account. Then, every month, or when the sum is larger, you invest in your life insurance, your PEA, your PEL, …
You can also find better than 2% or 4%, available on a large number of life insurance policies.
As always in finance, the earlier you start, the better!
So act today!
And if you’re under 25, don’t tell yourself you have time. If you take the time, you’re wasting that time, irretrievably and permanently!
But always treat yourself!
Don’t make me say what I didn’t say: don’t deprive yourself of small pleasures.
I simply spoke of insignificant and useless daily expenses. This also works for all recurring weekly and monthly expenses.
You are right to treat yourself, or to treat others. It is important and by no means useless. So keep going!
But does 1 coffee a day or 1 Lotto ticket a week fall into the category of pleasure menus? Rather placebos, don’t you think?
In fact, you can treat yourself to real pleasures, menus or more significant ones, without spending those few euros. A meal with friends where everyone brings a dish, a good DVD to the local video-club, a game of cards or a board game, a picnic, …
And of course you can get real pleasure out of spending money. In a life-changing experience such as skydiving.
Plus, those small, unnecessary expenses you’ve been cutting back on, you can occasionally give in and come back to it. To please you … There’s nothing wrong with that.
But don’t fall for the easy answer, “I have a right to treat myself!”
- Do the exercise of counting your daily and weekly expenses.
- Ask yourself about their usefulness, their interest, their added value and the pleasure they bring you.
- Take a particular interest in the expenses you make out of habit when they bring you nothing.
My personal example
I did this exercise on my daily expenses.
And so I deleted:
- afternoon coffee at the office: at £0.50 a piece, that’s already £10 a month. On the other hand, I don’t touch the morning or lunch coffee 🙂
- 2 magazines that I never read completely or whose articles didn’t always interest me: £30 per month.
- my unlimited 4G subscription : I’m already enough on the Internet … And I always have a punctual 4G access. £20 per month
As well as a few other adjustments. But just with the 3 presented, I’m already at £60 per month without getting frustrated.
All in all, it’s almost £100 per month that I’m saving. Most of this money is invested in my PEA, which brings me between 5% and 6% per year.
Either £6849 after 5 years, the minimum duration of a PEA, or £12100 after 8 years, the minimum duration of a life insurance policy.
I think that’s pretty good, even though, normally, this money would have been lost for good.
Daily expenses, small or not so small but always regular, have a major effect on your overall spending. Paying attention to this is a simple way to make sure you spend less than you earn.
This principle was synthesized by David Bach in what he called the “latte factor” in Shakespeare’s language. The “latte effect” is another less common formulation.
All the small, unnecessary daily expenses that, once eliminated, can free up a few euros. Over time, these few euros add up to a much larger amount.
The whole point is not just to give up a coffee just once. It is the regular renunciation of this coffee coupled with the multiplying effect of compound interest.
It’s the basis for a good retirement that you could lose for the comfort of a small daily whim. It’s the starting point for making your dreams come true.