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How Small Charges Could Cost You Big Money

There are a lot of small financial transaction that happen every day and many of them are so small that you barely even remember them.  

For example: You head out for the day and pay $2 for a cup of coffee on the way to work. At lunch, you buy a pack of gum for $1 along with your lunch, which cost you $10.  Later that night, you don’t feel like walking, so you take a five-minute bus ride instead and you spend $3 on that trip. Finally, you head home and watch a movie on a streaming service that costs you $10 a month.

None of those individual charges are very large. However, when you add them all up, you’ve spent $16 during the day plus the $10 you spend monthly to stream TV and video. Again, $16 doesn’t seem like a lot, but if you have ten days like this one, you’re now up to $160 in “extra” spending each month. Over a year that becomes $1920 in additional spending. This is an example of how small charges can add up.

Little purchases (coffee, soda, apps, buying lunch out, etc.) don’t seem significant when you’re making them. Two dollars spent on a coffee or one dollar spent on a game for your phone seems like nothing and, if you keep these purchases under control, you shouldn’t have a problem. However, the potential issue is that small purchases are not memorable. This means you likely won’t keep track of them or even remember them in a week or two. This means you could very easily find yourself spending an extra $50 or $100 every month, and that can be costly. If you’re living on a tight budget or having trouble paying your bills, an extra $50 or $100 could certainly come in handy.

That’s why it’s important to recognize how small purchases can add up and to track and limit these expenses whenever possible.

Watch Out for Monthly Charges As Well

In addition to small purchases like gum and coffee, another expense that could be hurting your budget is monthly charges and subscriptions.

For example, a gym membership could cost you $50 a month or more. If you use the gym regularly, the expense might be worth it to you, but it’s a good idea to review this expense anyway. Consider the alternatives. Could you work out somewhere else for cheaper? A local community center or YMCA might be more affordable and, don’t forget, there are plenty of ways to get in shape for free. You might find out that the gym membership is worth it, but you could also realize that your money is better spent elsewhere.

Other monthly expenses that you’ll want to review include magazine subscriptions, cable bills, cell phone bills, streaming services, etc. Look and see if you could get by without some of these subscriptions or if you can find a way to reduce your monthly costs. Even if you can only reduce your monthly expenses by $5 or $10 dollars, remember that little things add up. Just like spending $10 a month on takeout coffee will increase your budget by $120 a year, reducing your monthly expenses by $10 will lower your expenses by $120 each year.

The Solution: Track Your Spending

For most people, some small purchases are fine. A few extra dollars spent here and there might not break your budget. However, it’s important to recognize exactly how much you spend and where you spend it. Without knowing where your money is going, it’s impossible to know if you’re spending wisely.

The best and most accurate way to figure out where your money is going is to track your spending.

For at least one month, record each and every purchase you make, no matter how small. You can do this with a pad and paper, a spreadsheet on your computer, an app on your phone, or whatever method works best for you. The key is to choose a method that is easy for you and one that you’ll stick to.

Whenever possible, try to track your spending throughout the day, rather than writing everything down in the evening. When you’re sitting at home at night, it’s very easy to forget several small purchases that you’ve made.

Once you’ve tracked your spending for at least a month, analyze the numbers in front of you. It might be a good idea to classify spending into different categories such as groceries, entertainment, eating out, etc. This can help you see where your money is going and it can also help you make cuts.