• The True Cost of Everyday Purchases
• Getting Out of Debt
• What Does it Cost to Pay Off $1000
• Budgeting
• Volunteer or Part-Time Work
• Checking Your Credit Report
• Improve your Credit
• Your Credit
• How to Find Money to Save and Invest
• Four Dumb Excuses That Keep You From Saving

The True Cost of Everyday Purchases

The steady drip, drip, drip of water will erode even the hardest stone.

The same can happen to your earnings. Little splurges can eat away the money that could go for the really important things in life. Your mortgage. Paying down debt. Saving for retirement. Your child’s education.

A pricey buzz

Take your $4 designer coffee. Sure, you deserve a steamy cup of luxury each morning. You work hard.

Just know that five of those premium lattes set you back $20 a week. That’s $960 a year. Think of what another grand could do in your retirement piggybank or paid on the principal of your mortgage.

A real jolt

Taking it a step further: You put your coffee on plastic each morning and, when the monthly credit card statement comes, you pay only the minimum –– typically, 2% of the outstanding balance at, say, 18% interest.

Brace for the jolt: At that rate, it will take more than 18 years to pay the $980 annual caffeine tab.

Add the $1,811 in compounded interest and deferring payment on your morning buzz tallies out at $2,700-plus a year.

Another jolt

Here’s another way to look at it: Say you earn $60,000 a year, which nets out to about $40,000 a year or about $780 a week take-home.

Even if you’re savvy enough to pay cash for your high-end java, you’ll work more than six days a year to pay for that $960’s worth of coffee.

Extreme examples? Sure, but even seemingly minor purchases can rob you day after day, week after week, month after month. Maybe a cup of home brew with a shot of flavoring is a small change that makes sense in the long run.

You’re not alone

We’re a nation of free spenders and poor savers riding on a high tide of debt. Consider these troubling statistics from the Federal Reserve Board’s Survey of Consumer Finances (2004):

• More than three-fourths of U.S. households are in debt
• The average family carries more than $5,000 on credit cards and $18,000 on installment loans
• While personal income has risen 20% in the last decade, personal spending has jumped 50%

Spender, know thyself

Ever wonder how much you spend on all those things you buy without thinking? You may be nickel-ing and dime-in yourself into frivolous debt.

Try keeping a running account of your little splurges each month. Vending machine snacks. A checkout counter magazine or the occasional CD. Even a tin of mints. Record what you spend –– to the penny.

At the end of the month, add up the costs and multiply by 12 to see the full impact over a year. If your response is, “Yikes! I had no idea,’’ consider going into scrimp mode to reduce your expenses.

Crunched by credit

Plastic is easy to use and easy to abuse. It’s so convenient that it may not seem like “real’’ money.

So, to remind yourself how “real” it is, each time you use a credit card, log the purchase in your checkbook register and deduct the amount from your balance. Monitor it often, so you won’t spend more than you have each month.

Before you buy

Managing money is all about choices. Saying yes to one purchase may mean saying no to another.

When faced with retail temptation, ask yourself:

• Do I need it?
• Can I afford it?
• Do I already have something that will do just as well?
• Can I wait until I find a cheaper, more reasonable substitute?
• Have I found the best deal?

A penny saved, etc.

Spending is fun. Scrimping isn’t. It takes planning, commitment and creativity. But the pay-off is worth it.

Here’s a checklist to get you started on a more frugal path:

Shopping

• Don’t go shopping when you’re bored, depressed or hungry. “Recreational shopping” can be expensive
• Grocery shop alone. You may spend less
• Many stores match competitors’ prices or accept their coupons. Seek them out and use them
• Ignore sales flyers and catalogs. They may tempt you to spend unnecessarily
• Carefully evaluate before buying extended warranties or service contracts. It may be better to buy products with good basic warranties from retailers who stand behind what they sell

Home

• Reducing your water-heater temperature from 145 degrees to 120 degrees can cut 10% to 15% off your utility bill
• Take advantage of homeowner insurance discounts for alarm systems, fire extinguishers, non-smokers, good driving records, good grades for students and carrying multi-line insurance with the same company
• When you buy furniture, look for pieces that can be used in several rooms. Certain tables, chairs, lamps, etc., will never be wasted if you can move them around

Finances

• Use your bank’s bill-pay or automatic withdrawal service. It’s quicker, and the typical household can save more than $40 a year on postage stamps
• The next time you get a raise or a tax refund, put half of it into savings. If you’re not used to the money, you may not miss it
• When you pay off a car or other loan, keep making the payment –– only to yourself by putting the money into savings or an emergency fund

Entertainment

• Go to matinees, instead of evening movies. In some cities, matinee prices are as much as half as the night time screenings
  
• Skip a meal out each week. Depending on the size of your family, you could save $160 a month –– or $1,920 a year

Transportation

• If you live in an area with good public transportation, see if you can get by without a car. Or look at ride-sharing and car-pooling
• If possible, purchase airline tickets in advance, and travel home on a Sunday

And, there’s more

• Phone features like speed-dialing and three-way calling can cost an extra $2-$3 a month. Do you really need the frills?
• Take advantage of beauty schools. They’re always looking for people to practice on and typically do a good job, since the students are watched by their teachers
• Save your change in a container and let it accumulate for a year. (Note: Banks often count it for free; counting machines in grocery stores usually charge a fee)

The bottom line

Now, after you make changes, what can you do with all the money you’ll save every month?

Try paying yourself. Funnel that extra money into your retirement savings, an emergency fund or a vacation account. Each may help you achieve a debt-free retirement in its own way.

For help with planning your retirement, talk with your investment professional. Don’t have one? Find out why to work with an investment professional and how to choose one.