Money can be spent in big chunks—a house, a boat, a houseboat, a wedding, an ER visit—or it can leak out in tiny bits, with a few bucks here or there for lattes, lottery tickets, stamps, maid service, landscaping, co-pays, and so on. I won’t try to tell you how to spend your money, but it’s safe to say that no matter how you spend it—in sizeable amounts or in small increments—the goal is to use it to make you happy, typically either by eliminating hassles or providing actual utility and enjoyment. So you really must ask yourself: Do you like the way your money leaks away?
I guess there’s another question that must be asked first, and that’s: How and where is your money leaking? Len Penzo’s post about money leaks (included in last week’s tips roundup) listed six of his minor unnecessary expenditures—stuff like buying lunch at work, paying for stamps and mailing in checks rather than paying bills electronically, and getting way too much music on iTunes. These “minor” leaks add up in a big way, totaling over $1,700 a year.
Whether or not that’s money well spent is a personal decision, of course. But many people don’t take the time to realize how much they’re spending on money leaks, let alone to think about whether they’re spending their money wisely or wasting it away with little payoff in terms of happiness or hassle avoidance.
The “latte factor” is the phrase that basically means the same thing as money leak. The phrase was coined in The Automatic Millionaire, which did the math and revealed that a $4 daily latte adds up to a nearly $1,500-a-year habit, and that if you avoided such a habit and invested that same money, it’d add up to hundreds of thousands of dollars in a few decades. Regardless, a Globe and Mail writer says that the only way he’s giving up his daily latte is “if you pried them from my cold, dead hands.” The writer’s take is that his habit makes him happy, and that giving it up is hardly the only way to save money:
The Latte Factor is not the only heuristic for wealth creation, but is does fall under a more basic tenet: Spend less than you earn. That saving could come from irregular big-ticket items (such as not buying the latest large-screen TV every three years), or it could come from small, regular purchases (such as lattes or landscaping).
Absolutely true. Just as you can spend money in big or small ways, you can also save money in big or small ways. And in every situation, it’s always your call whether money is being well spent or washed down the drain.
Which brings up an interesting point: As a WSJ writer stated recently, when it comes to personal finance, what you don’t buy is even more important than what you actually do buy. Think about it. Of all the possible products to buy and ways to spend money, the consumer (hopefully) says no to far more expenses than those that he actually plops down money for. When you’re trying to serve as a budgetary role model for your kids, however, as the WSJ is, it’s often difficult to get the idea across that responsible people are constantly deciding to not buy a new car or not take expensive vacations or not buy a daily latte. For kids, it’s much easier to see where and when money is spent, rather than where and when it’s not spent. From the story:
How, I wonder, do we instill in our children this amorphous notion of nonspending? How do we get them to see that our seemingly cavalier spending is the direct result of not-so-cavalier thriftiness? How, in other words, do we make the invisible visible?
The answer comes down to openly discussing money decisions—not only in terms of buying, but not buying as well.
Donna Freedman posted about her thoughts on this matter, specifically on “What—and whether—to buy” all manner of goods and services. The post was a fun “Deep Thoughts” sort of list, with bits like:
I don’t want to be the kind of person who spends like there’s no tomorrow. Because there usually is a tomorrow, and it generally costs at least as much as today did.
And:
Hesitating over a purchase, whether it’s shoes or a soda, doesn’t mean I’m joyless. It means I’m mindful.
And when you are mindful and aware, it’s way more likely that you’ll get more enjoyment out of the money you spend—or that you’ll realize a leak is ruining your foundation, for no good reason other than that you’re too lazy to plug it up.