Which costs more: a $1,000 item or a $10 item? Mathematically, the answer to this question seems simple, but when it comes to money and how we spend it on a daily basis, the answer is much more complicated. In fact, while most people will break a sweat at having to shell out $1,000 for car repairs - or even something fun like a weekend getaway - most of us hardly think twice about spending smaller sums here, there and, well, everywhere. The problem is, these little expenses can add up in a big way.
Think your little discretionary expenses aren't making a dent in your pocketbook? We beg to differ. Check out the seven little things you're mindlessly paying for that could be costing you a million bucks.1. A daily latte
Okay, you've likely heard this tip before, but let's look at it in a bigger context than saving $50 a month. Here goes...
Unless you've been living under a rock, you're probably familiar with "the latte factor." This quaint term is used to refer to the big impact that little expenses can have on your bottom line. But if you're still buying that latte every day, you may not be aware of how big that impact really is. So let's look at it conservatively. Suppose you buy a daily latte at Tim Hortons (eh!). If you can settle for a small one, this will set you back about $2, or $10 per week if you buy one every day on your way to work. That seems like a bargain, but maybe you should head out and get that premium coffee maker instead. At a 10 percent rate of return (the average rate the TSX has returned over the past 20 years), investing that money could leave you with $56,000 in the bank after 25 years. And you can still go ahead and splurge on the good stuff at home. Even at more than $15 per pound, it's still costing you pennies per cup.2. Lunch at work
There's nothing people hate more than packing a lunch for work. (Who wants to punch the clock only to head home and get ready to do it all over again?) But with the average food court lunch adding up to at least $7, this is one choice that could cost you as much $196,890 over your working life. If you hate packing a lunch, set up some sandwich fixings or frozen convenience foods in the fridge at work, or load up on leftovers from the night before. Whatever you choose, it'll be much cheaper than takeout if you buy it at the grocery store...and you can still occasionally enjoy that sushi lunch (the wait will make it taste so much better).3. Bank fees
According to the Canadian Bankers' Association, the average Canadian spends about $16.20 per month on bank fees. That doesn't sound too bad - except when you consider that there are many accounts that cost much less - or are even free. Invest that monthly expense instead and it could net you more than $20,000 over your prime banking years. If your bank is charging too much, find a bank that offers cheaper accounts. Or talk to your favourite teller. If you're a great client and discuss alternatives, you may not have to move.4. The lottery
Canadians got in on the biggest lottery jackpot ever this year when the Mega Millions lottery in the U.S. announced that Canadians were welcome to play for a chance to win $540 million. Granted, for whoever wins, that's an unbeatable return on a $1 investment. But while the average Canadian spends $22.11 a month on lottery tickets in the hopes of striking it rich, the odds of being hit by lightning while you're checking the numbers are actually much, much better. Which brings us to our next point... There's a reason we don't spend much time thinking about being hit by lightning - because it's hardly worth worrying about. Same goes for winning the lottery. Invest that $22 instead; after 25 years, you'll have $28,000 in the bank.5. Cable TV
TV is programmed to push our pleasure buttons, and chances are there's at least one show on TV you can't stand to miss. When you consider that the average Canadian adult watches more than 28 hours of TV per week, paying $56 a month for cable seems like a bargain. But is it worth $73,000? That's how much you'll have to show for it if you invest the money instead. Living without cable is a tough sell for many people, but with the increasing number of free and discounted content available online - or even at your local library - paying for TV may not add up. And dare we mention the opportunity cost of spending four hours of every day glued to the couch?6. Interest on your debt
If you think your credit card debt is dragging you down, wait until you see how much all that interest is costing you. The average Canadian has a whopping $25,960 in consumer debt. If this balance is on a credit card, you can expect an annual interest rate of at least 18 percent; make the minimum payment, and you'll shell out more than $38,000 in interest (and get absolutely nothing more for it than the pleasure of doing business with your credit card provider). Plus, it'll take you 36 years to put that debt to rest. If you invested that $38,000 gradually over a period of 25 years instead, you'd be rolling in more than $163,000.7. Car lease
A new car looks good, smells good and rarely breaks down. That's the lure of the lease. But while leasing a car may be hassle-free, it's never a bargain. Case in point: let's say you lease a cute new car that's worth $25,000. Your new ride will cost you about $400 per month. Invest that money instead and you'll have - brace yourself leasers - more than $519,272 in the bank after 25 years (just about enough to buy yourself a Bentley). Actually, if you save the $400 per month to begin with, it'll only take you about four years to save enough to buy that same $25,000 car with cash.Small expenses matter
So what do all these expenses add up to? At a 10 percent return, the fortune you could've had will add up to $1 million dollars over 25 years. But even if you can only get a more modest 5 percent return, you'll still be bagging more than $500,000. And best of all, you don't have to ditch all of life's little luxuries in favour of saving. The point is that small expenses matter. Small savings now = big savings later on.