My daughter and I were talking about cars the other day. Specifically, we were discussing her family’s “need” for a new car. I was trying to convince her that driving her current paid off vehicle for a few more years could yield big financial dividends. I think I was successful, but I’ll know in the coming weeks. However, the whole discussion got me thinking about money wasters, in general. In personal finance, we talk about opportunity cost. In other words, what doesn’t happen or we can’t do in the future, because of decisions we make today.
I thought it would be an eye-opening experience to walk through a few common examples and do the number crunching necessary to highlight, in a compelling way, the concept of opportunity cost:
Constant car payments. This concept and conversation were the genesis of this article. The average new vehicle today costs about $30K. Assuming nothing down and a 5-year loan at 4%, you’d have a car payment of $552. For purpose of this discussion, I’m going to assume that instead of buying a new car when the old one is paid off our future-focused driver sticks with the old car for an additional 3 years and can save the car payment.
By following this approach, over the ensuing 40 years, there would be 15 years without a car payment. Stash that money earning a hypothetical seven percent return and you’d have a little extra cushion for retirement, travel or whatever floats your boat…heck, you could buy a boat.
Dangerous drinking. No, I’m not talking about alcohol, but the oft-mentioned daily cup of boutique coffee. Brew it at home to save $4 per day and you could be drinking Champagne in France to celebrate your DIY nature.
And you didn’t even have to give up your coffee…
Cancel one lunch out each week. You can adjust this number to reflect your own habits, but I’m counting on the elimination of one $12/week expense. Maybe that means bringing your lunch every day or just a single day, but it’s not a lot to ask and carries a big payoff.
The Big Wedding. According to The Knot 2017 Real Weddings Study the average cost of a wedding was $33,391. I’m not calling for a mass exodus to Vegas or the county courthouse as the exclusive venue for these joyous occasions, but just cutting the cost in half.
A pack a day. The cost of a pack of cigarettes varies widely from state to state, but here I’ll just use six bucks. And no, I won’t account for any additional costs created or generated by this not-so-healthy habit.
The ATM withdrawal. This doesn’t necessarily fit with my other money wasters, but I’ve always been irritated when I hit the “yes, I agree” button on the ATM to move forward with my transaction -- and be raked over the coals in the process -- but have you ever thought about what a bad deal an ATM withdrawal can be? Before I go any further, yes, I bank with USAA, so I do get up to $15 of these pesky fees rebated each month, so I’m spared, but that doesn’t lessen the money-wasting nature of a trip to the ATM for a lot of folks. Think about it. A $20 ATM withdrawal to get you through the day could very easily come with a $3.50 transaction fee. That’s nearly a nine percent fee! Fewer and bigger ATM withdrawals are the answer…or being very conscious about where you make your ATM withdrawals.
If you’re keeping track at home, we have almost eclipsed the $2M mark in opportunities lost at the 40-year mark. That equates to a whole lot of financial freedom and flexibility. Seemingly little decisions can add up in a big way.
What money drain would you add to this list?
About the Author: JJ Montanaro is a Certified Financial Planner® professional and part of the Military Affairs team at USAA. He’s a graduate of the U.S. Military Academy and has over 20 years of financial planning experience.
* Disclosure: "Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements."
The information contained is provided for informational purposes only and is not intended to substitute for obtaining professional financial advice. Please thoroughly research and seek professional advice before acting on any information you may have found in this article. This article in no way attempts to provide financial advice that relates to all personal circumstances.
No Department of Defense or government agency endorsement.
252554 - 0518
You must be a registered user to add a comment. If you've already registered, sign in. Otherwise, register and sign in.