Many times we buy things because we think we need to or just want to. We don’t often think about what that money could have gone to.
Consider this. You buy a $10 lunch every single work day instead of bringing lunch from home. If you made lunch at home, it could cost on average $4.50. That’s a $5.50 difference.
That means by buying lunch instead of making it, you are choosing to spend $5.50 rather than saving it or buying something else. These small decisions add up over time. $5.50 a day is $27.50 a work week or $1,430 a year! What could you buy with $1,430?
In the financial counseling world, this is what we call Opportunity Cost.
This is the idea that when you spend money there are two things that are happening: 1) you are buying something and 2) by default you are sacrificing something else in order to buy that thing.
Thinking about Opportunity Cost is important because everything has one. If you’re not aware of what this is, you may be spending your money on things that are not as important for you.
How you can work through this
When you are having trouble sticking to your budget, try to think about it differently. For example, if you keep spending money on outside food, try to think about how long it will delay you from reaching your goal. If your goal is to go on vacation, that one meal might delay you from saving enough money for your trip.
Try to calculate how long that delay might be. Remember, one outside meal may not delay things too much, but if you are eating out every day, it might delay things significantly.
How a financial counselor can help.
You can also try discussing with a counselor how you feel about the purchases you are making. Many times we spend money out of habit, impulses, or don’t think there are other ways around it. Just sitting down with a NYLAG financial counselor to discuss this can be eye-opening and a great opportunity to be more mindful with your money.
Want to learn more about opportunity cost and how to manage?