Spending Out of Control? Fight The Latte Effect

What Do You Spend On?When you’re the world’s largest retailer, famed for squeezing massive profits from the tiniest of margins, you’re going to be very curious about people’s spending habits. So it makes sense that Walmart Canada commissioned a study of people’s spending power, calling it the Income Tracker. In April, the company released its first report, showing that Canadian families have seen their disposable income shrink for nine straight months (going back to July 2011). Specifically, “After paying taxes and living costs, the average Canadian household had $11 less per month spending power” in February 2012 compared to February 2011.

Given that, it makes sense for us to be more frugal with the money we do have. Here’s some ways to cut back on your daily expenses.

The Latte Effect

Have you ever stopped to wonder how much you spend on those daily takeout coffees you buy? Credit counselors do. “It’s called ‘the latte factor.’ People spend more on their morning coffee than they realize,” says Henrietta Ross, CEO of the Canadian Association of Credit Counselling Services. “If you’re spending $2 or $3 in the morning, then again in at lunch or in the afternoon, then add to that a little goodie, you’re looking at $10 or $20 a day. Multiply that by 20 days a month….” Even a $5 a day workday habit adds up to more than $1,200 in a year.

Eating out can be another costly and largely frivolous expense. Even at fast food chains you’re lucky to walk away paying anything much below $10 for lunch; opt for a sit down meal with a beer or glass of wine and your lunch break can easily set you back $20 or more.

Ross’s simple suggestion: “Bring your coffee from home and pack a lunch and you’ll save quite a bit of money every month.”

Buy Gently Used

There’s a great truism in the line about how a new car loses value the minute you drive it off the lot. It’s not new anymore so no one’s going to pay the premium for that little detail. And why would they? Provided it hasn’t been in accidents or otherwise abused, you can get an almost new car – perhaps even still under the manufacturer’s warranty – for thousands of dollars less than you’d pay for that new car smell. (For peace of mind, hire a mechanic to inspect any potential used car before you buy.) And, as Ross points out, by buying a cheaper car, the less you’ll pay in sales tax. You’ll probably even get a break on your insurance rate.

This concept doesn’t just apply to big-ticket items. Over the years my family has saved countless thousands of dollars buying “previously enjoyed” clothes, furniture, children’s toys, bicycles and so on.

Bank On It

When you consider how hard you work for your money, and how easy it is to fritter away (see above), it’s astonishing how many people don’t think twice about the amount of money they waste accessing and spending their money.

Use your card to take money out of another bank’s ATM and both will hit you with a service fee. (And you wondered how they managed to rack up billion-dollar quarterly profits!) Add in fees for making more than a couple ATM withdrawals a month, fees for writing cheques, fees for ordering new chequebooks, fees for making Interac withdrawals, and so on and it can quickly add up to having nothing left in your account. Over the 10 or 15 years I’ve had my no-fee bank account I’ve easily saved thousands of dollars in fees.

Smart Credit Card Use

Credit cards represent the other side of the banking coin. We’ve written at length on this blog about how you should never carry a balance on your credit card. Once you’ve mastered that trick, though, you can focus on using your cards to pay you. With the MBNA Smart Cash MasterCredit credit card, for example, you can earn up to five percent cash back on select purchases. Click here see why the Smart Cash Credit Card earned top honours in a credit card head-to-head competition.

Related Topics

Lifestyle / Personal Finance / Personal Finance News

Leave a Reply