How Much Are Your Habits Costing You?

Making a Starbucks run on your way to work probably doesn’t seem like that big of a deal. Your soy caramel latte costs, what, $4?

That isn’t enough money to make or break your budget, so you probably didn’t give it a second thought. But what happens when it becomes a habit? What happens when an occasional splurge turns into something that happens more than once or twice per week?

David Bach made this concept popular when he invented the term “The Latte Factor” and used it to illustrate how subtle, frequent habits can wreak havoc on our budgets. According to Bach’s website, the latte factor is a metaphor for “those unnecessary ‘little’ expenditures that we waste our money on, without realizing how much they add up to.”

Obviously, the latte factor isn’t limited only to purchases made at your favorite neighborhood coffee shop; it can apply to almost any spending leak you have. So how much are your habits costing you? The truth is, it depends.

Those Constant Money Drains

It is probably okay to splurge occasionally, but what we’re focusing on here are the constant money drains that you may not even notice. These daily or weekly habits could be costing you in a big way, while not really adding value to your life, which is why it is important to identify them and figure out a way to reduce their impact.

To see how much some of the most common habits cost, let’s look at a few different scenarios:

  • Example 1: John smokes a $5 pack of cigarettes every day. Over the course of one week, he will spend $35. In one year, he will fork over $1,820. And during his first decade as a smoker, John will spend $18,200!
  • Example 2: Mary refuses to brown-bag her lunch and instead spends an average of $10 to eat at a restaurant with her friends each workday. Over the course of one week, she will spend $50. After the first year, she will spend $2,600. And if she keeps it up for a decade, Mary will spend $26,000!
  • Example 3: Amy pays her credit card bill late every month, resulting in a $35 late fee. After the first year, she will have spent $420. If she continues this habit for a decade, she will have flushed $4,200 directly down the drain!

You get the picture. Spending $5 or $10 per day may not set off a red flag, but seeing how those expenses add up over the weeks or months can really turn it into a pants-on-fire emergency. With any of these habits, it’s the long-term impact that will come back to bite you, not the daily cost. So, what do you do?

How to Rein In Your Spending Habits

Obviously, it is unreasonable for anyone to expect you to stop drinking chai lattes or going out to dinner altogether. Still, that doesn’t mean you must resign yourself to a financial death by a thousand cuts. You do have some control here. Here’s what you should do:

Step 1: Identify Your Spending Weaknesses

First things first: Before you can take any actionable steps to rein in your spending habits, you must acknowledge them. Make a list of every place you spend money for an entire week, then see if you can spot any patterns. Maybe you’re buying a new shirt after work every Friday or buying five bottles of wine at the same store every Saturday. Whatever it is, identify it. Then proceed to step #2.

Step 2: Ask Whether Your Habit Is Adding Value to Your Life

Once you identify your spending patterns, it’s time to figure out if the total cost of your habit is worth it. If you’re spending $80 on private yoga lessons each month but loving every minute, you may find that your habit is well worth it. Likewise, if you’re spending $40 buying lives on Candy Crush Saga every week, there’s a good chance you’ll want to cut that out.

Step 3: Try to Do It More Cheaply

With many spending habits, you don’t have to quit them altogether. In some cases, you simply need to find a cheaper alternative. For example, you could learn to make your favorite coffee drink at home, find a less expensive wine you still enjoy, or learn to cook Thai food so you aren’t always craving takeout.

Step 4: Simply Cut Back

Maybe you don’t want to give up your favorite coffee, manicure, or magazine subscription, but would you at least consider cutting back? Eating out once per week will always be a lot less expensive than eating out five times per week. If you don’t want to quit your habit or substitute something else in its place, consider cutting back and turning it into an occasional splurge instead of a daily event.

Unless you have a money tree in your backyard, you only have a certain amount of cash to work with every week, month, or year. If you want to make the most of it, you need to optimize your spending and cut out as much waste as you can.

Sometimes that may mean quitting habits that are fun or entertaining, but ultimately prove to be a huge drain on your resources. And sometimes, all it takes is replacing a bad habit with a good one.

What are your worst spending habits? Have you ever tried to break them?

Holly Johnson

Contributing Writer

Holly Johnson is a frugality expert and award-winning writer who is obsessed with personal finance and getting the most out of life. A lifelong resident of Indiana, she enjoys gardening, reading, and traveling the world with her husband and two children. In addition to The Simple Dollar, Holly writes for well-known publications such as U.S. News & World Report Travel, PolicyGenius, Travel Pulse, and Frugal Travel Guy. Holly also owns Club Thrifty.