When I was a teenager my group of friends and I had this recurring joke where we would contextualize things relative to our common purchases to put things in perspective. In our cause the example was how many burritos from Chipotle we could purchase (I ate there a lot). A conversation could go down like this:

Friend: Hey are you up to go see a movie this weekend?

Me: I don’t know man, that’s like 2 burritos right there, plus I’m not the biggest fan of movies.

It started with just taking the cost of the alternative activity and dividing by about $8 (the cost of a Chipotle burrito at the time in my area) to jokingly see how many meals we could get if we just went to Chipotle instead. At the time I never realized that we were slowly teaching ourselves about value and the impact that certain choices had on our wallets.

In the example I gave above, it was very easy to compare two one-time experiences to one another and ask myself the question: “Which would I prefer? One movie or two meals?” With all the qualitative considerations that were present like which movie it was, how hungry I was at the time, or even how many times I had Chipotle in the last two weeks, my answer could have easily been different in different weeks.

In my experience, people that are very good at doing the comparison I outlined above where they compare a single small purchase such as a meal or a movie ticket, to another small purchase and compare the two to see where they would like to spend their money. However, it is less common for people to compare their small purchases with relatively larger purchases. For example, many people I know won't take the time to compare their $3 a day coffee purchase to some luxury goods they want to buy in a month or two or putting that $3 away for retirement.

To put it in perspective, here’s what that might look like for a single year:

Depending on your situation, you can look at this data and ask: “Is it worth it for me to give up coffee on the weekends for an extra $250 per year?” or even “What would I buy with an extra $750+ dollars if I gave up coffee for the year?” For millennials in particular, little purchases like these add up quickly and the trade off can become more significant than you might think. Let’s take the same numbers and put it towards retirement at a 10% annual return (the average annual return of the S&P 500) for years to come:

I started this blog by recalling a memory of choosing between going out to eat or going to the movies many years ago when I was considering the alternate use of the funds that I had available and the funds to be spent. With some additional context and education, you can use those same concepts, you can be empowered to make some life changes that can significantly affect your wealth in the long term. The best part about all this is that this is only one example where you can cut costs! Everyone's situation is different, and if this coffee example doesn't apply to you then maybe you can find some other sort of unnecessary spending that you can cut out so you can take that money and invest it for the future. Whether it be a short-term decision to spend $1,000 elsewhere, or a long-term decision to put an extra away $1,000 every year for retirement, I hope you take the information from today’s blog and make it work for you!

Alternative Uses for your money – Change the way you think about spending