The cost of small things


In managing their finances, most people focus on the cost of big purchases, such as a house, car, furniture, etc. As a financial planner, I have become disturbed by the scant attention people pay to the cost of small things that are bought repeatedly. Like a leaking tap that ends up wasting many litres of water, one drip at a time. Here are some examples.
ItemCost per Month Cost per YearWhat it would be worth if invested monthly for 5 years at 10% per yearWhat it would be worth if invested monthly for 10 years at 10% per year

What it would be worth if invested monthly for 20 years at 10% per year

Cappuccino
R400R4,800R30,868.70R80,583.04R289,594.69
Bottled water
R500R6,000R38,585.87R100,728.80R361,993.36
Pay TV
R425R5,100R32,797.99R85,619.48R307,694.36
Eating out
R500R6000R38,585.87R100,728.80R361,993.36
Subscriptions
R150R1,800R11,575.76R30,218.64R108,598.01
Lotto tickets
R100R1,200R7,717.17R20,145.76R72,398.67

Total

R2,075
R24,900
R160,131.36
R418,024.52
R1,502,272.46

None of this is meant to say that you should give up your cappuccino, bottled water, pay television, lotto tickets or the subscriptions to magazines you hardly read. Rather, this is meant to reveal to you “the truth about the cost of small things,” so that you understand the full cost, over a long period of time of your spending decisions. Recent research shows that your spending decisions have an impact on your happiness.
The final amount R1,502,272.46 shows what you would have accumulated in your tax free savings account if all the money spent on the small things was invested monthly at a return of 10% per year. This is the moment of truth – knowing the full cost over a 5, 10 and 20 year period of these small things. Are these small things worth it? If not, then cut out the spending completely or cut back on it. A basic tenet of personal finance is to live within your means – spend less than you earn! This requires you to develop the habit of conscious spending that will ensure that you keep track of both big and small purchases.