Written by Kelley Keehn
Monday, December 11th, 2017
If you're trying to get on track financially, you've heard it a million times. Give up your latte, brown bag your lunch to work and throw away the bucket list. Is that really the prescription to a balanced financial life?
Many money experts agree that if Canadians would only pay attention to the big financial issues and wastages in their life, they could actually enjoy many of the smaller day-to-day indulgences that make life worth living!
Sheila Walkington, Certified Financial Planner and Co-Founder, Money Coaches Canada agrees. "I see that all the time. I don't actually see people sort of sacrificing, but I do see them making silly mistakes, like not paying the credit card in full."
Here are some examples of how smart spending choices on big issues can make room in your budget for small luxuries.
Choice - Avoid Buying a New Car Every Few Years
Chances are, if you look around on your way to work, you'll see a majority of nice, new cars. But that comes at a huge cost. The average car cost is $21,352. The moment you drive it off the lot, it depreciates by a whopping 11%! In three years, that loss adds up to $10,947.
Makes Room For - A Fancy Coffee Every Day
If you enjoyed a latte every day at $5 per day for 365 days over three years, that would cost you $5,475. If in the example above, you kept your car for at least six years, you'd save $10,947 in depreciation. That's a lot of coffee, or whatever else would make you happy in those years.
Choice - Avoid Paying Only the Minimum on Your Credit Card
The Canadian Bankers Association reports that 58% of Canadians pay off their credit card monthly, but the average holder owes $3,954. If that balance is on a department store card charging 29% annual interest for example, by only paying the minimum (and not putting on a penny more), according to the Financial Consumer Agency of Canada's calculator, it would take 5 years and nine months to be done with the debt and would cost $4,141.41 in interest. That's more than the amount owed – ouch!
Makes Room For - A Bucket List Item
If you vowed to ditch the high interest cost of carrying a credit card balance, think of what you could indulge in that would equal that $4,141.41 in interest saved. Perhaps a trip to that place you've been dreaming of?
Choice - Paying Down Your Mortgage Principal
The average Canadian has a mortgage of around $200,000. If that mortgage had a 5 year fixed rate of 5.00% and a 25 year amortization, the cost of that mortgage (assuming interest rates never rose), would be $148,963. But if in this example you paid just $200 more a month (just under $7 a day), you'd save $41,256! (Note: You'll want to explore what mortgage prepayment options you have available to you to avoid being charged a fee for prepaying.)
Makes Room For - Taking Time off Work
Can you imagine taking a three-month sabbatical from work in the future? It's totally possible if you know what your monthly expenses are and plan ahead.
"It all comes down to having a plan, how much can you afford on small indulgences and how much are you committing to savings and debt repayment," says Walkington. "Overarching, you need a plan to know your numbers, what you can afford to do and what you can't."