These Hidden Costs Are Destroying Your Ability to Build Wealth

More often than not, it’s the smaller expenses that hinder people the most.

Why?

Because you assume that they’re insignificant.

But, when they build up, they’re far from this.

Building wealth is a common goal, but it’s easier said than done.

It requires work on multiple fronts, like increasing your income and investing.

But, one aspect that goes under the radar is to fix poor spending habits.

This is common, when smaller costs don’t get counted because they’re “insignificant”.

It’s a common thing to find yourself missing out on targets due to complacency.

And not taking all these small expenses into account, which add up to a much larger sum.

Let’s dive into the issues surrounding smaller expenses & the importance of acknowledging them…

The Latte Factor

One hidden cost of overspending is the “Latte Factor.”

It refers to the small expenses that many indulge in without thought.

Buying a morning coffee or eating out for lunch.

While these expenses seem harmless, they can eat into your budget, due to thinking they won’t affect anything.

Spending $5 on a daily coffee adds up to $1,825 in a year.

Imagine what you could do with that money if you invested it, either into the stock market or into yourself.

By being mindful of these, and finding ways to cut back, you can speed up your wealth-building efforts.

Sure, the latte factor seems harmless, but the importance here isn’t always to cut down on the little things.

It’s to account for them.

Even if you still want that $5 coffee each day, that’s fine, but don’t leave it out of your budget.

Impulse Purchases

Impulse purchases are another hidden cost of overspending that can accumulate.

It’s easy to succumb to buying items on impulse.

Whether it’s something on sale, a trendy gadget, or anything you want in the present moment.

But, these unplanned costs can add up, and erode your savings and investment potential.

To combat impulses, establish a waiting period, say 24 hours, to check whether the buy is worth it.

During this waiting period, consider asking yourself questions like…

• Do I need this?

• Can I afford it without affecting my savings or investment goals?

• Will this purchase bring me long-term value?

This can help you make more thoughtful decisions.

The one trick that always works for me is that I always ask myself this question…

“Will this item have the same value to me on day 100 as it does on day 1?”

In other words, am I going to regret this purchase in a few months time, or not?

It sounds excessive. But, it’s self discipline that’s lead me to be in the position that I’m in today, helping others improve their finances.

Unused Subscriptions

Subscription services and memberships have become more popular in today’s digital age.

• Streaming services (Spotify, Netflix etc.)

• Gym memberships

• Meal delivery services

• Monthly beauty boxes

These can add up and impact your budget, and once again, it’s all about accountability.

The solution with a subscription is about giving them necessary attention.

We’ve all had subscriptions that we still pay for that we don’t use.

Why do we do it?

Convenience?

Can’t be bothered to cancel?

When looking at the memberships that you’re still subscribed to, think of your future self.

Does your future self wish you’d take 5 minutes to cancel that gym membership that you haven’t used in 6 months?

I think so.

As long as you know what you’re paying for, you’re able to assess the value of your memberships.

Consider cancelling those that you don’t use, and redirect those funds towards your wealth building mission.

Convenience Expenses

Convenience expenses, such as…

• Ordering takeaways

• Using ride-sharing services instead of public transport

• Opting for expedited shipping

…are also hidden costs.

While convenience expenses offer you… convenience, it comes at a larger-than-necessary price.

With convenience expenses, the thing to consider is if these expenses are cost-effective. Or, if it’s a better idea to use your time to replace the convenience.

For example, instead of ordering takeaways, you can use your time to prepare meals at home. This is not only healthier, but also more cost-effective.

The trade off here is your time.

Would your time be better off spent elsewhere?

If so, then the takeout might be worth it.

If not?

Something has to change.

Credit Card Interest

Credit card interest and fees can be significant hidden costs.

If you only make minimum payments, you may end up paying a large amount in interest over time.

Also, late fees, annual fees, and other fees can hinder your ability to build wealth.

To avoid falling into the credit card debt trap, pay off your credit card balances in full each month.

Be mindful of credit card fees and choose credit cards with low or no annual fees.

Or, unless you’re trying to build credit, don’t use a credit card if you’re struggling to pay off in full each month.

Final Thoughts

Whilst investing & increasing your income are crucial for wealth building, it’s essential to be mindful of your spending.

Small expenses that may seem insignificant, can accumulate and derail your financial goals.

To combat this, consider these:

• Account for small expenses.

• Consider any alternatives.

• Prioritise your future self over your present self.

When it comes to spending, your discipline is going to play a much bigger part than your knowledge.

Although the more important part is increasing your income, don’t neglect financial discipline.

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