How much do unnecessary costs really cost you?
Rasa Beiniute, Head of Investor Relations at Röntgen
A routine takeaway order, an impulsive clothing purchase, a trinket from Temu or AliExpress, a forgotten subscription to an app that is no longer used, daily drinks and snacks at the petrol station, or a host of other unnecessary expenses are tens of times more expensive than they seem at first glance, if only we were able to accumulate and invest these funds. This is my answer to all my friends who say they have nothing to save or invest.
Many of us have habits and temptations that are not the most rational, and which often mean unnecessary expenditure. We are taught from childhood that unnecessary, small but frequent expenses that are saved turn into a significant amount of money over longer periods of time. This is mathematically obvious: three euros saved every day translates into more than a thousand euros a year.
Some people manage to give up habits and addictions that are obviously harmful to their health, but the “dopamine hunger” is often ready to be filled by non-essential emotional purchases: treats, clothes, accessories, equipment, travel, and countless others. Their price is not fixed at all, and their frequency may depend only on the thickness of the wallet.
Similarly, despite a full fridge, some of us are still tempted by food deliveries, sweets, miracle supplements or beauty products, intriguing promotions or even lottery tickets, and other temptations in almost every supermarket. Many of us will also discover entertainment, courses, games, content or other subscriptions that are no longer actually used but which cost money every month. Studies show that Americans spend over USD 3,000 a year on impulse purchases, while forgotten subscriptions and subscription fees alone amount to around USD 350.
Even €1 for an item that we don't really need is too much, and even such small expenditures reduce our financial capacity both today and, even more so, tomorrow. There are no quick cures here, but a simple exercise to get you thinking is to calculate the final cost of such purchases.
Take any unnecessary and daily expenditure of €3: it seems obvious that this costs over €1,000 a year. This is a significant but life-changing sum, especially if we break it down into 365 daily instalments. Over a decade, cutting out this expense would already save almost €11,000 - a solid result, but one that is undermined and delayed by the correspondingly long ten-year period.
I have another idea: to count these savings not only as “accumulation” but also as investment and reinvestment of the interest earned. Even with a fairly conservative expectation of an 8% annual return in stocks, bonds, funds, crowdfunding or other time-tested avenues, this would translate into almost €17,000 over a decade. Maybe still not impressive enough, but already noticeably more than just saving. But more importantly, you are acquiring a new, very healthy and, for some people, “good” addiction: spending money more responsibly and growing it.
Let's go even deeper. Thanks to the compound interest effect, the ratio of returns an investor earns each year grows faster and faster, so that in two decades, saving and investing €3 every day with the same return will turn from €12,000 to almost €54,000. And even over €130,000 in three decades.
This daily saving of €3 would not be very painful for the average citizen. It is very likely that each of us would find many more unnecessary expenses that could turn from €1,000 a year into two, three or even more thousands. Let's say a saving of €200/month (or €2,400/year) through investment and reinvestment would already translate into €36,000 over a decade. This could be the true cost of unnecessary expenses: one other everyday detail or episodic impulse purchases can actually cost one good new car over a decade.
Of course, the real numbers are based on everyone's personal spending and capabilities, but many of us can be encouraged to think about the fact that every saving can be invested and reinvested rather than being arithmetically added to. And the longer we do it, the faster our earnings grow each year.
As a personal tip, actively tracking your spending can quickly become a source of frustration, so my tried and tested method, which works well, is to set aside as much as you can after you get your monthly salary for saving, investing and living off the rest. When you only have enough money left in your account for the month, unnecessary purchases come off quickly and painlessly.
It is said that people who don't limit impulse spending often feel guilty, and those who are more in control of their finances are more likely to live with lasting satisfaction with their decisions. But even more control and lasting satisfaction will come from knowing that you have a secure and growing sum of money just by cutting out a few unnecessary expenses. Or a sum that works and earns more each year if you invest the savings.
How much do unnecessary costs really cost you?
Rasa Beiniute, Head of Investor Relations at Röntgen
A routine takeaway order, an impulsive clothing purchase, a trinket from Temu or AliExpress, a forgotten subscription to an app that is no longer used, daily drinks and snacks at the petrol station, or a host of other unnecessary expenses are tens of times more expensive than they seem at first glance, if only we were able to accumulate and invest these funds. This is my answer to all my friends who say they have nothing to save or invest.
Many of us have habits and temptations that are not the most rational, and which often mean unnecessary expenditure. We are taught from childhood that unnecessary, small but frequent expenses that are saved turn into a significant amount of money over longer periods of time. This is mathematically obvious: three euros saved every day translates into more than a thousand euros a year.
Some people manage to give up habits and addictions that are obviously harmful to their health, but the “dopamine hunger” is often ready to be filled by non-essential emotional purchases: treats, clothes, accessories, equipment, travel, and countless others. Their price is not fixed at all, and their frequency may depend only on the thickness of the wallet.
Similarly, despite a full fridge, some of us are still tempted by food deliveries, sweets, miracle supplements or beauty products, intriguing promotions or even lottery tickets, and other temptations in almost every supermarket. Many of us will also discover entertainment, courses, games, content or other subscriptions that are no longer actually used but which cost money every month. Studies show that Americans spend over USD 3,000 a year on impulse purchases, while forgotten subscriptions and subscription fees alone amount to around USD 350.
Even €1 for an item that we don't really need is too much, and even such small expenditures reduce our financial capacity both today and, even more so, tomorrow. There are no quick cures here, but a simple exercise to get you thinking is to calculate the final cost of such purchases.
Take any unnecessary and daily expenditure of €3: it seems obvious that this costs over €1,000 a year. This is a significant but life-changing sum, especially if we break it down into 365 daily instalments. Over a decade, cutting out this expense would already save almost €11,000 - a solid result, but one that is undermined and delayed by the correspondingly long ten-year period.
I have another idea: to count these savings not only as “accumulation” but also as investment and reinvestment of the interest earned. Even with a fairly conservative expectation of an 8% annual return in stocks, bonds, funds, crowdfunding or other time-tested avenues, this would translate into almost €17,000 over a decade. Maybe still not impressive enough, but already noticeably more than just saving. But more importantly, you are acquiring a new, very healthy and, for some people, “good” addiction: spending money more responsibly and growing it.
Let's go even deeper. Thanks to the compound interest effect, the ratio of returns an investor earns each year grows faster and faster, so that in two decades, saving and investing €3 every day with the same return will turn from €12,000 to almost €54,000. And even over €130,000 in three decades.
This daily saving of €3 would not be very painful for the average citizen. It is very likely that each of us would find many more unnecessary expenses that could turn from €1,000 a year into two, three or even more thousands. Let's say a saving of €200/month (or €2,400/year) through investment and reinvestment would already translate into €36,000 over a decade. This could be the true cost of unnecessary expenses: one other everyday detail or episodic impulse purchases can actually cost one good new car over a decade.
Of course, the real numbers are based on everyone's personal spending and capabilities, but many of us can be encouraged to think about the fact that every saving can be invested and reinvested rather than being arithmetically added to. And the longer we do it, the faster our earnings grow each year.
As a personal tip, actively tracking your spending can quickly become a source of frustration, so my tried and tested method, which works well, is to set aside as much as you can after you get your monthly salary for saving, investing and living off the rest. When you only have enough money left in your account for the month, unnecessary purchases come off quickly and painlessly.
It is said that people who don't limit impulse spending often feel guilty, and those who are more in control of their finances are more likely to live with lasting satisfaction with their decisions. But even more control and lasting satisfaction will come from knowing that you have a secure and growing sum of money just by cutting out a few unnecessary expenses. Or a sum that works and earns more each year if you invest the savings.
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