Money Misstep #2: The $1 Purchase

“Baby I’m willing to spend everything I’ve got” – Spend It All

How many times have you looked at something and thought “It’s only a dollar.”  Think about the last week.  Vending machines, Target check out lanes or that extra iPhone app .99 download.  Now how many of those things could you live without?

We could be the king and queen of the $1 purchase in our house.  $1 is just not that much.

Now, you may have heard of The Latte Factor.  The idea that if you begin to cut out small purchases and/or expenses you can save hundreds, even thousands of dollars a year.  I agree, from personal experience I know this is absolutely true.  However, it is more than just cutting out those expenses, you first have to recognize what they are.  That is why we started with $1.

If you spend $1 a day for a year you will have spent $365.00.  If you spend $1 a day for 5 years you will have spent $1,825.00  and if you spend $1 a day for 30 years you will spend about $10,950.00 (not including leap years!). Now that’s a number I can work with!

Even as we were talking through how to pay down our debt I was walking to an unnamed food chain that has $1 large sodas all summer long because, well, it was JUST $1.  Hit me over the head with a frying pan already, by this late in the game you’d think I would get it by now!

So we instigated a new guideline.  It is the $5 guide.  If it is less than $5 put it down and walk away, if need be RUN!

$5 is much more than $1.  But for our purposes this is a guideline, not a rule.  Think about the difference – by Webster’s definition:

Guideline: Any guide or indication of a future course of action
Rule: A regulation governing conduct, action, procedure

These definitions are eerily similar and are often used interchangeably. But there is one major difference, a guideline refers to a FUTURE action and a rule refers to the EXISTING action.  In paying off debt we are trying to control our future actions.  We are trying to think about our next action before it happens.

This is important when thinking about the $5 guideline.  Some household items (toothpaste, shampoo, dish soap) cost much less than $5.  However, if we put the item down it makes us stop and think through are we getting the best deal?  Maybe if we use a coupon we can save more.  Perhaps we are actually paying MORE per ounce if we compare like kinds of items.  Would buying in bulk be profitable on such an item? All good questions to ponder.

We have learned that items under $5 generally fall in two different categories:

Luxury (unneeded): Snacks, Beverages, Kitschy Junk
Household:  Small day to day items for home or work

The luxury items then fall into the Latte Factor, we just give them up.  You don’t need an Icee when you are at the Target check out and you can do without the $2 lipstick in a color that you might wear once.

The household items beg our review.  Many times it has been worth it.  I am one of “those” people that take a calculator to the store.  Maybe the $2 shampoo appears cheaper than the $3 shampoo but  when you do the math you pay less per ounce in the $3 shampoo.  Once you start thinking about things in this way  you will notice that some of your under $5 purchases are costing you in the long run.

The other great thing about the $5 guide is that it also lets us rejoice in coupon savings.  Maybe we usually pay $4 but thanks to a coupon we pay $1.75.  We are not breaking a rule but instead the guideline has encouraged us to do more research and get a better deal.

Try it for a week.  Write down every purchase $5 and under.  What were those items?  Did you need them?  Could you have found a better deal?

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~ by Rachael Judd on June 29, 2010.

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