In his groundbreaking book, The Millionaire Mind, Thomas J. Stanley outlined that millionaires are not first-cost sensitive. Instead, they’re value oriented, focusing on the life-cycle cost of purchases.
For example, if you buy a $200 pair of shoes and wear them 400 times, each wear averages out to 50 cents. If you sprang for the more expensive, higher-quality shoes you would get more wears. If those shoes cost $300 but you wear them 700 times, it’s only 43 cents per wear. It’s a seemingly small difference but it adds up.
Stanley gives the example of Mr. Blue and Mr. Green. Mr. Blue buys a house without researching the public schools in the area. His house was cheaper than Mr. Green’s, but he quickly realized his children wouldn’t go to quality colleges given their poor education. Mr. Blue’s bargain home was quickly offset by private school tuition shock. Mr. Green doesn’t mind paying a little bit more up-front for a home with good public schools and because he avoids paying for private education, his life-cycle cost is much lower.
2) Going out for coffee or drinks.
Your little caramel macchiato is what gets you through the day! You can’t possibly give it up, can you? Well, here are the numbers. Starbucks customers have no problem shelling out $4 for a latte in the morning. If you buy one latte per day, it adds up to $1,460 per year. You don’t have to give up your morning coffee either – just buy the coffee beans and make it at home. 2.5 lbs. of French roast will run you about $20. Much better.
Skip the alcohol too! It’s overrated and quite harmful to your bank account. No one’s saying that you can’t have a little every now and then, but drinks at dinner can add over $10 per person and a night of bar-hopping can easily hit $50. If you’re feeling like being a good Samaritan, skip a drink and add it to your waitress/bartender’s tip.
Also, while we're discussing drinks, stop buying bottled water. Just get a filtered water bottle and fill it with tap water. I made this mistake for a long time I’d buy a 24 pack of bottled water for $5.00 and go through it in about a week. I spent $15 on a filtered water bottle (and $3 for a second filter) and so far it’s lasted five months. My $18 investment would’ve been $100 in bottled water.
3) Making minimum credit card payments or worse, not paying at all!
If you’re an adult, you should know how to responsibly manage credit. Barring any unfortunate disaster or medical emergency, you should be held accountable for what you charge. If you charge $1,000 to your credit card (with a 15% credit card rate and 4% minimum payment), it will take you over FIVE YEARS to pay it off with minimum payments. At the end of that time, $362 extra dollars will have been funneled away to the credit companies.
Another tip is to use auto transfers for your bills. I love auto-pay, because late fees are a huge waste. With automatic payments, you’re never late and if you pay your balance in full each month, you get to sit back and watch your credit score rise.