Hero Habits

We all know drive-through indulgences are typically bad news for our health. To burn off the 750 fat dripping calories in a quarter-pound double cheeseburger the average adult would have to walk for about two hours. And that’s a fast walk.

In a recent study, researchers found that consumers will change their food order to more healthy options if they know the facts. We’re not talking percent of carbohydrates or sodium – the labelling that works literally says: if you eat this, you have to walk briskly for two hours to burn it off. According to Dr. Meena Shah, at Texas Christian University, when the cold, hard facts were presented it was enough to get people to order a salad.

WHAT ABOUT MONEY?

In one of my more popular blog posts I wrote about my switch from being a heavy coffee drinker to committed tea drinker (read “How drinking tea can make you rich”). The impact on my life, wealth, and willpower (and still to this day) surprised me.

Your spending habits are sort of like that Cheeseburger meal. If you don’t know the impact of your spending, you won’t know the impact on your wealth. 

We all want more money. To be accurate, not everyone wants more money. But, those two people don’t read my blog.

And we’ve been taught to get more money means earning more money. That’s hard. You can’t get a raise every week and you can’t just double your client sales. Earning more money is a slow process.

But, “earning” more money by spending less money is fast.

LET’S DO SOME MATH

In a typical day, you have discretionary spending that falls into the “no big deal” category. You spend the money and think “That was no big deal.”

Examples are: a muffin in the morning, espresso after lunch, can of Pepsi from the vending machine, a box of cookies with your groceries. All are no big deal.

Until you do the math.

In British Columbia, where I live (you can adjust these numbers for where you live in Canada by checking tax rates here. And in the US, here), the marginal tax rate, combined for both provincial and federal taxes, is about 20% on the first $44,000 of income and about 30% on the next $44,000. Rates keep climbing the more you earn. In this simple example, let’s assume your marginal tax rate is just 30%.

That means you have to earn about $5.00 to pay for a $3.50 muffin (see table). That’s the number you should be thinking when deciding between carrot-raison or pineapple-coconut.

Assuming you indulge four times a week in a morning treat, that’s $1,000 you had to earn this year (based on 50 working weeks). Not to mention the pounds of gluten clogging your pipes, it’s serious cash.

Here’s the question that pulls me away from the pastry display: “What would I have to earn to pay for this?”. Chasing after another client, getting a raise at work, investments suddenly paying a 13% return? No thanks – I work hard enough. 

Sure, the difference between the Chef’s salad meal and the pan-fried salmon with curried basmati was only $10. But that’s over $14 I had to earn for a little pleasure. I say “Salad, please.”

I’m not trying to be puritanical – I love treats, like the next person. I just don’t like throwing away money I had to work hard to get. 

MONEY YOU THROW AWAY

How about these costs? Are you paying for things you aren’t using or simply because you aren’t watching the costs? There’s a good chance you could eliminate at least one of these and never look back.

• web site domains you pay for ever year, but may never use, like www.howtogetontheoprahshow.com.
• subscriptions to membership sites you haven’t visited in months ($30/month = over $500/year in pre-tax dollars).
• that cell phone data plan you never come close to maxing out.
• channel packages from your TV provider (if you still use one).
• home or office phone packages that have bloated over time. When we moved offices this year we dropped our monthly bill by over $300 by changing carrier and hard negotiating (thank you Sarah).
• that cool on-line tool to post tweets, run a survey, or do web site eye-tracking that you’ve forgotten about, but they happily ding your credit card for $10/month.

I could go on and on with even more nefarious examples like: mortgages that could be renewed or bundled at lower rates, utility late fees, using 18% credit card debt to pay bills, and vehicle lease payments that effectively doubled the real cost of your car.

THE BOTTOM LINE

The bottom line is this. Earning more money is hard work and not always possible. Spending less money is fast and has exactly the same result. So you bring the occasional salad to work or avoid surfing the web unless you’re in WIFI range. No big deal. But it is a really big deal in pre-tax dollars by the end of the year.

DO THIS TODAY

This simple exercise may surprise you.

1. Grab your latest credit card bill (if you have it delivered on line, that’s a mistake. Remember: out of sight is out of mind) and highlight any automatic payment, on-line subscription, phone bill, mortgage, whatever. 

2. Next, calculate the pre-tax cost. 

The formula is: $cost / (1-marginal tax rate). 

For my muffin example: $3.50 / (1 – 0.30) = $5.00. That means I have to earn $5.00 to pay for a $3.50 muffin.

3. If you don’t absolutely need what you’re spending the money on, don’t buy it, cancel the service or call and negotiate (the threat of cancelling your account tends to make people listen). Do it today. It’s your money.

What are you willing to drop? Let me know in the comments below. Go ahead and share – your ideas can help you and other readers get rich.