Micro-transactions Will Be the Death of Your Savings Account
It All Begins With Coffee
For two years I have tracked every transaction in my trusty Excel spreadsheet. I use it for each one of investment, checking, and credit accounts. During this time, I have found many habits surface from my spending, such as my budget misallocation and too many micro-transactions.
While there are several ways to build a budget, I chose to add all my fixed expenses and divide by 12 for a monthly fixed budget. Then I turned to other categories such as gas, transportation, and entertainment that comprise my variable budget. This budget has been divided into a weekly number based on past spending habits and income.
An unorthodox budgeting method for sure, but I chose to use this system as it allows me to set aside enough cash for my fixed expenses while splitting my discretionary income for my variable budget and savings. The weekly variable budget system works in a way that I create a pool of money to spend. If I have $150 set aside per week, that’s about $500 per month I can spend on anything not considered a fixed expense.
Unfortunately, because I implemented this system late this year and initially added some fixed costs, I was over budget about 62% of the weeks. Obviously, the goal is to be over budget 0% of the time, but with weekly monitoring and self-control, I can quickly bring that down to about 5%
One of the primary barriers to me reaching this goal is micro-transactions. Micro-transactions are small, almost trivial purchases of less than $10. These are most likely from purchasing snacks, coffee, or small items when out and about. Of course, there are smaller purchases such as hand sanitizer that are necessary.
The problem is when you look at consumable purchases. We’ll use coffee as an example. If you work 5 days a week and purchase a $3 coffee each day, that’s $15 a week. A trivial amount still, but assume you work 48 weeks of the year. That’s $720 on coffee for the year or a mortgage payment.
The point is not to bash coffee drinkers, as I am a caffeinated adult myself, but to make smarter decisions about how you spend money and sticking to your budget. If you were to switch to K-Cups instead of purchasing coffee, you would spend about $90 a year on coffee! Consider a decent travel mug for about $20 and 2.4 containers of 100 count K-cups at $28.87; that’s a savings of $630 a year! Just on coffee.
Another major spending issue with micro-transactions is snacks. I work at Target and often purchase more snacks with lunch, knowing I still have an unopened box of extra baked Cheez-its. What do I get out of buying more? Nothing, except the food. Learning to use what we have first before purchasing more of an item is vital to changing spending habits.
I have switched to purchasing my snacks in bulk, as in boxes, and package them myself for lunches. Do the math. I’m sure you get more treats for less. It’s lovely to have everything prepackaged but comes at an extra cost as well.
Looking again at my own personal finances this year, I spent $73.67 on coffee outside of K-Cups, which I classify as groceries. It’s not a terrible figure, but the amount I spend on snacks made me cringe.
According to my spreadsheet, I classified over $370 worth of snacks. Most of my snack spending is at college, thanks to our late night Rutter’s runs. While I love using these as an excuse to spend time with my college family, I shouldn’t use it as an excuse for ordering another fried food platter.
One of my financial goals for 2021 is to bring both snack and coffee spending down. As seen in the chart above, these micro-transactions were nearly 10% of all variable expenditures this year. If I choose to purchase my snacks at a grocery store instead of a gas station, I can allocate more money toward entertainment or travel.
Minimizing unnecessary micro-transactions is a crucial element in taking control of your budget.