Gails Blog

I’m always amazed at the amount of money people let slip through their fingers every month. Let’s take the $1.50 many people pay to take money out of a bank machine that isn’t theirs. They do this four or five times a week, which works out to about $390 a year. Over thirty years of banking (from age 20 to age 50) that’s almost $12,000 totally wasted.

Bankrate.com estimates that Americans will pay more than $4.3 billion in ATM fees for withdrawing money in a way that most people justify as “more convenient.” $4.3 billion for convenience? You’re kidding me, right?

How about that cuppa cawfee every morning at $2.50 a pop? That’s $650 a year (assuming you only have one cup and work a five-day week) or almost $20,000 from age 20 to age 50.

The Specialty Coffee Association of America, which watches consumer spending of high quality coffee says that Americans spent about $8 billion in 2001. By 2006, that number had jumped to $12 billion. TWELVE BILLION DOLLARS! On coffee? Wow!

Hey, don’t tell me you don’t know where you’re money is going? It’s going up in smoke, down the Ivory Throne, or out the window.

Once upon a time there was an old saying: Take care of the pennies and the dollars will look after themselves. It’s time to start focusing on the pennies once again.

I know it’s easy to say, “It’s a cuppa cawfee, goshdarnit… just $2.50. It’s a small pleasure.” And it is. But if you’re doing it unconsciously and you’re going into debt at the same time, it’s still a stupid waste of money.

Many people are totally unaware of what is happening in their own accounts… where their money is going, what their “small indulgences” are, how much money they are spending unconsciously. Most people hardly pay attention to their bank statements, let alone balancing their cheque books to see just how quickly those small costs add up.

Worse still, there are the people who are so far in denial that they refuse to look at the balance in their bank account before they go off to waste some more money. The result, they go into overdraft, bounce cheques, and rack up fees. I’ve just finished working up a family where they were spending over $300 a month on bank fees (because of so many NSFs), which over a thirty-year time frame would amount to $108,000!

But surely people wouldn’t be dumb enough to do that every month, Gail. I mean you’re exaggerating to make your point, aren’t you?

Am I?

People like to point out that the folks on my show are the extreme cases. Really? So you only go to the bank machine twice a month?  Every time you spend money you write it down or keep the receipt so that you can update your budget? All your bills are paid in full, on time, every month? You’ve got your wills and powers of attorney in place? You’ve got disability insurance? You’re saving for your children’s education, your own retirement, and to have some money just in case? You don’t spend money without thinking about it? And you’re content, feel safe, aren’t worried about when it’s all going to catch up with you?

Maybe you have got it down just right. Good for you. But if you haven’t yet mastered the art of conscious spending it’s time to fess up, at least to yourself.

So how do waste money, and how much are you really wasting?

Pick something you do “religiously”, without thinking about it, unconsciously, and figure out what the long-term cost of your “small indulgence” is. Whether you’re a bottle-of-wine a week (or night) girl, a magazine-at-the-checkout chick, or a doodad-at-the-automotive-store dude, add it up. Yup, actually add it up. Multiply it by 52 if you do it weekly, 250 if you do it every work day, or 365 if you do it daily. (Check out what it costs for a small spend like a newspaper done daily over 30 years and you’ll see what I mean.) Once you figure out what you’re spending in a year, multiply it by 30 to see what it’s costing you long-term.

The point isn’t to eliminate every small pleasure from your life. The point is to choose those pleasures consciously and, therefore, consciously enjoy them. If every sip of that beer brings you pleasure, and you can afford it, you’re doing fine. But if it’s your third bottle and you can’t remember the other two, well, kiddo, you got some Consciousness Raising to do.

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I was browsing around the web the other day when I came upon an article that talked about an economic phenomenon called the “lipstick indicator.” I was intrigued.

According to Investopedia’s dictionary, it’s a term coined by Leonard Lauder, the chairman of Estee Lauder, the cosmetics company. Lauder noticed that when the economy got tough, lipstick sales would go up. Why? Well, it seems that we turn away from big spending to small indulgences; lipstick fit this bill. In fact, in the months following the September 11 terrorist attacks, lipstick sales doubled.

Three sorts of products sell well during tough times: there are your small indulgences, then there are your morale boosters – to make you forget that your investments are down 20% or that you can no longer afford that nifty $400 cell phone. And then there are your inferior goods – the crap people buy so they can keep shopping even though they can’t afford value anymore.

It seems that not shopping would be just too depressing.

Even the Richy Riches are beginning to feel the pinch, it seems. According to a poll by a U.S. marketing company whose clients include retailers in the luxury goods market, there’s been a 20% decline in spending on luxury goods in the second quarter of 2008, and the lowest luxury consumer confidence level in the about five years.

If you’re south of the border and received a piece of the $50 billion stimulus from Mr. Bush, no doubt you’re still spending. Scott Hoyt, senior director of consumer economics at Moody’s Economy.com says that those cheques could spur spending until September, falsely buoying the economy since consumer spending accounts for about 70% of the U.S. economy. In Canada, no one is throwing money at us in an attempt to keep us spending (though $50 BILLION would go a long way to paying down some debt, wouldn’t it?)

If you accept the idea that small indulgences are one way to offset the yuck of a nasty economy, then the next question is what are you going to indulge in, and how often? I’m not a lipstick girl. Couldn’t care less about make-up. Natasha, who does my makeup for the show, has to practically fight me to do my touch-ups.  For me, it’s not coffee either, since I don’t drink the stuff. But lots of other people do. And while it may have been a small indulgence in the past, Richard Bach ruined it for a lot of people.

Ever since Bach equated lattes with waste, the idea of small indulgences has taken on a different meaning. A small latte at $3.74 a pop works out to about $1,000, which is not a SMALL anything. So there are lots of people who won’t do that anymore.

Of course, if coffee doesn’t work we can always turn to football and the Super Bowl effect. Basically, it goes like this: If a team from the AFC wins the Super Bowl, the national economy will do badly. If a team from the NFC wins the Super Bowl, the national economy will do well. There doesn’t seem to be much proof either way, but in many of the years of the Super Bowl being played, it was more or less true.

What are some of the other signals people use? Umemployment, certainly. Inflation? Yup. Gross domestic product as well. How about rubber bands?

What?

The Rubber Band Indicator is this: when the economy is bad, the rubber bands around broccoli bunches at the grocery store are thinner. Hmmm.

How about an increase in the number of laundry lines as people attempt to cut back on their power usage? Or the percentage of gardens given over to growing FOOD instead of flowers? Or the number of people who are cutting back on cable?

So what are your signals that the economy is in the toilet? What changes have you made to the way you’re managing your money? What are your small indulgences? And what will it take for you to believe that the economy has made the turn and is on the mend?