Calculate the Opportunity Cost of Your Spending Habit Over Time
We all know that small spending habits add up, but they can add up to more than you think. It’s easy enough to calculate a monthly calculation of how much we spend on a pack of cigarettes or a cup of coffee every day. But what about the opportunity cost of these costs?
When you’re figuring out exactly how much your spending habit is worth, it’s helpful to think about what you could do with that money instead. The opportunity cost of your expenses is the profit that you could get by doing something else with the money (for example, by investing it).
Let’s say you have a habit of donating cupcakes. You want to see how much you can save by breaking this habit. You spend eight dollars a week on muffins, which is roughly $ 429 a year that you can save. In two years, it’s about $ 850. But what if you invested that money too? How much more could you earn? There is a calculator that makes it easy to see how much your habits are adding up, including the opportunity cost.
Hugh Chow, manager of systems and networks at the University of Washington, developed a “muffin calculator” to see how much a small waste habit can build up over time. On his website, he writes:
I was once interviewed by Sharon Harvey Rosenberg, who confessed to me that she had a soft spot for spending – gourmet cupcakes. I realized that when she bought cupcakes for $ 2.75 for every three times a week, she eats up almost the equivalent of a new Dell desktop (including a flat screen monitor!). I know I would have preferred a desktop, but hey, I’m not really into muffins …
Of course, you can use the Chow Calculator for more than just cupcakes. Just enter the price of your habit, how many times a week you indulge, the number of years, and the return on investment (the calculator’s return is set at five percent). The calculator takes profitability and compound interest into account so you can better estimate how much reducing a small habit can save you over time.
See for yourself using the link below.
Sharon Muffin Calculator | Hughcalc.org