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Monday, January 9, 2012

Don't just stand there, bust a calculation!

Yeah, I get it, everybody hates doing math. But if you want to be able to make sure you are saving as much money as possible every step of the way, you have to do a lot of calculations.

I have seen a lot suggestions for saving money that just do not make sense when you sit down and do the calculations. It is also mandatory for grocery shopping; is the $5 1.5 pound bag a better deal than the $1.79 8-ounce bag?

Calculating can also help as a motivating tool, when you add up just how much something is costing you. Multiply any monthly bill by 175 to get the approximate amount you would end up with after ten years of investing that money at 7% interest.

So for example, Joe Blow may not think it's a big deal to buy a $4 Starbucks coffee 5 times a week, but we now know that his $80 a month Starbucks habit is really costing him about $14,000 every decade. That's a big hunk of cheddar. Especially considering that if he is currently managing to save $1000 a month, he could retire 14 months earlier if he just ditched the beverages.

So don't be shy about breaking out that calculator and finding out what the real cost or savings are. The results might surprise you (and that's exactly why you need to do it!)

-The Money Monk

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