Recurring Expenses Will Bleed You Dry

A colleague forwarded me this article in the WSJ entitled "ROI: Is the iPad 2 Really Worth $2,000."  In it the author realizes that when he uses his capital to buy the iPod, the capital is no longer available for investing.  Consequently, the cost to him is not only the $500 up front cost, but all of the return that he would have made on the invested $500.

However, far more important is the insidious impact of recurring expenses in in drastically reducing the amount of money that you will have available for retirement.  For example, consider a $100/month cable bill - if the money was instead invested (even at a fairly conservative rate of 8%) then after 35 years you would have $100,000.

A $400/month car lease?  $400K after 35 years.  A $50/month telephone bill? $50K after 35 years. So what do we do about these recurring expenses?


Avoid Recurring Expenses
Basically, you should try to avoid recurring expenses whenever possible.  Do you really need cable when you can watch TV on the Internet or broadcast for free?  When you can borrow movies from friends or even use the library?  Even a Netflix subscription would cost a lot less.  Also, can you avoid Starbucks by drinking the coffee at your firm?  Is the firm's coffee really that bad?  Maybe you can just buy some decent creamer to mix in the firm's coffee?

Watch Out For Hidden Recurring Expenses
However, some recurring expenses are hidden where people can't always seem them.  For example, buying a larger house means increased recurring expenses for mortgage interest, increased taxes, and increased assessment or lawn maintenance.  Also, the taxes and assessment typically go up over time.

Put It Towards The Loans
Alternatively, for the more recent law school grad, instead of aiming for retirement, these additional savings could go toward paying off the student loans.  Although retirement may seem too remote to a person in their mid-20s or early-30s to motivate a change in a behavior, just about every new grad starts chafing under the yoke of student loans very soon after starting firm work.  Which is going to make you feel better -  more TV options during the few hours you get to spend at home or getting free of your non-dischargeable indentured servitude months or years faster?

Try Delaying It - Even Just a Little
Sometimes people think about going without a luxury like cable for 35 years and their minds instantly rebel.  The 35-year time period is just too long for them to think of depriving themselves, so they just start spending now.  However, recognize that if you can just do without cable for one year - one stinking year - and instead invest the $1200 at 8%, then you will have about $17,740 in 35 years.  Consequently, even one year's delay can add up big on the back end. 
 
One way to delay the onset of the recurring expense is to use it as a reward when you have accomplished something.  For example, no cable subscription until your student loans are paid off.

In summary, take a look at your monthly expenses - are there recurring expenses that you could cut?  Every $100/month that you can cut out is $100K more in 35 years - or alternatively, means freedom from student loans months or years faster.  Good luck!