When it comes to financial planning, we’re a big proponent of having visibility into your cash flow, and knowing what money you have coming in and where is it going.
The purpose is not to cut out a daily $3.50 coffee or order less take out, but by having visibility and tracking where your money is going will lead to a higher probability of hitting your financial goals. If you took that $3.50 and instead saved it, you would have an extra $131,000 to use in retirement. This is assuming a 7% annual rate of return and saving the $3.50.
The opportunity cost calculation can be measured for other things, like ordering take out 4x per week ($1,277,000), cutting the cable cord ($272,000) or getting rid of your an gym membership ($73,000).
It’s not about cutting out everything and living a Spartan life, but ensuring that you control your money and that your money doesn’t control you. If going on a vacation is important to you, then work in a vacation every year into your financial plan.