Popularized by author David Bach, it refers to the idea that if you indulge in a $5 store-bought latte every workday, you'll drink up more than $1,200 a year. Ouch!
The idea is that spending on little things can add up -- and the problem is especially troublesome if those "little things" represent bad habits.
If you're spending an extra $5 a week on groceries because you've decided to buy more fresh produce, your money is at least going towards a lifestyle improvement. But if you're blowing your cash on bad habits, it's time to think twice.
After all, wasting even $5 a day means you're not doing better things with that money -- like saving it for retirement, health care costs or a vacation.
Here are seven other ways your bad habits could be costing you thousands of dollars or more every year:
7 Bad Habits That Cost You Thousands of Dollars a Year
7 Bad Habits That Can Cost You Thousands of Dollars a Year
Apart from the health costs (which are worth considering), smoking can drain your finances. The average cost of a pack of cigarettes is $5.51, according to the American Lung Association.
If you're a pack-a-day smoker, that means you're burning through $2,011.15 per year. That's enough to take your significant other on an one-week vacation -– including airfare, hotel and restaurants.
If that's not compelling enough, consider this: If you invested $2,011 per year ($167 a month) for 10 years, compounding yearly at a reasonable 7 percent growth rate, you'll have $27,690 within a decade. And the power of compounding only picks up the longer it has to play out. Even if you never added to that stash after the first decade, at that rate, the value will about double every 10 years.
And that's not even touching on any medical bills you may face.)
Potential cost: $2,000-plus a year (for a one pack a day in a state with near-average prices).
There's a reason that some people call the lottery a "voluntary tax" -- or, more harshly, a "tax on people who are bad at math."
Even if you're "just" buying a $1 scratch-off ticket each day, you're still throwing your money away. The odds of winning small lottery prizes are low, and the payouts are stacked heavily in favor of lottery. And the odds of winning a large lottery drawing like Mega Millions or Powerball are one in hundreds of millions. To put it in perspective, you have a (much) better chance of being struck by lightning.
And what if you're gambling with bigger stakes, such as slot machines or casino table games? Then we don't need to tell you how much you lose for every dollar you "make," because chances are, you're painfully aware of it.
Potential cost: $52 per year (one ticket a week) or $365 per year (one ticket a day). Or far more if you're hitting the casinos.
Whether you're pounding back dollar drafts during the game or indulging in high-end cocktails at a ladies' night, alcohol isn't cheap. Just a few cocktails each week can add up quickly.
Let's say you grab $1 drafts, three beers per sitting, twice a week. Factor $1 per drink as the tip, and you're paying $12 per week -– which comes to $624 per year.
What if you're drinking cocktails a couple of times a week? You could be looking at upwards of $2,000 a year in adult beverages.
Excessive drinking can also result in all sorts of other pricey problems, like fines for drunken driving, legal fees and higher insurance premiums -- not to mention that other wasteful spending moves tend to seem like great ideas when you're wasted.
Potential cost: $500 to $10,000-plus per year, depending on how much you drink, how expensive your liquor and whether or not you're bringing legal fees upon yourself.
It may not seem as "bad" as smoking or drinking, but regular drive-thru visits can add up -- both in terms of indirect health costs and and the price of the meals. Those enticing "value menu" items are rarely enough to fill you up, so you wind up buying a bunch, and the seemingly great-deal combo meals often contain more calories than the average person is would be wise to consume in several meals.
Either way, regularly eating out will take its toll. If you rely on it because it's quick and easy, consider investing in a slow cooker. Create big batches of food on the weekend that can be reheated throughout the week. Your wallet (and your waist) will thank you.
Potential cost: $300 to $2,000-plus per year, depending on how often you hit the drive-thru.
Whether you hate the dentist or you're the "suck it up and deal" type when it comes to health issues, steering clear of medical professionals can cost you big-time.
Preventive care such as annual checkups can catch potentially serious issues before they become serious. Seeking treatment as soon as you notice something feels not quite right is the most effective way to prevent little problems from ballooning into bigger ones.
Also bad? Going to see the doctor but then ignoring his advice, like dismissing his instructions to get more exercise or improve your diet.
Potential cost: Tens of thousands of dollars -– or perhaps your life.
Your car, just like your body, needs regular checkups and tuneups to run smoothly. Ignoring that "check engine" light on the dash, going too long between oil changes, or pretending that strange squealing noise will take care of itself can create excessive wear-and-tear on your car.
Will it cost you money upfront to get your car serviced, maintained and repaired? Yes. But it will cost you much more if you ignore any looming problems until you're immobile by the side of the road, waiting for the tow truck.
Potential cost: $500 to $5,000-plus, depending on the required car repair.
Any shopaholic can tell you the consequences of a retail spending spree, but even if you think you're a savvy consumer, you could be guilty of bad spending habits that quickly add up.
Do you grocery shop when hungry? Jump to buy something just because it's on sale? Open up store credit cards for that 15 percent off your first purchase, then forget to pay off the balance in time? Make impulse purchases at the register (or online)?
All of these things, while they might seem minor fiscal transgressions at the moment you're committing them, can add up. Be deliberate and strategic about your spending to get the most out of your money.
Potential cost: $500 to $5,000-plus per year, depending on how often you make impulse purchases and what types of items you're buying.
Paula Pant ditched her 9-to-5 job in 2008. She's traveled to 30 countries, owns six rental units and runs a business from her laptop. Her blog, Afford Anything, is a gathering spot for rebels who refuse to say, "I can't afford it." Visit Afford Anything to learn how to shatter limits and live life on your own terms.