Plugging Money Leaks
One of the most challenging parts of getting a grip on your finances is finding money “leaks” and plugging them. I speak a lot on saving/investing for retirement and tackling student loans. However, I must address the topic of unknowingly wasting money aka money leaks. The faster we figure out where all our money is going the better we will be able to plan and have more money to put towards saving, investing, paying off debt, etc.
A money leak is simply any amount of money that you spend and are unable to identify what you spent that money on at the end of the month when you’re reviewing your bank and/or credit card statements. It can happen quite quickly and sometimes go unnoticed. For example, one week you may not have gotten a chance to prepare your meals and suddenly you’re eating out everyday for lunch, or you subscribed to a free trial of HBO to binge watch a season of one of you’re favorite shows and forget to cancel the membership. These seemingly tiny expenses add up and before you know it you’re wondering where all your money went.
I did a complete financial overhaul about a year ago and discovered over $6000 of wasted money. A big chunk of that was in cell phones bills - by switching providers I am currently saving roughly $4000/year!
Here’s how to identify and begin plugging your money leaks:
Step 1: Print out your credit card and/or bank statements for the last 3 months and highlight all your set monthly automatic withdrawals, example: mortgage/rent, savings, Insurances, car note, utilities, etc. Now look at those highlighted items and see if there’s a possibility to cut or lower the cost of any of those items like a cell phone bill, cable bill, interest rate on a car note or even a credit card.
Are your utility bills consistent? Cell phone and cable bills are terrible money leaks. Cable companies will sometimes increase monthly payments which can go unnoticed if you’re on automatic withdrawal.
Do you need cable at all? Consider alternatives like Netflix or Hulu which are a fraction of the cost.
Are you paying for more services than you need? Many of us no longer utilize a landline so why pay for it?
If your monthly data usage on your cell phone is, say 10mb or so then why pay for unlimited data?
Have you tried refinancing your auto loan? This would be a good thing to do especially if your credit score has increased since you initiated the loan.
Call your credit card companies and request a lower rate. If the answer is no, simply switch to another company that offers you a lower rate.
Step 2: Identify all the un-highlighted items and categorize them.
Typically the miscellaneous expenses are date nights/eating out, emergencies, etc.
Save all your receipts and review them each week so that you can track your spending. By knowing that you have to review your receipts you may not be so apt to spend frivolously.
Use a budgeting app to help you stay on track. If you find it difficult to stay on top of your finances, consider tools like Mint or You Need a Budget.
Avoid leaky places and budget before you go. A simple night out with friends can turn into regret if you do not plan ahead. We all know how out of control things can get when we’re having fun, especially if drinks are involved. Have a ballpark figure in mind or a set amount that you want to spend on food and drinks and don’t go over that limit.
Needless to say, once you’ve found the leaks and plugged them you must decide what do you do with that “extra” money. Treat it like it’s a bonus from work or a gift from your generous grandma - no, do not spend it. Options for this money could be investing, saving towards your retirement, paying off credit card debt, or making extra payments on your student loan debt.
Money leaks are poison to any kind of financial progress. If you have too many of them, it can make personal finance feel incredibly confusing and hopeless because it feels like all of your money is just evaporating. Take charge, use the above guidelines to get started and take control of your finances.