How would you feel if you took out a $20 from an ATM to buy dinner, but $5 got caught by the wind and disappeared into a storm drain? Probably not great, but you can still buy dinner, so you think to yourself it’s no major loss. What if this happens every week though? $5 keeps disappearing down the storm drain and you don’t change anything about your habits.
That is what money leaks are; a continuous drain of capital that to an outside observer may seem frivolous. After all why wouldn’t he go to an indoor ATM or pay with a card to avoid the wind. It is easy to wave off $5, but what if all those $5 losses were totaled? What if somebody came to you in 30 years and said look what I found in the storm drain and he had a bag of money with $5,00 in it? What about $10,000? How about $50,000? Nobody wants to waste money unnecessarily that’s why it is paramount to be able to identify money leaks in your own life and plug them.
What Are Money Leaks?
At their core money leaks are monthly expenses (typically reoccurring) that happen in the background of your daily life. Maybe you have an HBO membership, but almost exclusively watch Netflix. How about those Dollar Shave Club razors you signed up for last year that are just collecting dust in the corner?
The similarity between Money Leaks is that they usually aren’t a conscious decision on your part. We all live busy lives and have a lot on our minds on a day to day basis. Most don’t have the time to comb through every little expense in our lives. That unfortunately is how money leaks form. While one or two a month may be ok, 15 separate items slowly draining your bank account is a different matter.
The ultimate goal is to plug these leaks. You might be surprised at the end of the month how much money you’ve saved by being more aware of some of your hidden expenses. Plugging these leaks doesn’t mean stopping spending money on these things, but optimizing your budget for what is important to you.
Common Money Leaks
High Variable Spending
How much do you spend on entertainment a month? How about for food? The purchases that most often strain your bottom line are often the things you most take for granted. You will notice if your utilities is sky high one month. You will remember if the refrigerator breaks and you need to go out of pocket to replace it. How often do your swipe your card when out for drinks with friends? What about those extra snacks each time you go to the grocery store?
All these purchases are a routine part of living and enjoying life. At the time that $5 or $10 extra might not seem impactful, but when tallied up in bulk is when you realize how much you are really spending.
How to Fix High Variable Spending
This is where having a individual or family budget is one of the soundest choices someone can make in their financial journey. Tally up your expenses over the last 3 months or so, then divide those into several categories. The categories can be whatever you would like, but ‘Groceries’, ‘Bills’ & ’Entertainment’ is always a good start. If you are happy with where those numbers are, perfect! Find away to track your expenses and keep on going.
If your jaw drops when seeing those numbers though, then we have stumbled upon a money leak. This is where having a budget setup that works for everyone is needed. Now people hear the word ‘budget’ and often get scared of losing something they cherish doing. A budget should never be that though. Building a budget is about identifying what is most important to you and allocating money towards that, while pulling it away from something less important.
Forgotten Fees
While auto bank drafts have made managing monthly expenses simpler, they are often the source of the most overlooked money leaks. Its incredibly easy to sign up for a mystery subscription then a year later you never think of it again.
While you may have forgotten it, it still remembers your bank though. That language subscription you started a trial of is now taking $15/month. That old Pandora subscription might be another $5. Now while the amounts may seem miniscule they can add up quickly and be a continuous drain on your financial health.
How To Fix Forgotten Fees
Look at your bank statements! While they are the most notorious form of money leaks they are often the easiest and painless expense to eliminate. With 10 minutes, once a month, you can see every purchase you made over the last 30 days. Doing this on a regular basis you will know what expenses are reoccurring on a monthly basis and eliminate the undesired ones.
Another easy way to track and identify those pesky monthly fees is if you have only banking on your phone. Modern banking apps allow push notifications anytime a purchase is made through your account. This makes a great reminder for an outstanding subscriptions you have when you get a notification every month. Just as importantly it also will help with fraud prevention. As you immediately know if you were overcharge a purchase or any purchases you did not make yourself.
“Time Savings Services” Leaks
We live in the world of technological supremacy; at the touch of a finger you can place an order and have high quality food delivered in 30 minutes or groceries or medicine or a seemingly endless stream of “or’s”.
Postmates, Instacart, UberEats, Blue Apron & many similar services offer expediency in everyday life. This expediency can be quite pricey though and with delivery fees & tips could potentially double the cost of an otherwise cheap splurge.
How to Stop My Money Leaks?
Use The Three C’s
When looking for a quick way to plug money leaks, look no further then the 4 C’s.
Cancel: Any monthly services that you no longer use, but are continuously paying for like cable or magazines need to be canceled immediately.
If you don’t want to dig through monthly banking statements or want to automate the process though, trim can help make that smoother for you. Trim will skim through your account to find any regularly recurring expenses. When it finds one of these links it will send a push notification to you asking if you want Trim to cancel the service. If you say yes Trim will handle it for you saving both time and energy better put elsewhere.
We are all human sometimes we forget services we signed up for, that’s perfectly ok, it’s just important to realize where these money leaks are and fix them.
Cut: Threading the middle of canceling and keeping money leaks. A cut is downgrading service for something that you may use regularly, but not to the extent you are paying. Do you really need a full cable package if you are only watching the sports channels each month? If you are paying an annual fee for a special travel credit card are you really traveling enough to meet those bonus miles they are offering?
Across this site we strive to offer personal finance guidance without forcing you to stare at a blank wall with the goal of “saving money.” If you enjoy something there may not be a need to fully excise it. See what other offerings are available and see if you can cut down your expenses to a lessor package.
Commit: If you are paying for a service that you do use and can not see your life without, you may be able to get a discount for going all in. This is typically an option for places like gyms or certain types of insurance, but if you offer a fixed amount up (6 months or 1 year) you can often see an incredible discount on the total price.
You could also consider ‘packaged’ offerings. Let’s say you get a monthly massage or lessons with a yoga instructor for example you can often buy in advanced with a total discount.
Go Do Something With Your Savings!
Hopefully you were able to go through your finances and find a couple hundred dollars in money leaks to plug. Now that you have it’s important to go out and make it work for you
While you can always go out and exchange your labor for money, true wealth is generated by making you money work for you on a continuous basis. We strongly suggest going and setting up a Betterment account and start putting this money away in diversified ETFs.
$150/month may not seem like much, but compounding returns can do incredible things. At 7% returns over 30 years that $150/month become $175,000+. Do yourself a favor and don’t miss that growth chance and start plugging you money links and contributing to your portfolio today.
