Raise your hand if you’ve ever made it to the end of the month, confident in your ability to budget and manage your money, only to find that you’ve completely overspent and are in the red.
Is your hand up? If so, you may have a few budget leaks that you need to fix immediately.
5 Common Budget Leaks
Budget leaks can crop up here and there throughout your spending plan and slowly drain your hard-earned money that was earmarked for something else. Sometimes these leaks can be tricky to spot. And they can be difficult to fix, too.
Take a look at these common leaks to see which one may be sinking your financial ship, and then find out what to do about it.
Fees of any kind can kill a budget. Everything from a $3 transaction fee to transfer money to hundreds of thousands of dollars in investment fees over a lifetime of retirement saving hurt your financial health.
Not all fees can be avoided, but doing what you can will help prevent money from leaking out of your budget.
Many times, you can get fees waived if you ask (nicely). If a fee can’t be waived outright, you may be able to ask if there’s another way to purchase a service, set up an account or activate what you need without incurring a fee at all. You won’t always get the answer you want, but trying can save you a significant amount of money.
Late fees and overdrafts can be avoided altogether if you practice good money management habits. Keep track of your accounts and bills to stay organized. Use budgeting apps to help you track spending if that helps, or mark your calendar so you won’t forget.
Mistakes happen, of course, which brings us back to: ask nicely and a fee may be removed for you.
Interest rates also count as fees! If you’re paying interest, that’s a fee charged by the lender for allowing you to borrow money. Keep debt to a minimum and interest rates as low as possible to avoid this kind of fee.
2. Little Purchases and Impulse Buys
How many times have you been out and about, with no intention to buy anything, and you pick up something for $5 or less? Because it was relatively inexpensive, you tell yourself you’ll make a mental note to add that to your budget. Or you say it doesn’t matter because you definitely have $5 to spend.
Doing this once or twice a month won’t create a major budget leak. But if you get into the habit, small purchases and things you buy on impulse start adding up and can create a serious issue with your spending.
Cut out impulse buys by instituting a rule that says you have to wait a certain amount of time before you buy anything you’ve seen and want. Put some distance — both in terms of space and time — between you and whatever it is you’re lusting after.
Still want it after seven days, two weeks, or a month? Look at your budget and determine if you can afford it. If you choose to buy it, account for the purchase. And if you think you need to wait? That’s fine! You can save up over time to make a smart spending decision.
And don’t let any expense, no matter how small, go untracked in your budget. Use an app like Mint.com if that helps, or switch to using only cash (so when it’s gone, it’s gone).
Are you buying something just to throw it out a few days later? That sounds a little crazy, but it’s exactly what many Americans do each and every month — specifically with food purchases.
No matter what kind of wastefulness you’re guilty of, one thing’s for sure: It sinks your budget when you buy something you don’t need, want, or use. Make sure you can accurately evaluate what you need, and stick to buying only what you need until you break the waste habit.
One tip for overzealous food shoppers who bring home too much: Tape your receipt to your refrigerator (or above your trash can) so you look at what you spent on food every time you go to toss something out.
4. Unnecessary Products
Another budget leak lurks in the kitchen for many people: one-use kitchen tools. Think things like avocado slicers, garlic peelers, and specialty appliances that all act as one-trick ponies. These items all have little function and their purposes can be easily (and sometimes better) fulfilled by items you already own.
In other words, these are totally unnecessary products that cost you totally unnecessary dollars.
Of course, “unnecessary” products aren’t limited to silly kitchen gizmos. That’s just one (not-so-serious) example.
Whole life insurance can be a huge budget leak for people, especially young professionals who would be better off with term life insurance.
Similarly, pet insurance can eat away at your available cash. A better option: save up a special emergency fund for your furry friend to cover unexpected and costly vet visits.
These leaks can be fixed with a mindset tweak. Instead of relying on an array of dazzling items to solve every single minor, extremely-first-world problems you may have, consider making the most of the resources already at your disposal. If you can’t figure it out, you can always run a Google search to get ideas for free.
This might ruffle some feathers, but it’s true. Coupons can actually cause a big budget leak if you use them incorrectly. You aren’t saving any money if you use a coupon for something you weren’t going to buy without it.
It’s really tempting to get the “deal” when you see that you can get a few dollars off a purchase. You want to save that money and get a good value. But unless the item was something you needed or already planned to purchase, this transforms a frugal act into a budget leak.
Budget leaks can slowly eat away at your cash, so stay diligent! A good system that allows you to track your spending can help you identify your personal trouble spots so you can correct course and enjoy smooth financial sailing.