Sometimes, when it comes to your budget, it can be too easy to overlook the small "money leaks" that negatively impact your finances. Many people do not even realize the amount of money they are spending.
You might do your best to avoid buying extravagant things. For example:
- You drive around in a used Ford Tempo instead of a Mercedes-Benz.
- You do not take lavish trips to other countries.
- You do not spend more than $100 in groceries a week.
However, even though you do all these things, you still wonder where all your money is going. A significant challenge for staying on top of your finances is identifying and fixing your money leaks.
What are Money Leaks?
Money leaks occur when you cannot seem to figure out what it was you bought with the money you spent. Even at the end of the month, when you review your credit cards and bank statements, it is not apparent where your money went. Those are "money leaks."
For instance, one night you took $50 out of the ATM to use for dining out. Then, at the end of the month as you are looking at your finances, you see the ATM withdrawal transaction on your bank statement, but you are completely puzzled as to why you pulled the money out.
Alternatively, you buy something online, but when you get your credit card statement and see the purchase, you do not know what the charge is for because there is a vague description of the merchandise you purchased.
Money leaks can kill your financial position and usually leave you with less money than you expected to have at the end of the month. They also tend to cause problems with your budget and are often a huge reason why many people cannot seem to save money.
How to Find Them
By researching, you will likely eventually figure out where the money leaks are coming from. However, for many people, the problem is they do not remember even spending the money. It just seemed to leak right out of their account and was spent on something so frivolous, that they do not recognize the purchase even several weeks later.
Create and Refer to Your Written Spending Plan
You can get a handle on money leaks and fix the ones you spot by taking more control of your money. To do this, you need to sit down and write out a spending plan each month and stick to it. When you do this, it should be easier to find the leaks so you can fix them and avoid them later on, which keeps you from spending more than you make.
Save and Refer to Your Receipts
Start saving your receipts (an old shoebox will work). Every time you purchase something, toss the slip in that shoebox. If you receive receipts where what you bought is unclear, write a purchase description on the back of the piece of paper, so you will know what it is when you refer to it later on.
So, each time you go to the store:
- Stuff the receipt in your purse or pocket.
- Clean out your pockets in the evening.
- Take the receipt and toss it in the shoebox.
- Scan the receipt if you are digitally inclined.
- You can also use Liberty Bank Money Manager to track your spending.
At the end of every month, take the receipts out of the shoebox and go through them. Determine which of them are necessary and which are not.
As you do this each month, you will begin to see patterns in your collected receipts. Chances are, you will find the non-important ones are the source of where the money leaks are occurring. You may notice your money leaks are coming from a particular store like the corner convenience store, for example. Finding and knowing the patterns can help you keep your guard up.
How to Fix Them
Finding your money leaks is just one side of the equation. You still need to get rid of them. You do this by actively taking control to prevent them.
Put a Limit on your "Free Spending" Money
Give yourself a fixed monthly amount of money to spend freely. Then, stick to that amount. Do not waste any additional money on unnecessary purchases if you have reached your monthly limit unless it is a definite necessity. If it is not, once your free spending money is gone, you cannot touch it again until the next month.
Avoid the "Money Leak" Places
As mentioned earlier, you may find your money leaks are taking place at a specific store. Naturally, avoid the locations where your money leaks are taking place.
Make your budget a priority. Cut out the expenses you do not need and create space in your budget for the more significant spending that matters to you.