Does this sound familiar? You commit to a set of financial goals for you and your family. You get real excited, building a balanced budget complete with emergency savings and retirement savings factored in. You have a plan to save money for something big or life changing. You focus on the big ticket items, like your home, auto, grocery and debt expenses, making sure they are not too big or restricting. Only to find out, several months later, that you are far off your savings mark. What happened? For many of us, it’s the dreaded “budget leaks”.
What Is A Budget Leak?
Budget leaks occur when we amass a number of small, seemingly innocuous expenditures on minor items that add up over time and blow your budget. A small splurge here, a little expense there, what’s the big deal? The big deal is that they can add up to something that breaks the budget and more importantly, prevents you from meeting your financial goals. In fact, a recent US government report stated that Americans spend (leak) 22% of their discretionary budget on things that they don’t recall or appreciate purchasing. What does that mean? It means we purchase things with our spending money, usually small items, maybe unknowingly or by habit that add very little to our enjoyment or financial goals, that over time add up. Here are the top ten leaks to look out for in your daily spending.
Top Ten Leaks
- Indulgent Drinks. I’m not talking about alcohol, that comes later. I’m talking about those refreshing drinks we have during the day to pick us up, like gourmet coffee, protein shakes and infused teas. I recently helped a lawyer friend with her budget and found she spend over $700/month on these drinks based on habit and routine!
- Memberships and Subscriptions. Magazines, streaming video services, the gym, airline clubs, gaming and investment services. They add up. If you aren’t using your subscriptions monthly, then get rid of them.
- Eating Out. It seems like it is an institution where I live, (Austin, TX), that we eat out, regularly. But it can also break the bank. Set a budget for eating out and keep it. If you are like me, you will find that limits and a little planning helps reduce unnecessary expenditures.
- Pet Expenses. Taking care of your pet is important. But endlessly buying toys, collars, clothing and fashion accessories are not. Believe me, your pet will do just fine with some love and attention. Skip the designer label booties and matching jacket!
- Nutritional Supplements. Vitamins, Amino Acids, Thermogenics, Anti-oxidants, Protein Powders and more. New on the list with our health conscious lifestyles. Endless pursuit of that special something to make you look and feel better. Do your homework, pick supplements wisely and figure out if they work before you buy more.
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- Alcoholic Beverages. Having a beer with friends at a local tavern at the end of a busy week may be warranted. Weekly buying beers for everyone within earshot is a budget breaker.
- Presents and Gifts. Ever feel like you have to match or “out give” others in social situations? Me too. Here’s a tip. Budget money for presents, keep to your budget, and personalize your gifts with thoughtful messages or personal touches to make it special.
- Sales that are “Too Good To Pass Up”. Indeed, buying items on sale is smart, but buying stuff you don’t need or really want just because it is on sale is a budget leak. A sale is only a bargain when you actually need it and have a budget for it.
- Extensive driving. Americans love to drive and we love our cars. But many times we forget to factor in the cost of gas when we plan trips or excursions. Another thing, it doesn’t make sense in time or money to drive across town to buy gas for five cents a gallon less. Factor in fuel costs when you plan to travel in your car.
- Impulse Purchases. You knew this was coming. Product placement in stores is engineered to encourage impulse buying but many times you a) don’t need it, or b) don’t want to break your budget for it. Be aware of product placement at cash registers and on the end cap of aisles in the store and resist impulse buys. Having a list before you go in the store helps.
The Take Away
It is easy to have leaks in our discretionary spending from purchases of items we don’t truly need, want or appreciate. Americans leak almost a quarter of our discretionary income, many times on the items listed above. The keys to prevent such leakage is to have a budget that supports your financial goals and to eliminate spending that does not support your plan.