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Plug Your Financial Leaks

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Financial Leaks = Leaky FaucetsWhen I started working in the summer of 2003, I kept a pretty diligent budget. My friend Melinda sent me her “Budget Bible” excel spreadsheet as a guide and I tweaked it so that it fit the budget categories I was most curious about. I kept up with it for about six months, until I reached a steady equilibrium, and then dropped it.

One of the most valuable parts about keeping the budget was that it helped me identify financial leaks I was otherwise unaware of. I could discover these leaks and easily plug them, saving me hundreds of dollars in the process.

A financial leak is when you have a series of expenses you didn’t know you were spending so much on. They’re often small, irregular, and easily overlooked. Buying a cup of coffee at Starbucks each day is not a financial leak – you know you’re spending that money (and you get something for it, you get coffee in the morning). While some would argue that you’re overpaying, I think we’re all adults here with different preferences so that spending wouldn’t be considered a leak.

A leak is more like an ATM fee every few weeks because you’re getting cash from another bank. You know that you’re being dinged that ATM fee but you might not realize you’re getting dinged as often as you are. A $5 fee every other week is over a hundred dollars a year – that’s a leak that can be easily plugged.

How do you know if something is a leak? You’ll know it when you see it and it’s different for everyone. You might see yourself spending a thousand bucks a year on coffee as a leak whereas someone else would see it as a cost of waking up so early. You might see 5 ATM fees a year and consider it a leak whereas someone else sees it as the cost of traveling. Either way, you’ll recognize it without any problems.

How do you plug it? Usually you just need to add a little more planning on whatever you do. If it’s coffee, buy a coffeemaker (or get a free coffeemaker) and remember to program it in the morning. If it’s ATM fees, remember to get more cash out or try to utilize your credit cards more often. It usually comes down to preparation.

Whatever you do, don’t beat yourself up about it! It sucks to see a hundred bucks frittered away on ATM fees and easy to wonder what could’ve been, but be happy you discovered it now rather than in a year… or never. We all make mistakes, we should be happy to discover them after only a hundred bucks of pain rather than a thousand (or more!).

(Photo: johnx62 )

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8 Responses to “Plug Your Financial Leaks”

  1. Good advice! I never use ATMs, partly for exactly that reason. And partly because cash flows through my fingers like sand through a colander.

    IMHO, just about all bank fees are financial leaks. It’s outrageous that a bank should charge its customers for taking their money, investing it, and making a profit for the bank’s shareholders. Easy way to plug those leaks: move your money to a credit union.

    Another financial leak — maybe too obvious to mention — is finance charges on a credit card. Never run a balance on a card. What a rip!

  2. jim says:

    I’m a big fan of credit unions and I think the only reason why they’re not more popular is because they simply aren’t HUGE companies with a wide geographic reach. Outside of that, everything about them is better!

  3. Ben says:

    One February I noticed a $40 charge on my card for a web music subscription I hadn’t used in 3 years. Every year it would renew itself and I never noticed it. Stopped that as quickly as I could.

    Another big one is those free intro subscriptions you sign up for and forget to discontinue. You get charged for a while till you can figure out where to discontinue that service. This is why I don’t sign up for something like that anymore.

    A goog suggestion is to increase your contribution to savings by the amount of the leak. If you can afford to pay $12 a month on a credit monitoring service you don’t use. Stop the service and save an additional $12 a month. It’ll add up so no amount is too small.

  4. I think some of the “cures” for the financial leaks you describe can be worse than the disease. Using credit cards more often would be one example where you might not leak cash but you will likely spend more. If you are leaking money, you need to stop it at the source, not plug it.

  5. One thing I noticed the other week was that I had credit card insurance. Call me loopy but I pay it off every single month so I had absolutely no need for it. I got rid of that one quickly enough.

  6. Muzie says:

    Isn’t it awkward to focus on financial “leaks” when most of us a financial torrent literrally gushing out of our collective investments?

    I would prefer to see how this “prosperity blueprint” treats the case where perhaps investing isn’t going to pay off. Not likely, perhaps, but a blueprint is a blueprint.

    I’ve found if the whole “investing” idea down’t work, then it kills the idea of “defer consumption to invest in your future” – a dollar spent now will always be worth more than a dollar spent in the future with inflation, unless investments come back in line.

  7. jim says:

    I don’t think it’s awkward, you fix what you can fix. If you think investing is a bad idea, don’t invest and spend your money; I certainly won’t stop you. However, I would argue that everyone would agree that finding leaks beats letting them continue.

  8. Gates VP says:

    Hey Muzie;

    I don’t know if you’ve noticed, but Jim makes a lot of posts on a pretty much daily basis. Personal finance is about both the big and the small things. There’s nothing wrong with a little “found money”.

    Yeah, finding $100 / year is small potatoes to losing $10,000 / month. But nobody told you your investments were going to make money every month, right? If you want investing ideas, check out his previous post.

    See a little bit of everything ;)


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