How Budget Leaks Cause Financial Havoc
When my husband and I first decided it was time to get our financial house in order in January of 2013, we thought it might be wise to go back over our 2012 spending to get a picture of what exactly we’d been doing with our money for the past 16 years. We’d never officially budgeted before, but thankfully we generally paid for things with a debit or credit card, so we had records that we could go back to and use to itemize our spending.
The reason I bring up the benefit of having records is that without a detailed spending record to reference, it can be nearly impossible to effectively analyze purchases that are straining your budget or causing you to live beyond your means.
Budget Leaks Lead to Budget Washouts
Not too long into our research, we found several significant budget leaks that, although they seemed harmless at the outset, added up to big bucks over the long term. Even though we hadn’t officially budgeted in 2012, we did have perceived spending amounts in certain areas.
For instance, we assumed we spent roughly $600 a month on groceries, but learned that in 2012, we actually spent about $900 a month in groceries. We had all but stopped going out to eat in 2012, save for an occasional trip to a fast food joint or a snack at the big box store snack bar, but because we didn’t track our spending, we didn’t realize that we were spending roughly $175 a month on “not” going out to eat.
Undiagnosed budget leaks can turn into big budget problems real quick. Fortunately, there are a few things you can do to stop budget leaks in your finances and put that money to use for better things, like making progress toward your financial goals.
Figuring Out Your Financial Goals
If there’s one piece of advice I can give you that will help you plug up those budget leaks, it’s to take some time to figure out your financial priorities. What is it that you truly want to spend your money on? So many times we make spending decisions based on what feels good at the moment instead of what really holds value for us.
By making a list of your financial priorities and goals, and reminding yourself of those goals at each spending opportunity, you can learn to start making spending decisions based on what is truly important to you, and the automatic result is that those budget leaks will slow down dramatically.
Spend Tracking: Your New Best Friend
Several times before our actual journey toward being debt free, we had tried tracking our spending in order to get an idea of where our money was going. However, guilt, panic and rebellion would set in within a few short days, and we’d throw our spreadsheet out the window, fearing failure, discipline and responsibility.
However, a trial run at serious spend-tracking revealed to us the endless benefits of tracking our spending each month. Spend-tracking, you see, not only gives you a clear picture of where your money is going each month, it allows you to take money you’re spending on something unimportant, and move it to a more valuable place.
For instance, if you’re spending $300 a month on eating out, and you realize that eating out is not on your top priority list of what you want to do with your money, you can choose to allot $200 of that money for something more important to you, such as an extra payment on a loan or credit card, more money toward your early retirement goal, or as additional savings toward a vacation or a down payment on a house.
Choosing to track your spending doesn’t mean that you can no longer “have fun” or spend on frivolous things, it simply gives you a clear picture of what you’re really spending money on each month, which will in turn give you correct information to make a change in your spending should you want to.
Budgeting: Changing Your Perception
Budgeting was another area in which we had serious misconceptions. We used to look at budgeting as punishment for not being responsible with our money, when in fact what budgeting really does is promote freedom.
How? Because budgeting gives you the opportunity to make sure you’re spending your hard-earned cash on what’s really important to you. By assigning a place for each dollar that comes into your hands, you are assuring that all of your truly important financial goals are being achieved, and that you are stopping the budget leaks that so often ruin financial dreams and goals.
Budget leaks may be ruining your finances, but they don’t have to. By following the tips above, you can repair those leaks, and make sure your financial ship is floating securely.
What budget leaks have you been surprised to find in your budget? Are you analyzing your spending now? If not, what’s holding you back? Are you afraid of what you’ll find?
Photo courtesy of: Maegan Tintari
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