Money leaks can reverse all of your hard work and planning. But how do you know if you have them?
Picture this: you’re on a small wooden boat paddling through turquoise water towards a tropical island. You know the kind – with gently lapping, crystal-clear waves, white-sand shores, and gently swaying palm trees.
You’re paddling as hard as you can, yet you don’t seem to be getting any nearer.
It appears that your boat has sprung a couple of leaks in the bottom. They’re not big enough to sink it, but enough water is seeping in that the boat is weighed down. You have to stop rowing every few minutes to scoop out the water, and it feels like you’re never going to make it to that beachside bungalow!
This, my friends, is the problem with leaks. They can really interfere with your journey to paradise!
When it comes to money leaks, it’s your financial freedom that’s at risk (which may or may not mean a tropical island retreat – up to you!)
Even the tiniest money leaks that you’re not aware of, could be getting in the way of your success. So, let’s explore the concept of money leaks, including how to find and plug them so you can focus on rowing your way to paradise.
The Ultimate Guide To Finding And Plugging Your Money Leaks
Consumerism and marketing, and what they have to do with it all
To understand money leaks, you need to understand money as it relates to the world we live in. So much of our spending is fuelled by society. It’s become so normal to buy our way to “better lives” that we barely notice what we’re doing, until we take a step back and look at the way it’s designed to work.
Consumerism is the concept that fuels the economy. It’s the idea that your wellbeing and happiness can only be achieved by buying things to make your life better. Economists tell us that consumerism is necessary to keep the “machine” running. Still, there is a lot of debate about the negative impacts of consumerism on the environment, our society, and even our mental health.
Marketing is tied to consumerism. The world around us is filled with marketing messages that influence us to make purchases – purchases that we don’t necessarily need.
Advertising convinces us we need an iPhone, or a pair of Nikes, or whatever a company is selling. Numerous marketing techniques are used to manipulate people, causing you to spend money you might not have invested otherwise!
Clever marketing can be the source of unintentional money leaks!
How To Find Your Money Leaks
Most money leaks happen because we’re just too busy (or not motivated enough) to keep a close eye on our spending. The smaller purchases often go unnoticed or unrecorded because they seem so inconsequential. But in reality, these minor leaks can add up to big buckets of cash flowing out of your life.
The best way to identify your leaks is to shine a spotlight on your spending. Track all your expenses for a month. Every. Single. One. From the $2 chocolate bar at the gas station and the $4.99 app you downloaded onto your phone to all your bills.
It sounds hard, but there are plenty of apps you can download (for free!) to help you keep track.
Start tracking, and then at the end of the month, comb through all of your expenses. Highlight the things that are absolute necessities, like rent, utilities, etc. Then highlight all the things that are wants rather than needs, like meals out, online shopping sprees, movies etc.
I recommend spending time reviewing your necessities, too. Is your mobile data plan the most cost-effective one? Do you really need all the features on it? The same goes for your power and phone bills. Are there better options out there with other companies? Be a deal detective and find out where you can cut corners to plug all those leaks.
Value-Based Spending – What’s A Leak And What’s Not?
If you’re having trouble deciding what’s a leak and what’s an essential purchase, then it’s time to look into the concept of value-based spending.
When you review your spending, you will probably find dozens of smaller purchases (a $10 happy meal here, a $6 magazine there) that didn’t improve your life in any real way. And boy, do these purchases add up.
Value-based spending encourages you to think about the number of hours you’ve worked to pay for whatever it is you are about to buy.
For example, if you earn $25 an hour and are about to spontaneously buy a new $100 handbag, ask yourself if it is worth spending four hours of your life (that you can never get back, by the way) at work to make that purchase?
Will that item you’re about to splash out on really provide enough value to your life to make it worth the time investment?
There are no right or wrong answers, only what’s valuable to you. Try to get into the practice of pausing before buying to review the actual value of the transaction. You might be surprised how some of those money leaks automatically dry up.
Is Your Mortgage A Money Leak?
Housing counts as a necessary expense, right? True, but not all mortgages are created equal. It’s possible that you could be overpaying your mortgage and would be better off with another option.
Shop around, compare your mortgage rate to other options to see if there’s a way to refinance – it could save you thousands per year.
Is Your Credit Card A Money Leak?
Do you make sure your credit card is paid off on time every month, or do you prefer to be blissfully unaware of the interest being added to your unpaid balance?
Credit cards can be helpful in a pinch, but if you depend on them to get by and don’t manage the repayments, you can end up with quite the pesky money leak over time.
If you have debt on several credit cards, it might make good financial sense to consolidate the balances into a personal loan. That way, you have only one debt left to focus on. Better yet, leave the credit cards for emergencies only and use debit cards instead.
On Sorted: My credit card was a money leak
Not All Leaks Need To Be Plugged
While small expenses can add up, not all of those money leaks need to be plugged. If you try to deprive yourself of everything and constantly stick to a strict budget, then you will probably find you have money blowouts. That is where you go on a spending spree to break free from the confines of the boring budget.
Spending blowouts can be more damaging than gradual money leaks! So, if you want to grab a coffee on the go from time to time, then do it. And don’t feel guilty about it either. Just be mindful of the spending and enjoy the value of it.
Do You Need A Bigger Boat?
Earlier on we talked about money leaks being like a small hole in your boat. So, another way to approach those money leaks is to get a bigger boat.
What do we mean?
Well, one sure-fire way to accelerate your journey to financial freedom is to increase your income. Start a side hustle, set up a passive income, get a pay rise – whatever you need to do to have more money coming in.
If you need some ideas on how you can do this, grab our free Passive Income resource here.
Just make sure the leaks don’t expand to accommodate the new in-flow of money!
The Best Tool To Plug Your Money Leaks
So, you’ve identified your money leaks and now have a clear picture of your spending habits. The next step is to plug the leaks, which can be tougher than it sounds. To do it you will need discipline, self-awareness and yes – the dreaded “B” word – a budget!On PocketSmith: 3 Tips for Keeping to a Budget
Don’t panic, a budget doesn’t have to stop you from having fun or treating yourself once in a while. It’s designed to control the unintentional, unconscious, unnecessary flow of money out of your life.
Budgets help you embrace value-based spending, cutting out the expenses that are not as important to your life and focusing on those that genuinely add value to it.
Take some time to put together a budget that includes your incoming funds as well as all of the essential and valuable expenses. A good budget has more coming in than going out and has a purpose for any money left over – like savings or debt busting.
Importantly, know that this is a long game. The work you put in now will pay off down the track, and it will compound too.