If paying back debt has taught me one thing, it’s this: even a budget build with the best of intention can develop leaks.
I don’t agree with Kevin O’Leary often, but one section of his book Cold Hard Truth on Men, Women & Money piqued my interest.
It’s about the idea of ghost money.
Ghost money, O’Leary writes, is “dead money, money wasted on stupid things, money that should have been invested instead.”
He goes on to explain there are four main things the average Canadian spends on without thinking about it: cigarettes, magazines, coffee and lunches.
Accounting for interest, he suggests regular spending on these things over a period of 20 years could amount to more than $276,000 in unconscious spending.
At first, that seemed unbelievable. But it did make me think.
I don’t smoke or buy magazines. I love takeout coffee but try to purchase it sparingly (as documented here), and more often than not, I avoid eating out by bringing lunch from home.
It’s unlikely I will spend that kind of money on the four items he’s identified as common for unconscious spending.
Which is a good thing, because I definitely have different areas where I spend money without thinking about it.
Finding my budget leaks
So where do I unconsciously spend money? Upon reflection, four things come to mind.
Specifically, putting money on my gold card through the app.
Reloading the card only takes a couple taps on the screen. I don’t have to enter in my credit card number because it is linked to my account, which makes it even easier to forget where the money is actually coming from.
- iTunes purchases
Most songs are between $0.99 and $1.29 but boy, does that add up quickly!
Typically, I spend on music through iTunes but I also buy the odd television episode (like Grey’s Anatomy, at $2.99/episode) or, more recently, books through iBooks (these range in price but I have never paid more than $4.99).
The worst part about this spending is it doesn’t show up right away, but rather, in one big bill, really driving home how much it costs. Ugh.
- In-app purchases
This deserves to be separate from iTunes. I don’t spend in this area often, but I’ll confess: there was a time at the height of the Pokemon Go’s craze that I would spend $0.99 here and there to buy some poke balls. I know. So embarrassing.
How many times have I justified a purchase because it was “on for a good price”? More times than I can count.
Reality: it’s not really a great deal if you’re spending money on something you never needed in the first place.
Steps I am taking to fix my budget leaks
The good news in all of this is I have mastered the first step: acknowledging the problem. Knowing the areas where you waste money brings you one step closer to fixing the problem.
What does fixing budget leaks look like for me in practical terms?
- Limiting my Starbucks intake
I aim to go to Starbucks once a week, occasionally twice, because you can’t spend money if you’re not there! I also make good use of my free rewards when they arrive and only put money on my card when it is empty.
If I need a coffee fix on non-Starbucks days, I make it at home.
- Setting up password prompts for purchases on all my devices
Any time I want to make a purchase through iTunes (or iBooks, in-app, etc.), I have to enter my password. It’s a minor inconvenience, but increasingly, it’s annoying enough that it stops me from making the purchase.
- Shopping with a list
And (mostly) sticking to it.
- Asking the right questions before making a purchase
More specifically, asking “Do I need this?” or “Is this practical?”
For example, yes, 50 per cent off a $7 block of cheese set to expire in a week is a good deal. But we have limited freezer space and I know myself well enough to know I won’t feel like grating it up to store it, so it does not make much sense to buy more than a block or two.
Asking questions like the two above help me think through my purchases – and make smarter ones as a result.
Three tips to fix your budget leaks
We all have ghost money — and everyone’s ghosts look different.
The important thing to remember is these ghosts can be conquered. Looking to fix your budget leaks? Here are three tips to get you started.
- Acknowledge the problem. Look at your budget with an eye for the leaks. Give yourself the grace you need to note them honestly. This has to be the first step.
- Develop a plan – and keep it realistic. You want to have a plan in place where you can succeed. So maybe instead of buying your lunch every day, you start by cutting back to three days a week and work your way down.
- Stick with that plan. It’s simple, but it is easily the most challenging – and important – part. The payoff of having more awareness of and control over your spending is more than worth it.
Even the most aggressive, disciplined budgeter can encounter a leak in the budget. The key is to acknowledge them and commit to taking the necessary steps to make a change. That’s how you conquer the ghost — and win with money.
Do you have any budget leaks to fix?