Leaks are generally considered a bad thing. Ask any captain or homeowner what comes to mind when you say the word “leaks” and I doubt they see rainbows and unicorns. Consider these:
- Leaky faucet: annoying.
- Leaky roof: expensive and aggravating.
- Leaky boat: really bad!
- Leaky finances: often ignored.
What are leaky finances? It’s a small outflow, or series of small outflows, that slowly trickle your hard earned money out of your accounts. They come in many forms, and sometimes will add up to a large sum of money, especially over the span of time.
The problem with financial leaks is they don’t startle people enough. Sometimes the amount is so small that you don’t see it, or the amount is so small that it gets put onto your “I’ll handle that later” to do list. We all know what “later” means. Later is a nice way of saying “never.”
Tracking Down Financial Leaks
This tends to be made easy by looking at your bank statements. Look at all of your outflows and determine where each one is going, and for what purpose.
If you don’t know the answer to one, research it. There was an instance where people were signing up for free samples and memberships online, but what they didn’t know is the site was also being deceptive.
It put check boxes in unorthodox places and had them defaulted to checked. Eventually, many people realized they were being billed a “nominal amount” for a club that they had no clue about.
One person said they were billed for 2 years before noticing. If you’re bad at math, a “nominal amount” of money over 2 years turns into a lot of money. Had people not done their research, this financial leak could have gone on indefinitely.
Identifying Financial Leaks
This is different than tracking down leaks. Identifying leaks means you know where it is, you just don’t realize it is a leak. A common one is a gym membership that you don’t use. Some people keep it because it makes them feel better, or “they might need it in the future.” When was the last time you were ever denied signing up at a gym? If you need it, you’ll be able to get it again. Plug that leak.
Other leaks might include the ever-famous StarBucks example. I won’t beat this one into the ground, but $4 a day is an awfully large leak. Even $5 a week is sizable when you widen your scope of time more. What other leaks might you have?
Other leaks that people have trouble identifying:
- Newspaper & magazine subscriptions you don’t read.
- Gamefly & Netflix subscriptions that don’t get used.
- Golf Club memberships (just in case the guys want to go out).
Do you notice any similarities? Many of these things are monthly subscriptions that don’t cost a lot. In most cases, you’d be better off canceling the subscription and buying the 1 time you use it that year. Of course, these numbers will vary and you need to figure it out, but all of these leaks amount to a sinking ship.
Read: Who is the Captain of Your Financial Ship?