Finding and Eliminating Money Sinks
Posted by Richard on April 10, 2018
Budgets often fail because of costs that aren’t accounted for, called money sinks, that derail the budgeting process, according to The Simple Dollar. Creating a line item in the budget for something like rent or utility bills is straightforward as the amounts are stable from month to month, but it is much more challenging to capture spending on repeated small expenses, irregular bills, and nonessential bills.
One of the most difficult types of spending to track is those relatively small expenses that add up over the course of a month and, because of the low cost, are easy to justify at the time of purchase. An excellent example of this kind of spending is a daily coffee or soda, snacks, and even something like a newspaper or ebook download. With just four dollars worth of small purchases per day, there is suddenly a necessity for an extra $120 in the budget. Spending on these types of things isn’t necessarily bad, but it shows the relative ease with which people can blow a budget due to ‘unforeseen’ expenditures.
Irregular bills are those that don’t show up every month but rather once a year, quarter, or some other time frame. Examples of these bills are vehicle registrations, property taxes, or even things like home and auto maintenance. Rather than trying to absorb these expenses as they occur, a better strategy is to break them down into twelve monthly ‘payments’ and budget for them accordingly. This way, the money will be in the account when needed, and it won’t completely ruin the budget that month.
Finally, there are a lot of monthly bills that are merely wasteful. This could include unused subscriptions to magazines or online services. It is easy to forget about these recurring charges on a month-to-month basis, and they are easy to lose track of on a budget. A frequent audit of monthly expenses can reveal this wasteful spending so that you can cancel before the next payment is drafted.