Lesson 1 - Identify Spending Leaks

Objective: Identify at least two examples of regular, unplanned non-necessity spending in areas of low personal importance.

The first step towards cutting down on your spending is to identify your spending leaks, which we’ll discuss in this lesson. What are “spending leaks?” Spending leaks are unplanned non-necessity spending, often small but regular impulse spending in areas of low personal importance. Take for instance that $5 combo meal at your favorite fast food place. $5 for lunch isn’t bad though, is it? When you consider that, with store-brand food prepared yourself, you could put together a lunch for a little over a dollar, that extra $4 per day, every other day, accounts for over $700 per year. Stretch that out to 20 years, where many of your long-term goals may lie, and that’s more than an extra $14,500 over that time period – just for fast-food lunch every other day! There are a couple ways to identify spending leaks; the first is to see if you can find any triggers to impulse buying.

One common trigger is sales – ask yourself this honest question, have you ever bought anything simply because it’s on sale? If you answered yes, think back to recent items you’ve bought on sale – how many of those fulfilled a necessity? How many of them helped you achieve the goals you identified in the last module? Often they’ll tell you you’re saving ‘X’ dollars, but ask yourself this, what’s the definition of saving money (putting money aside), and given that definition of saving, are you actually saving any money by buying that non-necessity? Another trigger is a sort of payday syndrome. For many people, once you get that paycheck, which is often on Friday afternoon, that’s when you want to go out to eat, grab a drink, see a movie, but how often do you genuinely sit down and think about where that money really needs to go? Yet another common trigger is dollar or value stores. While you can certainly get many necessities and items you’ve planned to purchase from dollar/value stores, if you regularly walk into a dollar store planning on getting $5 of items, and walk out with more than $10 of random stuff, this may very well be one of your triggers. The last common trigger we’ll cover is emotions. Emotions, whether it’s anger, stress, sadness, even happiness, can often have a very measurable impact on your spending habits, rarely in a beneficial way. If you tend to go shopping after a stressful day, or even purchase something to reward yourself for a productive day, this may be your trigger. For some other ideas on triggers, take a few minutes to browse the front page of this form.

The other helpful way to identify spending leaks is to track expenses. Often it’s difficult to determine your spending leaks until you can see where all of your money is going. As an example, a former VP of Education for a credit counseling non-profit, in an online presentation admitted that the first time they started tracking spending they found that they had spent over $80 on Taco Bell – not for all fast food, but on just Taco Bell! Until they started purposely tracking expenses and paying attention to where their money was going, they had no idea Taco Bell was such a major spending leak for him!

Example

This is from a real example of a former Virginia Cooperative Extension client, whose personal information, for obvious reasons, will remain confidential. This person was looking at ways to reduce non-necessity spending, so they started by looking for spending leaks. After looking over a list of common triggers, they admitted that they had a bad habit of spending more on Friday paydays. They also tracked their expenses for a full month and a discovered a couple more spending leaks. After adding up their spending for the month, they found that they spent more than $120 at the dollar store! Also, having kept track of how they felt emotionally when making purchases, which is a column on the spending log on the back of the previous form, they found that they were making more impulse buys when shopping after a stressful day of work.

Assignment

Track your expenses for at least two weeks to as long as a month. Once you've done that, identify at least two spending leaks, along with a description of how you determined they were spending leaks. These spending leaks should involve somewhat regular impulse or non-necessity spending for things that are of low personal importance.

Complete this assignment in Microsoft Word - if you do not have access to Microsoft Word, contact your course facilitator. Once you've completed the assignment, email the Word document with the assignment to your course facilitator, who will provide feedback via email.

*This lesson will take at least two weeks since you have to track your spending to complete it. If you'd like to work on more lessons between then and now, feel free to begin the lessons in Cluster 4 - Manage Credit and Debts (The lessons in Cluster 2 and 3 require the information from tracking your spending, so do not go any further with those!). If you choose to do this, please contact your course facilitator to let them know.