How to Find Your Money Leaks and Stop Overspending

Daniel Penzing
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Your Relationship With Money

Before you can start tackling your money issues, you need to figure out how you feel about money. Over-spending, credit problems, and money worries are often a direct result of a negative relationship with money. A large part of dealing with money is about changing your perception of it, so you’re able to have more of it and make better financial decisions.

How Much Do You Make?

This sounds obvious, but most of us have a huge disconnect between what we earn and what we spend. Most of your day isn’t spent thinking about money. If you do a quick calculation on how much money you make per hour, it would shock you. But most of us don’t think about it like that.

Go to your bank account and find out how your paychecks get divided up; do you get paid every week or bi-weekly? What’s your take-home pay? How much does anything in your life cost you per hour? Divide that by how much you make per hour, then multiply your hourly rate. It will be an eye-opening experience. As good as making money is, it’s even better when you understand exactly how much you earn for the amount of effort you put in.

How Much Does It Cost?

Find Your Spending Leaks

I know how this goes: Last month, you could barely balance your checkbook, so how is it that now you are overdrawn? You know you aren’t spending any more than you usually do, so where is all the money going?

It is a good idea to recognize and acknowledge that overspending is a problem for many people, not just you. Once you understand it isn’t just you, it helps to feel a little bit better.

Then what?

Write it down. In a notebook or on your smartphone, write down where you think money is leaking from your budget.

Identify areas that seem to be the biggest problems. You might have one specific area that is causing problems or you might just have a bunch of small areas that add up.

Whatever you find, make a plan to fix it. The biggest spend of my life was when I was a clueless, careless, immature, and a broke teenager. I still learnt from it and try to not make the same mistake by spending wisely.

Cut back on wasteful savings. We all know how funny it feels when you know your money is just piling up but you don’t know what to do with it.

Track your spending for a month.

Try this method of tracking your spending for a month. This has helped me and others to find out where the money is leaking in your budget and how to fix those holes.

{1}. Track each purchase for 30 days, no matter how small.
{2}. Find the average spend per day between all your purchases. Make sure to find the average of at least one full month. Otherwise something was purchased on too quick of a timeframe to get a good idea of how much you spend per day.
{3}. Find the average spend per week between all your purchases.
{4}. Find the average spend per month between all your purchases.
{5}. During your spendings time you will be able to get a good idea of which categories your spending is highest in.

When you are done, look back at which category all your purchases fall in, and analyze those purchases. Where is your money leaking? Is it food?

One of the most common over spending leaks is with food. Everyone knows that eating out costs a lot more than cooking your own meals. So you may want to try out the 32 Dollar Experiment, which you can do here.

And why not save up to 40% on your groceries like I easily do by joining the Grocery Coupon Network. Another great way to save money on food is to dehydrate your own food.

Organize the numbers.

Opposite of what most people do when they become overwhelmed with their money situation, we recommend that you start with a clean slate and organize your numbers.

You can easily do this by making a list every time you receive cash or spend money. This list most likely will include several different categories, such as:

Your or your family’s income

Your expenses (monthly recurring, utilities, grocery, fuel, etc.)

Money that You Expect to Receive but Haven’t Yet

Besides looking at the actual dollars and cents, go through each category and write down the list of vendors and partners whom you’re dealing with. If you are having issues with overspending, this will make a phenomenal difference.

Dig into the details.

Now that you’ve calculated your net worth, you can easily see what’s possible and what’s probable. This is because most people will have three types of portfolios:

  • Fixed costs – these are things you have some control over
  • Variable costs – costs outside of your control
  • Off-the-shelf costs – costs that are part of a group

Now that you’ve calculated your net worth, you can easily see what’s possible and what’s probable. This is because most people will have three types of portfolios:

Fixed cost are the costs that won’t fluctuate much – like a mortgage, public transport costs and your expenses. Variable cost are what varies, like groceries, dining out, entertainment and lifestyle. Off-the-shelf expenses are things you don’t control that are packaged – mobile phone deals, premium beer brands, weekends away and brand-name clothing.

Fix Your Spending Leaks

Your financial wellness is a journey, it is never a destination. It’s a constant work in progress. As you make strides towards your financial goals, you will also have to make adjustments to your spending habits.

Some of this adjustment takes place automatically as you start to save more and spend less. Some costs you may decide to eliminate or reduce as you develop a new found value in what’s important.

Unfortunately, every once in a while there are things you can’t control. Sometimes they creep up on you slowly, sometimes they’re just one unexpected event that throws all of your hard work out of whack. Plus, you can’t do anything about the habits of your friends and family that are going to have a big impact on your debt overhead. But, here is where you get to take control of your spending.

Answer these questions: What have been your biggest money leaks these past couple of months?

Where is it that you always spend money and you’re annoyed because you can’t seem to stop?

What are the areas of your budget where you just seem to lose money?

What is it that you spend money on and you know it’s just stupid?

What is it that you spend money on and you know there are probably cheaper alternatives?

Preparation is key.

You can't know where your money is leaking without first acquiring at least a rough idea of how much money comes in, how much money goes out, and what you're spending it on.

The best thing you can do here is start keeping a budget … or use a separate account to log your daily purchases and that way you'll know where your money is going as you make them.

You need to face it, everyone has a spending problem. Turns out, our modern brain is really good at telling us that we need to buy something, but it's just not very good at registering when we're fully satisfied.

Having a budget will help you remove the emotion from spending so you can track where your money is going and if you're spending more than you should be and you can stop it before you need to resort to credit counseling or bankruptcy.

Creating a budget is hard work, but the benefits are two-fold:

You'll be able to take back control of your finances and finally stop spending money on things you don't need or want.

You'll free up your time and energy for more important things, like spending time with your family, pursuing your hobbies, and enjoying your life.

Here's some sample starter budgeting worksheets and a guide that explain in detail how to create your own budget.

Avoid or change your spending triggers.

Before you can effectively manage your spending and reduce debt, it is important to have a clear understanding of your own spending triggers. Each of us have buying habits that develop over time that are triggered by certain emotions, circumstances, and situations. These triggers are powerful because they manipulate your psyche and make you want to act.

For example, what do you usually do when you are feeling tired and stressed after a long day? Do you go out for a cup of coffee to perk up? Or perhaps you decide to treat yourself to a bowl of ice cream. And although these things are not that bad in moderation, it might trouble you if you were to see how much these things add up after a full year.

The point of this example is to demonstrate the power of buying triggers and how they can either help or hurt you financially. So to find your money leaks, you will first need to identify your own spending triggers and how they influence your behavior.

Try to explore the root cause for every single dollar you spend, and how it affects your life. For example, what does buying that coffee every morning really do for you? Can you get the same amount of pleasure by taking a 15-minute break and lighting an incense candle to clear the air in your bedroom?