7 Hidden Costs That Are Blowing Your BudgetFeb 08, 2019
Most people believe they have a pretty good idea of how much they are spending and where, but do they? When we have a classroom filled with students who are preparing to take control of their finances, one of the first things we do is ask them to list their income and expenses. It seems that the “Other” column is always full of expenses that we can’t quite put our finger on. Where the heck is that money going? We decided to put together a list of the top 7 hidden expenses we have found in our budget that made a huge impact. The last one was out in the open and seemingly innocent. However, we’ll explain it’s devastating impact on your income over the long haul, which is why we added it to our list. Read on.
- Morning Coffee (or Soda or Any Other Quick Stop Item)
You may not see the problem here, but drinking coffee out can be more expensive than a pack-a-day cigarette smoking habit. If you have an app on your phone, it could be worse than you think.
Hello. My name is Michelle and I’m an addict. My addiction began when a new Dunkin Donuts was built right next to my house. It was so close, we didn’t even have to turn onto a main street to get there. I never knew how awesome coffee could be until I started my drinking habit. As a morning hater (Okay, that’s harsh. Let’s just say I’m not a morning person), I found this liquid caffeine hit to be just what I needed to get me started and it soon became a daily habit. Plus, it seemed cheap. I’d get a 32 oz iced coffee for around three bucks. I used to have to drive five miles to a Starbucks and that was always over $5 for a 20 oz drink. Dunkin Donuts was a dream, great coffee for a low price, or so I thought. I had downloaded the app and set it up for an automatic reload on my card. The perks were great, too. I earned free coffees galore and lots of yummy food items. When I saw the $25 charge on my card for the reload, it didn’t really phase me because I was expecting it. But when I pulled up the expense chart at the end of the first month, I nearly fell over. I had spent close to $300 at Dunkin Donuts that month. What! Well, I had three twenty-something-children at home and I always purchased more than one coffee, sometimes up to four. I seriously couldn’t believe I had spent that much money on coffee. I was astonished. I knew I could lease a new car for less than $300 a month. What was I thinking?
Of course, I am always in recovery and I have to be careful not to put myself in precarious situations around coffee and coffee drinkers, but I’ve taken control of my addiction because controlling my money is what I do. I never let it control me. The point is, I really thought it was an innocent expense. I had no idea what that daily habit was costing me until I got hit in the face with my own pie chart. Even though I could afford it, I knew I would rather spend that money on something much more important to me and my family. So, I got a dog. No. I didn’t get a dog. I didn’t really buy anything, but I did find an extra $300 a month that I could put towards retirement, charity, or something more worthwhile.
- Eating Out (Sit Down and Fast Food)
Just like coffee, eating out can be something you’re spending way too much on without even realizing it. As a matter of fact, most families in America are spending nearly half of their entire food budget on eating out and fast food. This is an area you can take control of with just a bit of planning.
First, make a meal plan for the week. Decide to lower the days you eat out per week by half. So if you eat out four times a week, plan on eating out only two days a week. If you eat out only one day a week (First of all, good on ya!), see if you can take it down to only one day every two weeks. On the other days, plan out your at-home meals menu and shopping list so that you have the items you need on the days that you need them. Eating out usually accompanies the fact that we lead busy lifestyles, but if we are smart enough to plan ahead, we can outwit busy through planning. Fail to plan and you plan to fail.
Also, do your best to stick to whatever budget you set for food. I understand the importance of eating healthy, non-GMO, organic foods. However, having a shopping list empowers you to cut down and sometimes eliminate impulse buying. That’s where more money leaks out. So set and stick to your amount and your shopping lists. Save the night out for Taco Tuesday at Café Rio when their amazing tacos are only 99 cents. Take control of your spending now and you won’t have to worry about money later.
- Car Expenses (gas, insurance, and cars that need constant repairs)
Make sure you keep in mind the price of fuel for your car each month. Many people forget to add this expense to their budget. Some even forget the price of insurance. Don’t let that sudden expense surprise you, either.
Before you decide on a car, you should always talk to your agent about the cost of car insurance for that model car. They can help you save money and even make suggestions that may lead you to a similar model that is much more affordable to insure. Your insurance agent should be extremely knowledgeable in this arena because that’s her job. Listen to her advice.
First, don’t just buy any old beater. I fully understand that you may have read Dave Ramsey’s books and got to the part about saving money by buying an older, used car. However, I think you’re taking ‘ol Dave a little too literally if you started looking at Junkers. I don’t think he wants you to buy a car that needs constant repairs and I don’t suggest you do that either. There is a middle ground. Don’t spend too much, but pay enough that you won’t be in the shop every other paycheck. Keep your payment affordable and include the cost of insurance when budgeting.
Avoid large car payments and expensive luxury cars. If you plan on creating wealth in your life and you haven’t gotten there yet, don’t be foolish and have a car that is way beyond what you can or maybe just should afford. Thomas Stanley’s book, The Millionaire Mind, explained that real millionaires don’t care what others think, especially when it comes to something so trivial as a car. Real millionaires buy used, low mileage cars that are simple, everyday brands, not the Lexus or Maserati you would expect. Those brands are too flashy and frivolous for hard-working investors. Warren Buffett stated in an interview, that he had never paid over $30,000 for a car. Why? They depreciate and he doesn’t need to impress anyone. The fact is, none of us need to impress anyone but ourselves. How about impressing yourself with a million dollars in your retirement account and then you can buy whatever type of car you want.
Be smart instead of flashy. Don’t overspend today and leave yourself short tomorrow. Robbing your retirement for a luxury car is foolish. Pay cash if you can on a nice, low mile, used car that will get you from point A to point B without any problems. If you have to take out a loan on a car, never make it over 5 years. I would aim for 36 months, making sure I never owe more than the current value of the car at any time. That way, if I had to sell, I could.
- Memberships and Subscriptions
Do you have a gym membership that you’re paying for that you don’t use or hardly ever use? Maybe you did an online subscription to a program you thought you would use, but you just haven’t had the time. However, that monthly membership fee just keeps getting taken out. Every time you see it, you think to yourself, “you know, I should really do that,” or, “I’m going to start doing that…tomorrow.” The trouble is, you never start doing it, so just stop it. Stop the bleeding now and focus. Focus on the future, being debt free, feeling confident that you’ve saved enough for retirement, and the fact that you are determined to always make smart financial decisions.
You might even add gift cards into this category. The reason is these types of memberships and unused gift cards are called "breakage" and they mean big money for some companies. When you pay for a membership and don't use it, it's like free money to that business. They love it. And the thousands of dollars spent on lost and unused gift cards, the same thing. Thank you for the free money. So if you're a forgetful person, you know it. Don't buy cards you're going to lose or forget. They are worthless to you and big money for those companies.
- Credit Card and Bank Fees
Did you know that you can call your credit card company and get them to waive your annual fee? You can. You can also ask them to lower your interest and sometimes they will. If they won’t do either of these for you, time to start looking for a new credit card company. There are several out there that will let you transfer your balance at zero percent interest for an introductory period. In the meantime, you can start working on your Debt Snowball and pay off those nasty credit cards.
Another thing to do is avoid any fees on your cards by paying on time and paying at least the minimum amount due 5 days before the due date. Your cards report to the three credit bureaus around your due date. If you pay off your cards monthly, 5 days before the due date, your balance will show as zero. Find out their report date, they’ll tell you, and make your payment before then. Otherwise, your credit report could show a balance on your card, even if you pay it off every month. Knowing your report date and paying your card before that date will help raise your score and avoid any late fees.
Lastly, banks and credit card companies are competing for your business. You shouldn’t be paying any monthly or annual fees on any of your personal accounts. Plus, if you keep a watchful eye on your accounts and pay on time, you should never get any overdraft charges either. Charges like these usually come from lack of knowledge or just plain laziness. Know you know, so don’t be lazy.
- Home Shopping or Delivery
I love Amazon as much as any other long-time Prime member, but I know that they don’t always have the best price on everything. Sometimes, I just have to hop in my car and make the five-minute drive to Target. The same goes for ordering a pizza. If I pay the $3 delivery fee, I know I also have to pay a tip to the driver. That measly $3 delivery charge just became $8 and $8 five times a month is $40. Did you know if you only saved $40 a month into your retirement fund from the age of 18, you could potentially have $460,883 saved up by the time you’re 65, making you nearly $29,000 a year in dividends? Don’t ever bat your eyes at $40 again. If you’re spending it, you’re not saving it. Don’t waste money on delivery fees.
- Storage Units (Innocent enough, right? Wrong!)
Storage units will probably have a column in your budget already if you have one. They are expensive, for sure, but do you know the real cost of that storage unit? Most people think they’re going to only keep a storage unit for a short time, but the truth is most people keep a storage unit for 15 -18 months before finally realizing that maybe the cost is outweighing the convenience. After that, you think that most people clean them out and it’s done? They wipe the sweat from their brow and say to themselves, “I’m glad that’s over.” Well, that’s not exactly how it goes. A big portion of those finished contracts roll into new contracts on bigger units in the same facility or they are moved to new locations. Most people continue to buy more stuff and can’t part with the stuff that they buy.
Let’s say you want to store your youngest’s crib for your grandchildren. A $75 a month storage unit for only five years will cost you $4500. You could sell that nice crib for $50 bucks, purchased a $2000 crib when you become a grandparent and still save money. Paying for storage does not make sense.
We wrote a smaller piece on Storage Units: What It Really Costs, but the gist is really that they cost way too much money in the long run. If you can put it in a storage unit for months at a time, you aren’t using it and you don’t need it. The cost of storing it may out cost the price of replacing it later when you do need it. And finally, for the love of G*d, stop shopping and buying more crap. It’s past the point of ridiculous already.
What about other hidden costs? How can I find them?
One way you can discover hidden costs is to balance your checkbook. Seriously, just taking the first 5 or 10 minutes when you get home to write down everything you purchased that day and balancing your checkbook will make a huge difference. You’ll start to really see where your money is going. You won’t be able to help but to take notice.
I also write on my important receipts as I go through my day. For instance, if I have a business lunch with a colleague, I write on the receipt when I’m signing the bill, “Mr. Brown and Michelle - his offer for my clients - discounted credit repair.” The date and the amount should be on there, too. When I get home, I have a scanner that scans and sorts my receipts, but you don’t need to be fancy. Just have a file for your personal expenses and one for your business expenses. If you have more than one business, keep more than one file.
Note: If I’m shopping for groceries at Sprouts, I don’t write anything on my receipt. No writing lets me know it goes into my personal account.
I also do my bills each day. Adding my receipts and paying a bill online takes me less than 10 minutes each day. That’s all it takes. Some people spend hours on their bills because they put it off until once a month. By then, you have a pile of bills. A pile of bills also promotes Silly Sorting. Silly Sorting is when you create piles to do now and to do later or some type of waste of time-delayed tactic occurs. You end up picking up and setting down that bill over and over again, procrastinating longer and longer, until the darn thing has become a huge time suck. A mentor of mine once told me to put a dot on each piece of paper I touch. Every time I pick it up or touch it, I add another dot. After a week, you have a pile of papers with a bunch of dots on them. Why? You pick up your mail, get a few letters, open them, pay them or toss them, and you never have to deal with them again. No more dots.
Doing the few bills you get in the mail each day takes no time at all. Plus, you’ll know when something suspicious is going on in your accounts much sooner if you’re monitoring them every day. You’ll pop in to pay a bill online and notice something isn’t right. If you wait until once a month, the questionable transaction might be deeply hidden or worse, there may be a group of bad transactions that you could have put a stop to right away had you seen them sooner. Also, checking your balance IS NOT balancing your checking account. If you’ve never really learned how to balance your checkbook, learn to do it HERE.
You should also learn to keep receipts for everything, especially when you are first creating your Financial Action Plan, aka budget. This is just taking control and paying attention to where your money is going. This is where you begin to manage your money instead of it managing you. There are even apps that take pictures of your receipts, sort them, and store them for you. Whatever works for you is good.
If you’re lousy at keeping receipts, then use your debit card and no cash. You can sign into your bank account each night and see exactly what you spent and where. Then, you can plug it into your FAC each night and make certain you are staying on track.
We at Prosperity Process hope these tips and tricks help. If you have any hidden expenses that we missed, please let us know by sending our team a quick email or posting it on our Facebook page. Showing someone a hidden cost and helping them eliminate unnecessary expenses can save them hundreds of dollars. Plus, sharing those types of tips, the kind that helps people save money, makes you feel warm and fuzzy inside. Thanks for sharing!
Michelle R Russell
© The Prosperity Process, LLC
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