Do You Have a Leaky Budget?

We were at the beach watching a small child fill a bucket with water, then carry the bucket up the beach to their sand castle. But once they got to the sand castle half the water had leaked out of the bucket. It was funny to see the confused look on their faces as they tried to figure out where the water went. But they couldn’t quite figure out it was caused by a leaky bucket.

And that experience reminded me of how some people have a leaky budget. At the beginning of the month, their bucket is full but before the end of the month it’s empty and they can’t figure out where the money went.

A budget leak means spending money on the same things over and over again without even thinking about it. It’s also increased costs on items you buy regularly, but you haven’t paid attention to the price increase.

Finding and fixing those leaks is part of being a good steward. Luke 16:11 tells us “If you have not been faithful in the use of worldly wealth, who will entrust you with true riches?”  Plugging those leaks in your budget helps you be faithful in using your worldly wealth

Many people start with a leaky budget by estimating how much they spend, which never works. Budgets need to be based on reality. The best way to build a budget is to track your spending for several months, then use the actual spending as a starting point.

We know many people who can’t make ends meet because they are budgeting based on what they think they spend, not what they are actually spending.

Another leak can be caused by a variable income. If your income varies monthly, but your budget includes the month with the highest earnings, you have a leak. List your monthly income for each of the past twelve months. Eliminate the highest month’s income. Add the remaining 11 months together and divide by 11 to determine a reasonable estimate to use for your monthly income.

The same process works with variable expenses. Car insurance, real estate taxes, vacation, auto repair or Christmas only occur quarterly or yearly. If you are not setting money aside for these expenses every month, then when they do hit your budget you’ll have a hard time paying for them.

Look at the past twelve months of expenses and calculate a monthly cost for each of those quarterly or yearly expenses. Then save the average monthly amount for each one of those variable expenses. When they come due you will have the money set aside to pay them with no hit to your normal monthly expenses.

If you’re still using a bank with ATMs that are not convenient to work or home, you are probably paying fees to access your own money. Paying $5/week adds up to $260/year! A little planning will help you analyze your weekly cash needs so you can withdraw money at your bank once a week and avoid the fees. If your bank doesn’t have ATMs that are convenient, change banks.

Another money waster is paying over draft fees. Don’t bounce checks or use the convenience of overdraft protection on your debit card. If you use your debit card at the fast food drive-up and order a burger, fries and a coke the cost is $6. But if there is not enough money in your account, the bank will graciously pay the $6 on your debit card for the small convenience fee of $35. The cost of the burger, fries and coke just escalated to $41!

You must pay PMI (Private Mortgage Insurance) equal to 1% of the mortgage value when you have less than 20% equity in your home. Once the equity value increases to 80% of the original mortgage loan amount you can ask the lender to eliminate the PMI portion from your monthly payment.

Home values have been on an upward trend for the past few years so, while you may not have had 20% equity when you purchased your home, you may have 20% equity now. If you think your home has increased in value, check with your mortgage lender about eliminating PMI.

While you certainly want to make sure you have enough auto insurance to protect yourself in an accident, you might find that your rates have increased every year. If you have a good history with no accidents, then you’re well-positioned to negotiate your way to lower premiums. You may also want to evaluate how much coverage you need—if you are driving an older car, you may not need collision insurance or you may want to opt for a higher deductible.

Names brand items come with a high price tag. Many generic brands are every bit as good as the name brands. Do some quick research by comparing ingredients before making your final decision—it might save you some serious money. This goes for everything from food to cleaning supplies, cosmetics and prescription drugs

Credit cards can be valuable tools if used wisely, but absolutely destructive if not treated with care. Lots of money leaks out of your budget if you are paying interest on your credit card balance. Get into the habit of paying your credit card in full every month. If you can’t pay for what you are charging each month, it’s time to quit using the credit card until you can.

A big benefit of a budget is keeping tabs on prices you pay for everything. As you monitor these costs it allows you to see where prices have increased substantially over a short period of time so you can adjust your budget or change your spending habits.

Getting from point A to point B can be expensive, whether you drive, use Uber or take cabs. Try to stick with public transportation instead. As long as you give yourself enough time for some additional walking or waiting for the bus, it can be a great, frugal option.

If you have drafty windows or an attic that lacks proper insulation, then you’re probably overpaying for heating bills in the winter and cooling bills in the summer. Check your home for air leaks so you can seal up the cracks or install more insulation; that short-term investment will save you money in the long run.

If you’re still paying $100 or more each month for your cable package, consider cutting the cord. Investigate cheaper alternatives, such as Netflix or Hulu or other digital streaming options. Look for ways you can access your favorite shows and figure out which is least expensive.

Take a close look at your most recent phone bill, and check for overage fees or data plans that you don’t need. If your phone bill has increased over time, talk to your provider and ask for a better rate, especially if you have been a good customer. Cellphone service is a competitive market with lots of options.

When you buy a high-ticket item, such as an automobile, a television, or a computer, most stores will try to sell you an extended warranty that will kick in after the manufacturer’s warranty expires. Most of the time, these warranties offer the worst of both worlds—overpriced coverage and an impossible claims process. Instead of getting an extended warranty, save the money for repairs or replacement.

If you rent a car frequently, check your personal auto policy to see if it covers you in the event of an accident or injury. Your credit card may offer additional rental car coverage as a cardholder perk. By using your own auto policy or extended coverage from your credit card, you should never have to pay for extended coverage on a car rental.

To some extent, almost all expenses are optional. Food, clothing and shelter are needs, everything else is discretionary. The more disciplined you are about discretionary spending, the more you can avoid budget leaks and be a good steward of all the blessings God has given to you.

“Precious treasure remains in the house of the wise but the fool consumes it.” ~ Proverbs 21:20

Listen to the Compass Catholic podcast for more on fixing a leaky budget.