Budgeting has something of a bad reputation. It’s not because budgeting doesn’t work, but because many budgets are created out of thin air and are then impossible to follow, creating a sense that personal budgets are simply a bunch of work for little benefit.
One big reason that hastily-assembled budgets often fail is because of “money sinks.” Money sinks are simply costs that aren’t accounted for in the budgeting process. Usually, they’re completely reasonable expenses – they just happen to eat up a lot more money than was expected for a number of reasons.
A really robust budgeting process usually seeks to find those money sinks and incorporates them into the budget, but that can take a very long time, something that many people aren’t quite willing to do.
There’s another shortcut, of course. By simply being mindful of many typical money sinks, people can incorporate them into their spending plans and find that they’re spending money much more sensibly than they realize.
If you’re trying to tally up and keep track of your spending, whether it’s via a budget, a spending plan of some kind, or just some back-of-the-envelope math, here are some sneaky “money sinks” that you should think about.
Non-essential bills: Do you have a subscription to Netflix? How about an account at a different service, like DailyBurn? Maybe you subscribe to an online game, or perhaps you contribute to a content creator on Patreon? Those kinds of bills roll in quietly each month and are often paid for automatically via PayPal or credit card. They’re so subtle that you often completely forget about them, but if you have several such non-essential bills, they can add up to quite a lot.
One good way to consider all of your non-essential bills is to just sit down and run through your bank, credit card, and PayPal statements to see which regularly occurring bills you find on there. A lot of American households will come across a few little monthly bills that they don’t even think about, ones that are small enough on their own to be forgotten but big enough that a few of them lumped together add up to some real money that you need to account for in your budget.
In our monthly budget, I have a couple of line items specifically for these, where I just lump them all together. I reconsider them on a regular basis, but in terms of just glancing at our budget, there’s no need to give a bunch of small expenses their own line item.
Irregular bills: Another “money sink” that’s often a budget destroyer is the good ol’ irregular bill. Think of things like property taxes or quarterly insurance payments. Those are very important things to take care of, but it’s easy to forget about them in terms of your monthly budgeting.
Take a few moments and make a big list of those important bills that don’t come in every month but do come in on a pretty regular basis. Property taxes. Insurance premiums. Vehicle registrations. Auto maintenance. Veterinary bills. Magazine subscriptions. Haircuts. Lawn care services. You get the picture.
The best approach I’ve found for handling these expenses is to figure out the total annual cost for each of them, divide that by twelve, and include it in my monthly budget. So, if property taxes are $3,000 for the year, I’d divide that by 12 and have a $250 line item in my monthly budget. For some of the smaller ones, I just lump them into an “irregular bills” category.
With those line items, I generally just leave the money in my checking account and then I know I can easily pay those bills when they come in, because I’ve already accounted for them.
Repeated tiny expenses: Another big money sink – the poster child for money sinks for many people – are repeated tiny expenses, ones that add up to a lot over the course of a month or especially a year.
Let’s say I get a soda and a granola bar out of the vending machine each day at work in the early afternoon. The soda costs $1, as does the granola bar. $2. Who cares, right? If I do that for 20 days – four weeks, five days a week – that’s $40. That’s a noticeable dent in the monthly spending.
At my previous job, I had a coworker who strolled in each day with a bagel and a cup of coffee. If you assume the coffee cost $4 and the bagel cost $2 – a reasonable estimate – that’s $6 each day. $6 times 20 – four weeks, five days a week – is $120 a month. That’s going to show up in your accounting.
How do you find these regular expenses? Again, it’s all about pulling out your bank statements and your credit card statements and your PayPal statements and looking for expenses that recur. What expenses pop up several times each month? Those are your repeated tiny expenses, and figuring out what they average each month (and adding a little bit to that just to be on the safe side) and adding that to your budget is a key part of getting a grip on a key money sink.
Now, I’m not saying that such expenses are a bad thing, but that they really should be accounted for when getting a big picture of your spending. They’re money sinks, regardless of whether they’re “good” money sinks or “bad” money sinks. My coffee and bagel friend should be accounting for $120 a month spent on coffee and bagels. That’s not a judgment on the “good” or “bad” of a daily coffee and bagel, just a recognition of the fact that the money is going to those things.
The goal here, with all kinds of money sinks, is to obtain a really clear, solid picture of how you spend your money. The closer you can make your monthly budget or spending plan to your actual spending, the more useful that document becomes in terms of helping you figure out what financial moves to make next.
For example, do you need to cut back on coffee and bagels? It’s really hard to tell unless you’re actually counting that expense. If you’re not even counting it, then $120 per month is just vanishing in smoke and it’s hard to get any rhyme or reason regarding where your money is going. If you are counting it, then you not only have a more accurate picture of where your money is going, you can potentially look at that line and think, “You know, I could just drink coffee at work except on Mondays when I really need that good coffee,” and trim that right down to $24 a month.
Do you need to trim that DailyBurn subscription? Again, it’s hard to tell if you’re not even actually counting it in your budget because that means your budget is inaccurate to begin with. If you add it in, your budget gets closer to accuracy and you can also make a more informed choice about that item.
In the end, money sinks aren’t just places where we lose money, they’re also places where we lose information. We lose sight of where our money is going and that leads directly to a false understanding and a confusion about our whole financial picture.
The first step is finding the money leaks, using the tools described above. The second step is to address them and figure out for yourself if that particular expense is a smart one to continue in the big scheme of things. That second step becomes a lot more sensible and valuable if you take care of the first.