With the economic downturn and the increasing number of jobs lost on a daily basis, it is time to take a closer look at our finances. In his article, Peter suggests hiring a financial advisor you can trust to help you improve your return on investment. This is excellent advice especially if money matters make your eyes glaze over and the math drives you nuts. However, the underlying assumption is that you have savings. Living from paycheck to paycheck is not a new or uncommon phenomenon even though all it takes is some common sense to make it a thing of the past.
While we are known to budget for our rent or mortgage, our utilities, our monthly groceries, and perhaps even some living expenses, many of us do not have a handle on how much we spend on a daily basis that drains our savings and therefore our next paycheck. What's eating away your money? Something called your invisible expenses.
You know how cool it is to say how you simply cannot do without your morning cup of coffee from Starbucks? Now add that up and see how much your vanity costs you over the month. You could start making your own coffee every morning. Still have that need to fit in with the rest of the yuppies with next to no savings? Buy the Starbucks cup and fill it up with homemade coffee. Seriously.
Carry a bottle of water with you and start drinking water instead of those sugar-laden sodas or those so-called guilt-free diet drinks that use sugar substitutes. Every time you buy one from that ubiquitous vending machine, you are adding to your invisible expenses. You may spend anywhere from twice as much to four times as much for every purchase you make from these vending machines. If you have a bottle of water, this can be refilled for free from a water fountain and your body will be grateful, too!
Eating out is another invisible expense. You may tell yourself that Subway sandwiches are healthier but are they the right choice for your pocketbook? By the time you leave the restaurant, you have spent nearly $10 each time. And much more over the month. You could pack your own sandwich that morning or the night before or carry leftovers from dinner as your lunch. You could also start a sandwich club with a group of folks from your workplace where you take turns bringing sandwiches for lunch. The sandwich menu changes on a daily basis and you look forward to something new every day. Or delve into the lunch box ideas right here at The Daily Tiffin.
Keep a stash of energy bars or crackers in your desk at work and always make sure that you have something in your purse to tide you over till you make it home. Again, your body will be thankful for your kind consideration!
Movies and popcorn, late night runs for ice-cream, that new mohair sweater, those earrings and trinkets, the magazine on the stand near the checkout counter ... they all add up. As do taxi rides.
Consider making a log of every penny you spend over the course of a month. Or, at least two weeks if an entire month is a daunting prospect. Note how many of those expenses were indulgences, impulsive purchases, or expenses driven by a factor of laziness. Compare this to your monthly budget and see how much you are really spending as opposed to how much you think you are spending.
Make lifestyle changes to cut down on your invisible expenses. It takes a little bit of planning and effort but allows you to manage your money more effectively, with a positive side-effect that you may even start living a little healthier. This is not to say that you must live a frugal life with no frills. Do treat yourself to simple pleasures every once in a while but don't make it a habit, as it will eat into your savings.
The less money you have to spend, the more likely you are to go into credit card debt; and, given today's high APRs, that is not a scenario you want for yourself. One suggestion would be to give yourself a weekly allowance and pay only in cash wherever possible.
It is also the season for gift giving and showing everyone how much you care for them by spending large amounts of money on gifts that they might never use or on gadgets that they can do without. I heard on the radio that Americans spend on an average of $850 per person on gifts at this time of the year. Give your loved ones the best gift you possibly could: an IOU gift certificate for quality time spent together. Or cook a meal for them and bond all over again over the dining table. You could donate money to a local charity or a good cause and send out greeting cards with more information to your friends and relatives, telling them that you donated in their honor.
Stop. Reflect. Think. Plan. And then take action to nail those invisible expenses and wipe them out.