If you compare your income and expenses every month and can’t seem to understand where your money goes, you have invisible expenses.
According to debt advice firm PayPlan, over 50% of our spending goes unchecked. A recent study by the firm revealed that 52% of shoppers in the UK don’t track their bank balances. The study which involved 2,000 respondents uncovered worrying trends. For instance, most shoppers aren’t knowledgeable about effective budgeting practices.
Other interesting statistics uncovered by the study include; approximately 33% of shoppers routinely spend money on low-value items such as chewing gum and 26% of shoppers in the UK blame their overspending habits to increased card limits. Others blame contactless payment methods for their overspending habits.
It is clear that budgeting isn’t enough considering most budgets capture rough estimates of expected expenditures only. What most people fail to realise is; there are little expenses that we repeatedly incur on a monthly basis, and those expenses can add up to significant amounts derailing our monthly budgets and finances as a whole. If you want to identify and get rid of “invisible” expenses, here’s what you need to do;
Create a list of essential products and services
To identify invisible expenses, you must list and find out if you really need all the products/services you buy regularly. Invisible expenses can be eliminated by thinking about needs only, not wants. We tend to overspend on goods and services because of emotional reasons. Taking a moment to consider if you really need what you usually buy will go a long way in identifying and getting rid of unnecessary expenses that go unnoticed. It may be as simple identifying individual products and going for a multipurpose product that costs less.
Track your expenses
Unless you track your expenses, it is impossible finding invisible costs. Tracking expenses can be a daunting task, but you can make it easier using technology, i.e., a budgeting app or notes on your phone. If you are serious about finding invisible expenses, you shouldn’t have a problem tracking every single coin that leaves your wallet. The process can be easier if you use cashless payment methods, i.e., cards since such payments are easier to track. Once you have a few months worth of expenses, you will have a clear picture of the costs you’d rather avoid but incur anyway.
For instance, seeing the exact amount of money you spend weekly on restaurant meals, snacks and beverages like coffee can be an eye-opener that such expenses aren’t as insignificant as you think.
Tracking expenses can also help you detect fraudulent transactions. Fraud accounts for a significant number of “invisible” expenses in the UK. You could be incurring charges on your card if you are a victim of identity theft. There are cases in the UK of people whose identities have been stolen and used to apply for payday loans. Tracking your expenses can help you detect if anyone is “swiping” your card or charging expenses on your card. You can proceed by reporting and cancelling such transactions.
While tracking expenses, don’t forget to double-check everything. You can identify repeat expenses that aren’t supposed to be recurring as much. A good example is car repair costs. Such costs should be incurred occasionally, i.e., once after a few months when you are servicing your car. If you repair your car several times on a monthly basis, it may be time to consider buying a new car. Old cars tend to be more costly in the long run because of the number of recurring costs on repairs. The same applies to old appliances. For instance, an old furnace demands a lot of money in repairs and energy costs. Buying a new furnace in such a case is spending money intelligently.
Once you have tracked all your expenses for a while, you will know exactly where every single coin you earn goes. It’s easier to cut on unnecessary costs at this point since you have a list of essential expenses. However, focus on striking a balance. Every expense you eliminate or minimize should create an opportunity to improve your life. Ideally, the excess cash flow created should go into your savings account, retirement fund, family trip, etc.