Before you start setting up various financial New Year resolution goals, one quick exercise you should probably do is to focus on prioritizing the financial weakness that costs you the most money. Whether it’s lack of will power in spending, inability to comparison shop properly, impulsive financial decisions, or risky stock purchases — we all probably have made a number of blunders that have cost us more money than we’d care to admit.
The reason why I believe it’s important to focus on the weakness or mistakes that cost you the most money is simply because the return on time investment will have a more meaningful financial impact. Unfortunately, whether or not it’ll be easy for you to fix or improve that particular financial weakness will be another story.
But take heart, although baby steps are a perfectly legitimate way of bettering yourself, there really isn’t anything wrong with trying to tackle a big problem and failing — after all, none of us are perfect. Maybe you tried to cut your monthly lavish spa treatment but were only able to stick to the gun for two months. So what? That two months’ worth of savings is decisively better than never taking the initiative to save.
Discover by Getting the Hard Numbers
The best way to discover your financial weakness (e.g., actions and behavior that cost you money) is to take an analytical approach and track your spending.
Yes. This is bitch work. It’s not fun, it’s not sexy, but seeing concrete numbers telling you where your cash is going will always trump guesswork and decisions based upon feelings. Remember, the goal is to find your financial weakness and put a stop to it.
There are numerous ways you can track your cash flow and overall financial health. Not comfortable with having your information online? Intuit’s Quicken will definitely do the trick too.
Set up your accounts if you don’t already have them, and start checking the expense tab to see where unexpected expenses are accumulating. All of the software and applications listed above will have capabilities for you to sort by types of transaction, their frequency, and the total dollar amount. The periodic late fee you get from the credit cards that you didn’t think was a big deal? Suddenly it’s $120 over the span of 3 months. Ouch.
I recommend tracking things for at least 2 to 6 weeks, depending on your actual expense ranges. Safer bets are actually a timeline of 2 to 3 months, but that’s not always possible depending on your time constraint.
Understanding the Real Problem
If you were able to identify a financial weakness that cost you money, it’s time to take another step to really dive into the reasoning behind those financial transactions.
FACT: Money is NOT sentient. It does not magically wake up one morning and decides to fly out of your wallet or bank account and convert itself into a designer jean or a 55″ HDTV.
The financial waste that you may have discovered doesn’t have to be actual wasteful purchases (after all, whether or not it’s wasteful can be highly subjective). They can also be unnecessary and avoidable fees, poorly made investment choices, or unintentional daily habits — the list goes on. In fact, my own recent financial weakness is miscellaneous convenience fees that have racked up from the airport and liquor stores.
The fact of the matter is, most of the time, something you did causes the money to be spent. I racked up $80 in parking fees at San Francisco International Airport because I woke up too late to catch the rail to the airport. I bought overpriced goods at the liquor store because I slept too late the night prior. Though each of those unnecessary expenses comes from different sources, the underlying pattern that cause these financial mishaps are simply because I stay up too late sometimes.
This entire scenario sounds a bit stupid and minuscule, but in actuality, I’ve paid well over $200 in an avoidable “convenience” fee simply because I have a bad sleep schedule. Pretty stupid when you think about it, right?
Many times, we are creatures of habits. Back when I was living in Southern California, I tended to regularly stay up late and sleep at odd hours too. The only reason why it didn’t cost me money? If I wanted a lift to the airport, I could easily call up a friend. If I wanted some random odd trinket at 4 in the morning? There’s a 24/7 supermarket and Walmart five minutes down the street. If I was running late and needed to find parking fast? Well, it’s Southern California; parking is generally not an issue (nor are cursed parking tickets).
In another scenario, a friend of mine consistently pays her bill lately once every few months across various different bills, racking up late fees and penalty fees simply because she can be a bit disorganized. While it will be years until she sorts out the organizational issues (I can easily relate as I have piles of envelopes on my desk dated from 5 years ago), she was able to put a stop to the madness by setting up automatic monthly online bill pay. If you ever have similar issues with forgetting bills, set up automatic online payments now — you don’t even have to set it to pay the full statement balance, just set it to pay the minimum; at the very least, you can avoid paying late fees.
As you examine your expenses and track your spending, if you were able to find a pattern of financial waste or mistakes, chances are it’s due to some personal habits that you’ve accumulated through the years.
Habits are not easy to fix, but understanding your habits — especially habits that have financial impacts, will give you some form of armament toward the fight of curbing your financial waste. As with all things in life, knowing the real underlying issue will be the important first step you can take toward solving the actual problem.