Is There a Hole in Your Bucket? What (or Who) is Draining Your Bank Account?

If you feel like you can’t hold on to your cash it may be more than your imagination. It may be time to take a good look at your expenses to see where the money is going.

Only after you find the leak can you decide what to do about it. Most people take the easy path and just let things ride, sometimes for years. Taking the time and trouble to find out where the hole is in the bottom of the bucket and then take the difficult steps to plug it up may seem too hard. But, if you have any big dreams, it is a chore that must be done, and sooner rather than later.

Any primer on money management will tell you that there are several kinds of expense, listed here:

• Unavoidable Fixed Expenses-such as health insurance
• Unavoidable Flexible Expenses-such as food
• Discretionary Expenses-such as a hobby

But this doesn’t tell you as much as you need to know. To get down to the bottom of a cash drain, you need specifics. How is the cash being transferred away from you? Checks? Credit cards? Cash?

To whom are the monies going? Maybe the drain is actually a legitimate and unavoidable expense. If the big cash drain is going to a company like Kaiser Permanente or Blue Cross for health insurance you really don’t have much choice.

But what about other fixed expenses? Some of them may be reducible if it becomes important to do so. Take your rent or mortgage for instance. If you live alone or with only one other person you COULD rent out a room in your house, or get a smaller cheaper place, or even move to a cheaper locale. You may have reasons NOT to do any of these things. In which case the money drain is a choice. The privacy, extra room, or presence in a particular neighborhood is worth what you are paying. Accept it and stop complaining, even to yourself.

Then there are the flexible expenses. Are you buying lots of clothes? Do you drop a couple of hundred a week at Whole Foods? Are there company names that loom large in your bank register? Ask yourself “why am I paying this?” for each one of them. Which are you willing to reduce?

What about business expenses? Are you starting a business and paying vendors? Or do you already have a service business and have shiny-objectitis? (This is a condition where you buy coaching programs, networking memberships and other things that drain your money without a return.) Especially in a business you should know why each expenditure was made. This is not a judgment on my part, but it should be on yours. If you really want the shiny objects, fine. Just don’t think of them as business expenses when they are actually doing nothing for your business but are fulfilling some other psychological need.

As for actual hobbies, if you are extremely poor or struggling this won’t be a problem. You will watch birds or skip rocks or watch movies on Netflix. But, if you have reached a point where discretionary income means you can buy yet another Marshall Stack when you already have three, or your credit card statement has enough charges to Barnes and Noble to fill a small town library you might want to do a reality check. What if your devotion to knitting or baseball were actually stopping you from something really important?

Finally we come to money drains that are not an it but a who. Who are you writing checks to or in behalf of?

If the recipient is your minor child or your disabled spouse or adult child, that is a duty, not a drain. If it is anyone else-ask yourself why.

If it is an able bodied spouse, how did the situation arise? Did the two of you make a conscious agreement? Is the non-earning spouse contributing something else of value? Or did you just fall into this situation when they quit their job and now you don’t want to rock the boat?

If it is a friend that is always in need, or worse yet, a boyfriend or girlfriend, I invite you to take a long slow look. Why are you supporting a fellow adult at all? Maybe you have a good reason, but it is still a question worth asking.

If it is a charity, remember to rethink your gift each year. Priorities and your own needs may have changed.

And if it is a guru or spiritual advisor-watch out. Giving a small amount to things you care about is fine. But, if there is enough money going out to call it a drain-you may be really harming yourself. No church or guru is worth that.

So, who or what are you supporting? Where is your money going? If you are supporting a sibling with an addiction or a parasitic boyfriend, in your heart you already know what you will find when you analyze your spending. Even if you dread taking action, you know…

But here is how to do a real analysis: Pull up all your bank statements for the past year, or get them out of the drawer. Make categories, including people’s names if there are individuals you are paying. If there are lots of cash withdrawals, have you saved your receipts? Do you remember what you spend your cash on? You may have to stop taking out cash or start tracking every penny to fill in the gaps. But there will still be enough information to draw some conclusions even if there are gaps.

Put the results on a spreadsheet, either computer or hand-written. Then go down the list, asking yourself why for each category. This exercise may lead to some uncomfortable but long overdue conversations. Or it may lead you to accept things just as they are. Either way, you can stop wondering where your money is going. Either you will be keeping more of it, or consciously spending it. There will no longer be a mysterious hole at the bottom of your bucket.

Originally published at http://www.thefrugalgoddess.com on March 12, 2015.