Americans are in the age of reducing waste. There’s a big push to purchase sustainable products, reduce our usage of plastics, and recycle. But has this trend carried over to our personal finances? Not really. In a study by The Ascent, the financial expertise arm of The Motley Fool, more than 60 percent of respondents felt they have wasteful financial tendencies. Why is that?
The Money Pit
I recently came across an interesting article in the Wall Street Journal about the areas where people waste the most money. It featured several snippets from interviews of industry professionals and academia, each of whom brought interesting points and perspectives to the table.
The first area identified as a common waste of money was the family home. While your home is often your greatest asset, it can also easily be your greatest liability. In particular, the interviewees suggested that people often buy houses that are too big for their needs. Bigger houses come with heftier price tags, and additional square footage equates to increased utility expenses and maintenance costs.
But there’s more to this viewpoint. One interviewee pointed out that as the world modernizes, we need less space instead of more. Why have a sprawling kitchen if you order dinner from delivery services instead of cooking? And, as we’ve increasingly gone paperless, our computer takes the place of clunky filing cabinets while e-readers replace conventional magazines and books.
The big yards that many larger houses come with require time and money to maintain and often we aren’t even around enough to enjoy them. Plus, the size of the American family is shrinking. Ironically while we need less square footage, new homes are getting larger (National Association of Home Builders).
The Cost of Having a Family
Aside from buying a house, our next largest expense is likely raising our children. In 2017, the U.S. Department of Agriculture determined that the average cost of raising a child from birth through age 17 was $233,610. Realistically, do the costs really end there? For many parents, the answer is no.
According to a NerdWallet study, 80 percent of parents of adult children are covering, or have covered, at least a portion of their adult children’s expenses after they turned 18. From diapers, to daycare, to college, and everything in between, children are expensive. But just how expensive they are is up to you.
As one WSJ interviewee pointed out, young children are often over-scheduled in extra-curricular activities—and those can cost big bucks. A 2016 Utah State survey found the average family spends more than $2,000 per year on sports—with some families spending close to $20,000! Reconsider the number of activities your children participate in and how much they cost your household.
When it comes to adult children, they tend to remain on family group expenses such as car insurance and cell phone plans indefinitely. Remember the movie Failure to Launch? If you're having trouble broaching the issue, give your adult children a one- or two-month warning before taking them off the accounts. Then do it! You may have to help them work out a budget first, though!
Grocery Shopping: The Unintentional Consequences
The final budget sucker is unplanned grocery trips. We’ve all been there. How many times have you gone into Target for one item but came out with a shopping cart full of groceries and other stuff you never intended to buy?
Did you end up throwing away some of those groceries after their expiry date had passed? You’re not alone. The U.S. Department of Agriculture found that Americans waste one pound of food per day. This equates to $4,015 per household per year (Bureau of Labor Statistics). To curb this type of wasteful spending, create a weekly grocery budget, plan your menus before grocery shopping, and then, stick to the plan!
Reel It In
October is Financial Planning Month. If you tend to ignore your finances, use this “holiday” to as a reminder to reevaluate your financial plan and personal finances each year. How has your actual spending compared to your budgeted amounts? What does your balance sheet look like today? Track your progress toward long- and short-term financial goals.
Don’t have a plan? There’s no better day than today to sit down with a financial planner and get started!
Are you intentional in how you spend your hard-earned dollars, or do you feel like you’re hemorrhaging money? A budget is a spending plan for every dollar. Be sure to set aside time to review your spending tendencies and evaluate whether your dollars are allocated to the right places.