The 6 Most Common Money Leaks Seeping Through Your Savings Account
Living on a budget can help you better live within your means, avoid unnecessary expenses and achieve financial freedom. Still, most of us have small money leaks lingering in our finances. We may be spending a little extra for that morning cup of coffee on the way to work or splurging for a nice lunch out with friends. We may easily justify those expenses as rare treats, and remaining aware of those little extras can prevent them from becoming even bigger leaks against our savings accounts.
Other money leaks are less obvious, however, which makes them far more insidious. These leaks can add up to several hundred or even thousands of dollars a year and really cost us over time. Plugging them can leave us with more money to pay down debt, save in a rainy day fund or spend as we see fit. The following are some of the most common money leaks for Americans today.
#1. Failing to Take Full Advantage of Your 401(k)
Many companies offer 401(k)s and similar retirement plans. In fact, 401(k)s are the primary means of savings for most Americans. Unfortunately, the majority of workers fail to maximize the full benefits of these convenient savings plans.
Any investment into your 401(k) is tax free, and you can contribute up to $17,500 annually. Many employers match contributions — meaning your account can grow almost effortlessly. Low-income individuals and families can also take advantage of the saver’s credit, a refundable tax credit that allows for even more savings. Married filers who earn up to $59,000 and single filers who earn up to $28,750 may be eligible for this credit, which refunds a portion of the money they invest for retirement. You should also make every effort to avoid tapping into your retirement savings, however, as TIME estimates that nearly one in four Americans do so to pay for current expenses, which may include unnecessary expenses, too. This can be avoided by practicing smarter money management.
#2. Not Taking All Applicable Tax Deductions
The saver’s credit may not be the only tax credit that can save you money and give you a little more bang for your buck at tax time. Teachers are able to deduct up to $250 for classroom material-related expenses, while self-employed people may be able to deduct the entire amount of their health insurance premiums for themselves and their dependents.
Health savings accounts, self-employment taxes, alimony and education-related expenses may also be able to be deducted. You do not need to itemize your deductions to be able to take advantage of these potentially lucrative deductions, either; you simply need to qualify. Talk to your tax professional, or use tax preparation software that walks you through each step. In some cases, you may be eligible for tax credits for improving your home’s energy efficiency as well.
#3. Energy Inefficiency
If you have not yet improved your home’s energy efficiency, this could be a huge money leak. Use the potential tax savings as the impetus to get started, and then consider your options for savings: plugging energy leaks can help you stop wasting money by dramatically reducing your heating and cooling costs.
#4. Failing to Update Insurance
If you have a vehicle that is more than 10 years old, you have multiple lines with the same company, a home security system, you are a safe driver, you are married, in a domestic partnership or are otherwise qualified, you may be eligible for a discount. Spend a few minutes every year going over your insurance policies and updating all your information to ensure that you are not wasting money and are getting the best possible deals. If you have any status changes, contact your insurance agent as soon as possible.
#5. Rethink Entertainment
Cable or satellite bills can easily be classified as unnecessary expenses, as high as $100 a month. Books can also be pricey, even if you use e-readers to keep the clutter down. Slash your costs by watching your favorite shows online. Become a member of your local library or use online lending programs that send books directly to your e-reader to minimize your costs.
Also, instead of heading out to a pricey restaurant with your friends, consider taking turns hosting house parties, barbecues or themed nights in. Getting creative can help avoid wasting money, while still enjoying the company of your friends.
#6. Competitive Savings Account
Instead of splurging on more coffee, lunches out with your friends or dinner and a movie, the money you save by plugging your money leaks can be placed into a high-yield savings account, used to pay off high-interest credit cards or put towards your mortgage to help you get out of debt even faster. Using your money wisely, which means getting rid of unnecessary expenses, can help you achieve financial security and freedom so you can live your life on your own terms.
As a financial blogger who is passionate about encouraging smart spending and saving habits, Chad Fisher remains acutely aware of potential money leaks.