Find the Holes in your Leaky Bucket

Most people are short of money not because they spend what they have on big expensive things but because they spend little bits here and there. This kind of spending is what I call “Leaky Bucket Syndrome” – spending $5 here, $20 there etc, which can add up to hundreds of dollars each pay day. Finding out where your money is going is a little tedious and painful but its necessary and you only have to do it once.

Start by finding your bank statements and credit card statements for at least the last three months. Put them all together in a pile in date order. On a piece of paper, make a list of headings that you spend money on. For example you might have: rent or mortgage, insurance, rates, groceries, phone and internet, power, entertainment, chemist, medical expenses, dental expenses, petrol, car maintenance, etc. Go through your bank accounts and credit card statements and put each transaction under one of the headings on your list.

When you have gone through all the transactions, add up the total for each heading. You’ll probably find that there are many small items – mostly from when you have taken out cash to spend. Put these items under a separate heading called ‘general’.

Now organise your list of headings into three groups:

fixed expenses which you can’t do anything about such as rent, mortgage, rates, insurance

other household expenses which are essential but over which you have some control of much you spend, for example food, power, phone, petrol, children’s clothes

discretionary expenses which are non-essentials and personal items such as entertainment, gifts, haircuts, beauty treatment, clothes.

Add up all the transactions for each heading. Now change the three monthly totals for each heading to an amount per year by multiplying by four. Add to your list any annual payments that you make that might have been missed in the three month period you look at – for example an annual insurance payment or licensing for your car.

Compare your total spending to your annual income. You’ll probably find that there’s some money you can’t account for! Have a look to see if you can find the leaks in your money bucket.

Your leaks will be:

Spending that you can’t account for – you simply don’t know where the money has gone 

Money that you have spent on unessential items

Excessive spending on household items such as food, power and phone

Once you have found your leaks, think about how you can plug them up, for example by setting a budget, setting a limit on how much cash you take out of your account each pay period, or making better decisions about how you spend your money.

August 2008