No one likes a leak. Unless it’s in soup (but that’s a completely different spelling, so it doesn’t count). Whether it’s a leak in the ceiling during a rainstorm or a leak in your wallet, leaks are bad news.
Let’s talk about the latter for a moment. Are you leaking money?
Even if you can’t physically see the money oozing out of you (or your business), there’s a good possibility you’ve sprung a leak. And while you can get a bucket to catch raindrops leaking in from the ceiling, such workarounds aren’t advisable when it comes to money leaks. Money leaks have to be patched.
But, before you can patch your money leaks, you’ll have to identify their source. Fortunately, most are easy to find; however, here are six that may have slipped under your radar:
1. You’re on the Wrong Plan
When it comes to payment plans, we often simply accept whatever we’re given as our lot in life. However, there’s actually a lot of flexibility when it comes to paying your bills – and most of the time all you have to do is ask for what you need.
Even your income tax payment “plan” can be adjusted. Are you still paying your taxes once per year? If that hasn’t been working out for you, try looking into quarterly payments.
However, the most common “payment plan” money leak for both businesses and individuals is their phone plans. A 2011 study revealed that Americans alone overpay an average of $336 on their phone plans. Are you really using 1,000 minutes per month? If not, it could be time to change your plan. Also, be sure to check for any hidden money-sucking features that have been added on such as “3-way calling” or “unlimited voicemail storage.” (Side note: When was the last time you used your land line? The phrase “use it or lose it” definitely applies here.)
Go through your bills and see what does and doesn’t still apply to your current lifestyle. Pick up the phone and make adjustments as needed.
2. You’re Leaving Money on the Table
Do you have uncashed checks sitting around? Unused or partially unused gift cards? Unclaimed refunds and rebates?
If so, then you’re leaving (free) money on the table.
And hoarding your credit card rewards isn’t doing you any favors either. According to LearnVest:
The average consumer ultimately doesn’t redeem a third of his rewards — or about $205 every year.
If you cancel your credit card, let your points or miles expire, or miss a payment you’ll be letting that free money go to waste. And, there’s always the possibility the company will change its rewards program altogether.
Unused cash rewards don’t earn interest – if you don’t use them, you’re essentially throwing money away, creating an unnecessary “leak.”
3. You’re Hiring the Wrong People
While I applaud you for taking the initiative to delegate work to others, if you’ve hired the “wrong” individuals for the job – or people who are simply bad at their jobs – you’ll end up losing money in the long run. When it comes to outsourcing or hiring employees, it’s best to pay more in order to spend less.
Quality comes at a price, and that price generally isn’t cheap. If you’ve been attempting to “save” money by hiring cheaper workers, you could end up paying more in the long run. Mathematically speaking, hiring a stream of novices is going to cost more than hiring one expert. Not only in the monetary cost up front, but in time.
People who don’t know what they’re doing, or are unhappy or unfamiliar with the work they’re assigned, tend to work slower and make more mistakes. This means that you will end up paying with your time, either by waiting around for them to “catch up” or by having to fix their errors. And time is money; or, in this case, a money leak.
4. You Aren’t Charging What You’re Worth
If you’ve been undercharging your products or services, you’re leaking money big time.
Underestimating your time also falls into this particular “money leak” category. If you’ve been allowing clients to get away with scope creep behavior – or if you personally have been invoicing for six hours, but working eight! – you’re going to be paying the difference out of your own pocket.
Learn how to negotiate, ask for a raise, or drop the clients who refuse to pay what you’re worth. For example, if you’re a marketer, then market yourself competitively by writing a persuasive proposal to hire new clients, rather than just sending a boring email with some line items.
5. You Aren’t Paying Attention
It’s 10pm…do you know where your money is?
Whether you’ve handed control of your finances over to someone else or if you simply don’t pay any attention to them at all, you’ve got a problem on your hands. There’s no way to prevent budget creep if you don’t know what your budget is. Pay attention to your financial statements and projections and spend your money accordingly.
And, as tempting as overdraft protection might seem, don’t depend on it. Personal finance expert, Matt Bell states:
Overdraft plans vary, but most banks charge a flat fee, usually between $10 and $30, for each time they have to cover you. And some will charge you a daily fee for every day you’re overdrawn. If you don’t trust yourself to keep an eye on your balance, many banks allow you to set up a text message alert when your funds drop below a certain level. That way you’ll know when it’s time to stop spending.
Rather than being a safety net, overdraft protection simply takes additional money that you already don’t have. And, if you aren’t paying attention to begin with, you could find yourself in a great deal of unneeded debt.
The “not paying attention” conundrum can also apply to your marketing efforts. Do you have a way to measure the efforts and financial resources you put into marketing, or are you just throwing stuff out there and hoping it works? If you aren’t keeping track of results in addition to spending, you’re leaking money.
6. You’re Taking Your Money to Extremes
Whilst it’s obvious why the stereotypical “big spender” is leaking money like a broken slot machine, it’s a little less obvious why someone overly frugal might suffer the same fate.
In order to fit in, the Big Spender will continually live outside their means; however, their business may not suffer as much as you might think. Depending on how they’ve been (over) spending their funds, their operation could be running at top-notch performance! Not to mention that their “leaks” are generally easier to identify and therefore plug.
But if you’ve been taking your money to extremes in the opposite direction – if you’ve been overly frugal – your problems may be harder to pinpoint, or even accept as problems. After all, frugality is usually looked upon as an admirable trait! But, as the saying goes, “everything in moderation.”
Here are some signs you’re taking your (non)spending to frugality extremes:
- You’re skimping on salaries and hiring the wrong people. Yes, I mentioned this earlier, but it bears repeating. If you hire a bookkeeper simply because they charge a few dollars less than an accountant, you’re going to run into trouble. Same goes for hiring your brother’s co-worker’s 16-year-old nephew to “design” your website rather than shelling out for a professional web designer (or, at the very least, forking over the money for a professional-looking WordPress theme!).
- You’re holding onto excess inventory. Keeping inventory on hand when it’s not being sold will tie up your cash like nobody’s business. You might think you’re saving money by doing this, but storage or maintenance fees are an enormous money leak. Forget the idea that you’ll make use of the items “someday.” Take a cue from last winter’s overplayed hit single and “let it go.”
- You’re doing everything yourself. The only thing worse than hiring cheap, incompetent help is to not hire any at all. Stick to your core strengths and hire others to do the rest. You’re not doing anyone any favors by doing all of your business’ tasks yourself.
- You keep underperformers around instead of replacing them. It might be painfully time-consuming and perhaps even a financial strain to restart your hiring process, but it will be more time-consuming and a bigger strain on your wallet not to.
- You refuse to update your methods and/or your equipment. Part of running a successful business is having the willingness to let go of methods that don’t work in favor of newer, more efficient ones – even if it means spending money on training. The same goes for updating your equipment. If you’re struggling with outdated technology (or, worse, forcing others to use it!) then you’re wasting unnecessary time. Time that could be used to earn more money. Embrace the future, even if it initially costs a little more.
- You neglect your health. I know that doctors are expensive, but you are your business now. It’s your responsibility to take care of yourself and make sure that you (and therefore your business) are in prime condition. Spend the money to get health problems taken care of early.
How did you do? Are you and your business hemorrhaging money or have all of your leaks been plugged?
Let us know in the comments section.
Image by atstein with some minor tweaks by us.