I Asked Financial Experts Which Purchases Are Secret Budget Killers
Most people assume their budgets get wrecked by major expenses. But financial experts say the purchases that often do the most damage are the ones people barely notice anymore.
Small recurring charges are more likely to drain your accounts, especially when they become automatic habits. Here are four key budget killers to look out for.
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Subscription Creep
Before smartphones and tablets, most people bought the occasional subscription, which made it easy to remember to cancel or renew. Now that many people’s daily lives are run on apps and subscriptions, it’s very easy to fall into “subscription creep” that slowly chips away at monthly cash flow.
Andrew Gosselin, a certified public accountant (CPA) at Save My Cent, said that free trial periods, where you have to remember to cancel later or automatically be charged, become dangerous because “people lose all sense of control and visibility regarding where their money is being spent.”
In fact, Americans think they’re paying less than $100 in subscriptions, according to Russell Moran, owner of Russell Moran Enterprises Inc. and DebtCalcPro.com, “but it's closer to $225 per month according to C+R Research. That's $2,700 annually and if you saved that over 10 years with a 7% return, that's more than $35,000 they lost.”
Convenience Spending
Other modern conveniences, like food delivery, ride-shares and same-day shipping, can start to seem like necessities rather than occasional spending.
Moran pointed out that food delivery services mark up the food 15% to 20% and more above normal prices, “plus a delivery fee, plus tip.” Ultimately, you may be paying a 30% to 50% total markup, he said.
Gosselin said these purchases “seem so practical and therefore justified when making the individual choice,” but they eventually become “ongoing lifestyle costs that quietly gobble up hundreds per month without anyone ever realizing it.”
This spending can show up in smaller ways too. A $6 daily coffee adds up to roughly $1,500 annually, Moran noted, while convenience store markups and impulse gas station snacks can cost hundreds more every year.
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Emotional Spending and Social Media Influence
Emotional triggers and social media influence also can play a major role in overspending, particularly among younger consumers.
“There is no way around it,” Moran said. “Money is emotional.” He pointed to “retail therapy,” “revenge spending,” “FOMO spending” and “boredom buying” as common habits that drive people to spend impulsively.
“Social media has made this 10 times worse,” he said. “You see something, you want it, one-click buy, it's at your door tomorrow.”
This “almost frictionless” kind of payment is especially problematic for millennials and Gen Z because consumers can “make a purchase in seconds, spread payments across multiple installments and rarely feel the true weight of what [they] purchased until after [they] have made the final payment,” Gosselin added.
Credit Card Minimum Payments and Hidden Fees
Other hidden financial costs, including credit card interest, bank fees and extended warranties, take a bite out of long-term wealth.
Moran called credit card minimum payments a huge budget killer. He also cautioned against paying for extended warranties consumers rarely use, noting that 80% of Americans never use their extended warranties.
Bank fees can quietly pile up too. Moran cited data showing the average American pays $290 annually in bank fees, while routine ATM charges alone can cost hundreds per year.
Small Habit Changes Can Help Stop Budget Leaks
The best way to fight secret budget killers is to slow spending down and regularly review recurring expenses.
Moran encouraged consumers to delete shopping apps from their phones, review bills every six to 12 months and follow a waiting rule before making nonessential purchases.
“If it's not necessary, wait one week,” Moran said. “Studies show that 70% of people cancel impulse purchases if they wait just 24 hours.”
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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