OPINION: Are these budgeting blind spots making you poor?
Blind spots. Some call it an unfortunate design flaw – where the optic nerve meets the retina, making this region of the eye insensitive to light and, hence, vision.
We’ve all experienced this nuisance while driving. The need to twist our heads to make sure the road is clear for us to pass.
Yet, while this is somewhat annoying, we can appreciate that it does help to keep us safe.
What if I told you that blind spots are not only physical but financial too? If you think of it, a blind spot is simply an area in which someone experiences an obstructed view (whether literal or metaphorical). Isn’t it true, then, that some areas of our budgets might be hidden from view? If so, how do we keep ourselves safe from these budgeting blind spots? Below are a few that I think many of us are sometimes unaware of.
Budgeting Blind Spot 1: Shopping when you’re hungry or tired
Picture this: It’s Sunday. You go to the store, shopping list in hand, with good intentions of preparing for the week ahead. Everything is going well until you pass the bakery section with the overpowering smell of cinnamon and freshly-baked rolls. Before you know it, you’ve got a half-dozen cinnabons sitting in your shopping cart.
Or maybe this resonates with you more: You’ve had an incredibly busy and challenging day at work. You’re tired and frustrated. You decide to sit back with a glass of wine and peruse through the Spring catalog of your favorite online clothing store. A combination of the exhaustion and wine lowers your inhibitions and, next thing you know, you’re receiving alerts from your bank of the $300 you’ve just spent.
Hunger and exhaustion. They’re both primal warnings from our body that we have unmet needs. Unfortunately, we’ve got into the habit of taking care of ourselves in the wrong way: through spending. Whether it’s food or clothes, we have learned to derive pleasure in swiping our credit cards.
Always be cautious when shopping on an empty stomach or tired mind. These are triggers often associated with impulse buying.
Budgeting Blind Spot 2: Valuing brand over purpose
Consumer marketing is brilliantly clever. The elaborate commercials. Impressive billboards. The hoards of fans. All in the name of selling you a product that you could likely find for a much cheaper price.
In the age of social media, we’re a sucker for branding.
“Oh my gosh! Kim Kardashian eats ‘XYZ’ peanut butter! Clearly it’s the best and healthiest!”
Side note: No, if it contains 100% peanuts, it’s the same as the store brand version sitting right next to it – at half the cost.
In fact, this phenomenon has dated back to as early as the 1760s. Through simply creating a tea set for Queen Charlotte, Josiah Wedgewood was able to rake in a fortune (and a brand name) for founding the royal “Queensware”, apparently described as elegant and sophisticated. Sounds silly, right?
Think of it this way: why would you buy the branded formulation of your prescription drug when you can get the generic for a tenth of the price, containing the exact same active (most important) ingredient? While pharmacists are there to ask if you want the generic, there is, unfortunately, no one asking if you want the generic version of your washing powder or household cleaner or, for that matter, tea set. And this is the gap that companies exploit.
Don’t be fooled. This is one of the most subtle budgeting blind spots.
Always remember the purpose of what you’re buying, not the brand. If it has the same ingredients (but less impressive packaging), it doesn’t mean it’s less effective. Value the purpose, not the brand!
Budgeting Blind Spot 3: Not studying your statements
What isn’t measured isn’t managed.
It’s easy to toss your bank statements into the recycling bin, thinking they’re a waste of trees and time. But these statements are probably one of the most informative records of your spending habits.
By not taking the time to comb through how you’re spending your money each month, you’re doing your budget a disservice. Because, if there is any way to uncover budgeting blind spots, your bank statements are the holy grail.
To give you an idea why this is the case, your statements will show you much of the following: opening and closing balances, bank charges and fees, debit orders and recurring subscriptions, deposits and withdrawals, any interest you’ve earned as well as all your other monthly transactions. Within those categories, I can almost guarantee you’ll find areas where you’re unnecessarily spending.
Maybe it’s a recurring subscription that you forgot about and don’t use much anymore.
It’s possibly exorbitant bank charges or fees that are completely avoidable if you follow certain banking practices.
Maybe it’s not being aware that you’ve been spending the interest on your savings by mistake.
Don’t underestimate what you can learn from studying your statements. It’s the easiest and most accurate way of finding out where there are leaks in your budget.
Budgeting Blind Spot 4: Sinful Spending
Ah, the small pleasures of life. Alcohol and cigarettes. They help to take the edge off after a long week. But small pleasures apparently come with big price tags.
According to statistics, the average American spends $565 per year on alcohol, which works out to roughly $11 per week. Depending on the state that you live in, this amount could vary considerably, so it is likely you spend more than the average. If you took this up to $20 per week, this would set you back $960 for the year, $19,200 over 20 years and $38,400 over a working period of 40 years.
Regarding smoking, the average American spends $5.50 on a pack of cigarettes. If you smoked a pack a day, this would set you back $165 per month, $1,980 per year and a whopping $79,200 over a 40-year working period.
What would happen if you had invested this money from the age of 25 through to 65 years of age? Assuming a conservative interest rate of 10% per year, you’d have acquired lump sums of $505,926 from alcohol and a shocking $1,043,473 from cigarettes.
Can you see why this is a blind spot? Too often, we don’t consider the future value of what our money might be if we spent (or invested) it more wisely.
Budgeting Blind Spot 5: “I’ll start saving when…”
“I’ll start saving when I earn more money.“
“Maybe I’ll be able to start saving money when all my debt is paid off.“
“I’ll start saving when the new year rolls around.“
Let’s be honest. Saving money is probably the least exciting part of personal finances for most people. Instead of using it to fund more exciting things like traveling and dining out, we are expected to put it in hibernation to grow. Not to be seen or touched for years. And, so, in an attempt to delay this from happening, we come up with a variety of excuses to prevent us from having to save our money right now. Yes, we agree that we need to save money. But does it have to be right now?
Let’s call these for what they are. Excuses. We don’t like change, especially any that affects our current lifestyle that we might be enjoying. This budgeting blind spot is what I like to call denial.
Whenever you find yourself putting off your savings until sometime in the future, stop yourself and ask why. Is it really because you don’t earn enough money? Is it really because of your debt? Or is it because you’re funding a lifestyle you can’t afford?
Have you ever experienced these budgeting blind spots before? Or maybe you’ve become aware of others that aren’t on this list? I’d love to know about them, so feel free to comment and share below.
And if you’re looking to better manage your money, but don’t know where to start, download our FREE Financial Starter Pack.
Dr. Kyle O'Hagan is a UCT scientist and an avid personal finance blogger. With over 20 years worth of experience in the SA schooling system, he has come to appreciate the value of a proper education and feels that personal finance is an area that is often neglected, particularly at a young age.
O'Hagan is one of Personal Finance's New Voices and his finance blog is called the Saving Scientist.