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Beware Of The Lurking Danger In Your Wallet

Beware Of The Lurking Danger In Your Wallet

How often do you pay cash for groceries? If you are like most Americans (60%), you make very few or no purchases with cash. You get to the end of the checkout line and insert your card or click Apple Pay, maybe before the transaction even finishes. According to a 2022 Gallup Poll, 70% of Americans under 50 expect our society to go cashless. But beware! The danger of only using credit or debit for everyday transactions is that it's harder to notice inflation creep. So, if you have not yet adjusted your expense expectations to reflect the real impact of inflation on your budget, it's time to look at your cash flow to ensure it reflects our new reality. 

Check Your Expenses
Once upon a time, reconciling a checkbook at the end of the month was a regular habit. Nowadays, only 7% of all financial transactions are made by check. If it's been more than a month since you reviewed your spending habits, it's been too long. There are more than a few money tracking apps that can tell you where your money goes, but if you've been spending through a credit card, pull out your statement and add up the tally. Subtract the total you spent last month from your total income. If your expenses exceed your income, you have a problem. In that case, create categories to track and list your expenses each month. 

Monthly Expenses

Housing (mortgage/internet/HOA fees/utilities/maintenance)$
Auto (loan/gas/parking/maintenance)$
Insurance (life/home/auto/umbrella/disability)$
Food (groceries/dining out)$
Personal Care (clothes/health club/hair/nails/dry cleaning/education )$
Entertainment (hobbies/vacation/gifts/subscriptions/association dues/memberships)$
Medical (doctor/dental visits/prescriptions)$
Miscellaneous (anything else)$
Just in case (add 10% of the total) $

If you need to spend less, creating a list of your expenses is an essential exercise. Now for the next month, pay attention to these costs, especially those that you less control over, like groceries and housing costs. If this total is higher than you expected, here are three tips to help you overcome the expense hurdle. 

Reduce Expenses
While some increased costs are out of your hands, there are some things you can do to save money. If your energy bills are higher than expected, make a conscious effort to turn off lights, unplug unused appliances, turn the thermostat one degree lower (or higher in the summertime), wash clothes in cold water, and replace traditional light bulbs with LEDs. If your hairdresser raised her rates, wait an extra week or two between appointments. In Indiana, the average haircut costs $64, so reducing your number of haircuts from ten to eight times per year can save $128 plus tips.  

Pay In Cash
If you are not used to carrying cash in your wallet and having money in it may feel burdensome, try it for a week. Here are some benefits of paying with cash: 

  • It reduces the likelihood that you will make impulse purchases. 
  • You cannot overspend what you don't have.
  • Eliminate credit card interest and fees. If you don't pay off your credit card monthly, every purchase costs more than the sticker price. Late credit card fees can rack up an additional $35 or more.  

Paying with cash also helps you notice price fluctuations more than using the convenience of cashless payments. If you don't use cash, add up prices in your head of what you think items cost before you get to the register. Then, when you check out, you might be surprised by how much things actually cost.  

Increase Emergency Funds
Your expenses have likely changed relative to the general cost of inflation so update your emergency funds as needed. If after assessing your monthly expenses, you see your grocery bills increased by $200 per month, your energy cost is $100 more, and you spend $50 more per month on gas, make sure you increase the amount saved in your emergency fund by $350 per month or $2,100 total if you have six months of expenses set aside in an emergency fund. If you cannot seem to find extra money to increase your emergency fund, collect your change. Every time you spend with cash put the coins aside. At the end of the month, take those coins to the bank and add them to your emergency fund. You may be surprised at how quickly that change adds up. 

What's Next?
Credit card spending is only dangerous if you are not aware of your spending. If you are ready to learn how to reduce your money anxiety to create lasting happiness with your financial situation that comes from managing your expenses, be sure to check out Discovering Financial Freedom

https://www.atlantafed.org/-/media/documents/banking/consumer-payments/research-data-reports/2020/02/13/us-consumers-use-of-personal-checks-evidence-from-a-diary-survey/rdr2001.pdf  https://www.styleseat.com/blog/how-much-haircut/#:~:text=Men%27s%20haircut%20prices%20for%20each%20state,-Men%27s%20cuts%20are%20generally%20cheaper

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Services offered through Hurlow Wealth Management Group, Inc., a Registered Investment Adviser. Hurlow Wealth Management Group, Inc. does not provide tax, legal or accounting advice.  Advisory services are only offered to clients or prospective clients where Hurlow Wealth Management Group, Inc. and its representatives are properly licensed or exempt from licensure.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Hurlow Wealth Management Group, Inc. unless a client service agreement is in place.  

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