Do you ever feel like you’re watching your budget and have everything figured out, only to be hit with a surprise auto repair or medical bill? Whether you’re dealing with seasonal expenses, lifestyle creep, or emergencies, unexpected costs can often set you back for months. Which everyday expenses are most likely to catch you unprepared, and what can you do to fit these costs into your budget?
1. Subscription Services
While subscription services and memberships can provide an inexpensive source of entertainment, too many $10 or $20 monthly subscriptions can add up, especially nowadays. From gym memberships to music streaming services to your cell plan, these additional services may only be worth the price if you are using them regularly.
Now is a great time to make a list of all your subscription services (which you should do at least every six months) and cancel or suspend any you are not currently using. In some cases, you may get lucky and receive subscription renewal deals from those companies. Also, if you’re a student, check to see if they have student subscriptions, which are usually cheaper.
2. Impulse Purchases
There is a good marketing reason why the areas near the cash registers are stocked with bright, relatively inexpensive items like candy, magazines, and small toys. While many consumers may be reluctant to spend an unplanned $20 or more at the end of their shopping trip, these low-dollar items can be seen as budget-friendly.
But impulse purchases don’t just take place at the checkout line. With online shopping, this can be as easy as clicking “add to cart.” Unlike the trinkets advertised near cash registers, online impulse purchases can be far more expensive. Using a list for your purchases (and sticking to it) can help to stem impulse buys. Another way to curb impulse spending is to wait a day or two before buying. If you’ve already forgotten about the item by then, it’s unlikely that you needed it in the first place.
3. Student Loan Interest
If the interest rate on your student loans is too high, now may be the time to refinance for a lower one. Over the last few years, interest rates have continued to drop across the board. This means that if you’ve been repaying loans for a while, you could be leaving money on the table by paying higher interest.
Refinancing your student loans into a lower interest rate or shorter payment term can significantly reduce the total amount of interest you pay over the life of the loan, potentially saving you thousands of dollars. Or you could opt to refinance your loan into a longer-term. Although you may accrue more interest over the life of the loan with a longer term, it can reduce your monthly payment significantly.
Before refinancing, it’s a good idea to go over the terms and benefits you receive with your federal loans as well. Compare whether you will save more in the long run and decide if refinancing is the right option for you.
4. Credit Card Interest
The average credit card interest rate stands at more than 17 percent, which means that the cardholder is paying nearly $20 in annual interest for every $100 he/she carries on the card from month to month. While it’s ideal to avoid carrying a balance, it can be difficult not to.
If you are buying more than you can afford to pay off in full each month, and balance carries over, you will end up paying more than what the object was worth originally. When it comes to credit cards, think of them more like a financial tool and not as a piggy bank.
5. Lifestyle Creep
When your income increases, it can be easy to fall into the trap of lifestyle creep. “Lifestyle creep” is when you let your expenses go up when you earn more money. You may have been happy with living in a small apartment and going out once a week before, but now you want to move into a nicer place, go socializing more often, and splurge more often on things.
When you stop analyzing the costs of upgrades, you may find your monthly expenses creeping higher even if you do not feel like you are splurging. Although your new income may be higher, you want to make sure you are using that extra income wisely.
Instead, make sure to use the extra income to set yourself up for financial success by first paying your high-interest debt. Additionally, save for your rainy-day fund and retirement. Then, if you are going to spend your hard-earned expenses on expensive things, make sure they are things you genuinely value, and that bring happiness to your life. By establishing and sticking to a detailed budget, you’ll find that cutting back and living within your means can make your “treat yourself” spending more meaningful.
6. Extra Fees and Penalties
There are some common fees and penalties that many people incur, which can be avoided, such as overdraft fees and account minimum fees. If you inadvertently spend more than you have in your checking account, your bank may assess an overdraft fee typically between $10 to $40 for each over-the-limit charge. Some bank accounts may have a minimum requirement that you keep a specific dollar amount in it at all time; otherwise, you will be charged a fee. Although it may be possible to have these fees reversed, especially if it’s the first time, contacting the bank to make this request can be a time-consuming hassle.
Download your bank and credit card apps or register for push notifications that alert you when a bill is due. Also, find an account with overdraft protection that does not require you to maintain a minimum balance. This can prevent any cash flow surprises while also helping you avoid any late fees or penalties as a result of missing a payment.
The Bottom Line
Personal finance is personal—there are many ways to improve one’s finances, but there is almost never a one-size-fits-all solution. What’s right for one person may not be the solution for another, and you’ll need to do some experimenting to see what works for you. But, now that you know what to look for when it comes to creeping expenses, you will be able to improve your future financial decisions.