10 Wasteful Expenses that are Robbing You Blind

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Are you trying to find ways to cut back on spending without missing out on life?

The financial independence community tell us that cutting spending in the three biggest categories (usually housing, vehicles and groceries) will make the most dramatic difference to your ability to save.

This is really useful advice to consider for those starting out, as buying less home and car than you can afford can provide a lot of freedom in life. But these may be non-negotiable or already optimised for your household.

There is usually still plenty of wiggle room to reduce spending in other categories, particularly if you are a high-income earner.

What are Your Top Three Expenses

Some high-income earners may find their three top spending categories are not as expected. Our highest spend before COVID-19 was on holidays (and no regrets!)

According to 2016 ABS data, high net worth households spend on average:

Of course, it is even more useful to track your own spending and work out which categories your own splurges lie.

But I think these statistics are also very useful.

Low, middle and high income earning households on average spent the most on:

  1. Housing
  2. Food and non-alcoholic beverages (Transport for high income earners)
  3. Transport (food and non-alcoholic beverages for high income earners)
  4. Recreation
  5. Miscellaneous goods and services (Medical care & health expenses for low income households).

Recreation, transport and miscellaneous goods and services seem to cost more of our income, the higher income and wealth a household has.

Now, much of that is (hopefully) conscious. Once a household has accumulated a reasonable net worth (within the top quintile according to the ABS), they may well decide to loosen the purse strings and upgrade the car, as well as spend more on recreation and non-essential goods and services.

Remember being wealthy (having a high net worth) is very different from having a high income though. A high income will not necessarily result in wealth unless the high-income earner invests a proportional amount of that income.

If you’re only just starting your investing journey and would not yet consider yourself high net worth (or on track to your goals), recreational and miscellaneous goods and services are expenses worth examining closely.

Let’s look in detail at the wasteful expenses that could be blowing your chances of developing wealth over the next few years.

1. Paying More Tax than you Need

By far our biggest expense is tax, a category often forgotten when looking at spending. Of course, you cannot avoid tax. But you want to make sure you are optimising it and making your income as tax efficient as possible.

This category is often forgotten, as unless you are self-employed, you rarely have to make a physical payment to the ATO. You don’t miss the tax as you never see it. But you could be losing thousands of dollars you could better spend elsewhere.

Saving on tax involves a little bit of education and organisation, but zero lifestyle sacrifice. Read all your options to save tax and get them sorted asap.

2. Not thinking about Grocery Expenses

It’s way too easy to consider grocery costs as non-negotiable. Realistically, many of us spend far more than is necessary. Cutting down on these expenses can create immediate savings, but involves a change in thinking and habits. Options include:

  • Shopping once a week/fortnight only (+ fresh produce top ups)
  • Attempting to purchase as much unpackaged foods as possible (good for you, the environment and your budget)
  • Meal planningg
  • Buying and cooking in bulk and freezing meals for easy dinners
  • Buying packaged food with lowest price per unit ($/kg etc) – reduces cost and packaging
  • Challenging yourself to eliminate food waste by using up all leftovers
  • Using a cheaper supermarket if available in your area
  • Collecting points and using them productively if using Coles/Woolies
  • Setting a budget for your weekly shop and keeping under it (limits non-essential spending)

3. Stop Paying Double / Triple for Convenience

It’s easy to fall into the trap of paying a lot for convenience food.

Paying $3.50 for a bottle of water doesn’t seem like a big deal. Until you consider if you were a bit more organised you would have brought your own for free, without the negative environmental impact of a disposable plastic bottle (and water, if the advertising is to be believed, transported from a faraway mountain stream!)

$3.50 is not going to move the needle on any of your goals. But decisions like this made over and over again do add up to a significant impact.

Instead of considering the actual cost, consider the multiple you are paying over what you would pay if you were organised. According to the University of Queensland, the cost of tap water is approximately 0.3c per litre. So you are paying 100 times the cost if you forget to take your refillable water bottle.

Eating out costs a lot more than preparing your own food, and is almost always a lot less healthy. Save eating out for special occasions, a carefully chosen restaurant with a great atmosphere and amazing food. Otherwise, build a repertoire of mostly healthy snacks you can prepare easily and take with you.

4. Prioritise Discretionary Expenses

The easiest way to prioritise “recreational” spending is to separate money available for discretionary spending and limit it.

With a regular, but limited supply of “fun money” over time, anyone learns to optimise it. You far more quickly learn what spending didn’t provide great value, and stop repeating the process.

This is a great strategy for couples, particularly with one spender and one saver. You will both need to come to an agreement on the amount of discretionary spending that should be allowed. I suggest individual limits, so the saver is encouraged to treat themselves a little, and the spender feels they can indulge themselves without invoking judgement from the saver.

5. A Luxury Vehicle before You’ve Earned It

Young men, particularly, seem to feel a lot of pressure to prove themselves via the vehicle they drive. Purchasing too much car too early in your financial life can really damage your chances of ever actually being wealthy enough to afford a flash car, financial security etc.

“Buy the cheapest car your ego can afford”.

For those of us without a lot of ego or interest in vehicles, you probably want one that won’t break down on you!

If a flash car is something you aspire to, make it a long term goal and reward. Get your dream car, after you have got your finances on track. Then you will be able to enjoy it without financial stress or regrets.

6. Stop Impulse Purchases

Does that “Miscellaneous products and services” ring any bells?

Is anyone else struggling with the fact you don’t even need to go find the credit card to make an online purchase anymore?

Advertising is getting smarter all the time. Adverts are woven into social platforms and individualised based on google searches, comments, clicks or even spoken about within earshot of our mobile phones. I’m sometimes convinced google can actually read my mind.

I am now the proud owner of a “lotus mat,” promising to take away all my aches and pains and have me practising yoga until I a centurian. I know. I’m a doctor. I know better. But it sounded so good! A magic fix for irritating musculoskeletal problems that is costing me hundreds of dollars in physio and daily exercises forever.

Spoiler alert: It doesn’t seem to be a magic fix. My purchase will probably end up stuffed into a cupboard only to be rediscovered in a few years.

Yes, I don’t really need to save a lot more money. I’m already on track to our goals. But I also don’t need a load of rubbish in my house overflowing out of my already overstocked storage.

Nowadays I keep a wish list in a notes app on my phone. When I am tempted to buy something (often as a result of a Facebook ad) I add it to the list. Given a month to think about it, I realise I don’t want most of these items, and I am more aware of the costs of my potential purchases with a month worth listed on my phone. The things I really want that will fit into my fun spending budget I can then purchase.

7. Mobile Phones & Internet

I hope you are not still buying mobile phones “on contract”. You know the phone companies are ripping you off. Buy phones outright and choose the contract separately.

Consider buying not the latest model of phone to save a few hundred dollars, but the recurrent costs of the contract are probably more significant.
To save even more you could go for an annual plan such as that offered by Kogan.

Similarly, shop around for internet providers, There is a lot of competition now and they often use the same network as the big providers.

8. Stop Wasting Power

Power costs have been escalating for years. Taking the steps to save power daily can seem like a hassle, but like most other things, can easily build into habits that become second nature.

Use appliances (like your washing machine, dishwasher, pool pump) at the cheapest time of day, using timers if necessary. Get your home insulated to reduce heating and cooling costs. Set air conditioners to 25C and heaters to 20C and isolate rooms to use them in, with closed doors and windows. Turn appliances off standby as part of your routine (you can get remote controls to make this easier).

Buy energy-efficient appliances, and shop around for the best deal on power. Having purchased a home you plan to stay in for many years, consider solar panels.

9. Alcohol

Alcohol is a huge and often destructive part of Australian culture. It is easy to spend a lot of money on booze.

Alcohol helps many of us relax, but at what cost?

It often results in poor sleep, reduced productivity, mood depression and poor long term health.

If you drink, alcohol should be part of your “fun money” budget. Consider cutting down if you think it is providing more downside than up, and find new relaxation rituals.

10. Outsourcing

Outsourcing can go either way. At some point in your life, it will make sense to roll up your sleeves watch a youtube video and get on with it yourselves. As your income increases and you become more aware of your own strengths and weaknesses, it may be worth outsourcing certain jobs.
When considering whether to DIY or outsource weight up

  • Cost of outsourcing vs post tax income of you working extra hours (if available) instead of doing the job yourself
  • Quality of result likely outsourcing vs DIY
  • Whether you will enjoy the challenge of DIY
  • Whether you will actually work the hours to pay for outsourcing

Even if you can Afford it, Can’t you think of Better Ways to Spend it?

It’s easy to start slacking off with all the above when you have enough to pay the bills without worrying.

It’s how many high-income earners get into bad habits and forget to save for bigger goals.

Even once you are on target for all your big financial goals, I still think it is worth considering all these wasteful expenses.

Even if you can afford to waste money, is there really no better way you can think of to spend it instead?

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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