With cash payments becoming more infrequent, and online shopping and card transactions on the rise, it can be so easy to lose track of just how much we spend.
Whether it’s a latte on the way to the station, a last minute date night, or a t-shirt you just have to have because it’s in the sale - these are all payments that we just don’t always factor in. And then, at the end of the month when we check our bank statements, we have a balance much smaller than we’d thought - or maybe even hoped!
Invisible spending is when you spend money on things that you only realise you’ve bought once you check your finances at the end of the month. It is usually comestible items like coffee and takeaways that you buy on a regular basis, but the costs seem so small that it’s not worth budgeting for. However, it can also include one-off and irregular items that you buy as a treat for yourself therefore justify as necessary, even if it’s not strictly essential.
If you think of invisible spending like payments that you make without even needing to consider whether or not you can afford them, then you’ll probably start to paint a pretty clear picture of where all your disposable income goes without realising.
Because it’s only £3 here or £12 there, it adds up far more quickly than you’ll realise. In fact, the average U.K. adult apparently spends almost £20 a week on these kinds of invisible items. It might not sound like much, but if you put £20 a week into a savings account for your entire adult working life, you’d have over £45,000.
While we’re not suggesting you should never drink coffee again, there are ways to help you track your spending and reduce these kinds of payments that ultimately reduce your bank balance.
Maybe you’ve known for a while that you spend a little more than you should on invisible items, or maybe you’re very new to the concept, but in either case, there are ways to tackle this kind of spending.
A great starting point whenever making a budget or practising good money management is to find a way to track your spending that works for you. There are several apps available that either pair with your bank account and categorise your payments, or act as standalone apps that you can manually enter the data into.
There are also some bank accounts that directly categorise your spending for you and give you a round up at the end of the month of where most of your money goes. If you’re thinking of switching bank accounts soon anyway, it might be worth having a look into a bank that offers this kind of complimentary service.
And, if technology just isn’t your thing, why not just keep a note on a piece of paper. You can actually get notebooks that are designed for keeping track of payments, but simply writing down the item and the amount it cost is good enough!
Once you’ve categorised your spending into essential, disposable, and invisible, you’ll realise where your hard earned cash is going and where you can start to make adjustments in your spending habits so that you can start saving.
Once you’ve tracked your spending over a month, you can start to focus on developing saving habits that become a natural instinct.
You’ll probably find that just tracking your payments alone will reduce the number of unnecessary purchases you make, but if you’re really striving towards having a healthy bank balance or you’re saving up for a special purchase, then doing a couple of extra things each month will be sure to help.
One way of saving every day without even trying is to open a bank account which saves for you. Usually, the bank accounts that track your spending for you will also have a ‘round-up’ option – although this is a function that’s available in other bank accounts too. The idea is that every time you make a purchase, the account will round up the transaction to the nearest pound and put the remaining pence into a savings jar. For example, if you buy a coffee for £2.50, the payment will be rounded up to £3 and the extra 50p will go straight into a savings account. So, even if you do continue to make invisible purchases, at least some savings goodness will come of it! And the more money you save, the less money you have to spend.
Another thing you can do is simply budget in cash. Although less hygienic (time to grab the hand sanitiser!), you will know exactly how much you’ve spent if you withdraw £20 at the start of the week and limit yourself to only that £20 as everyday spending money. You can adjust the amount to suit your budget, but we’d recommend challenging yourself so you can really see the benefit at the end of the month.
It’s important to make a discretion between grocery shopping and snack buying: your usual food shop is part of your essential expenditure, but things like buying a cheeky chocolate bar every now and then or a sandwich for lunch because you didn’t make your lunch at home one day count towards the invisible spending that you’re trying to reduce.
And, if you don’t like the idea of budgeting in cash or you’re not very good at budgeting at all, why not just open an accessible saving bank account and move your disposable income into that account at the start of every month.
Make sure you factor in your rent or mortgage payments and your usual monthly bills so that you don’t miss a payment and end up in arrears, but once you worked out how much your essential expenditure comes to, why not move the disposable part of your income into a savings account. It’s better to have an accessible account so that you can access the funds if you need it, for example if you have a sudden plumbing emergency, but if the money isn’t in your normal bank account, then hopefully you’ll think twice before transferring the cash between accounts and making that invisible purchase.
We know it’s not rocket science, but sometimes practising good money management can really feel arduous. Developing small savings habits that can grow into sensible and sustainable saving commitments is a great way to start on your savings journey. Don’t give up spending money altogether – we all need a little comfort and a treat every now and then, but if you are trying to make a difference to your bank balance each month, reducing the amount of disposable income you spend is a really great way to start.
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