Wasting money is easy to do, and sometimes we even waste money and we don’t even know that we are doing it. I am going to do a series of these topics, but today I am going to talk about how easy it is to waste money while at work, whether you are employed by someone else or self-employed. There are more opportunities if you are self-employed, but there are also several pretty obvious ones that can happen if you are employed by someone else.
1) Eating out every day for lunch: This one is universal, it doesn’t matter if you are self-employed or an employee. If you haven’t noticed, inflation has hit the food service sector of the economy no matter what the government says. I remember a time not too long ago when you could get a good lunch out for under $10. Now a sub, chips and a drink will cost you $10, and if you go to an average restaurant with table service, you are looking at $15 for a decent meal. $10 for an entrée, $2.25 for a drink, plus tax and tip, and you are already over $15. You can shop at Publix just about every other week and get 10 lunches for less than $50. This averages out to about $5 per meal, which adds up. This can be an annual savings of $1,250 to over $2,000, depending on where you are eating out.
2) Commuting in a gas guzzler: What car you are driving to and from work can make a difference in your pocketbook as well. You may need a big SUV for family vacations and hauling the kids around, but do you need one to drive alone on your 30 mile commute? Driving a car that gets low gas mileage can easily double your monthly gas budget. Electric cars and hybrids aren’t for everyone, but there are plenty of fuel efficient traditional car options these days that get 30 or more miles to the gallon. Do the math and see how much money you are spending each month commuting. You might find a big savings here.
3) Not taking advantage of company benefits:
- If you are an employee, the biggest savings you might be missing out on is contributing to your company sponsored retirement plan. Let’s say for example that your household taxable income is $100,000 per year, and you are in the 25% marginal tax bracket. Your company has a 6% dollar for dollar match on 401(k) contributions. Not contributing at least 6% to your 401(k) means that you will pay an extra $1500 in taxes, and have $12,000 less dollars in your 401(k) every year. Not contributing that $6,000 to your 401(k) actually costs you $7,500 per year! The math is different if you are self-employed, but the outcome is the same.
- There are several other potentially costly mistakes with company benefits. If both you and your spouse work, make sure that you pick the benefits that are the most cost effective. Compare the plans that both companies offer and take the one that gives you the most bang for the buck. Make sure to evaluate your dental and vision insurance to make sure they are worth the money. One medical plan might cost less per month, but have much higher copays and deductibles. The larger your family, the higher the chance that you will have a major medical event each year, so that “cheaper” plan may not actually be cheaper.
- Take advantage of group disability insurance through your employer. This is usually the cheapest disability insurance, and you are much more likely to become disabled than to die when you are young. Make sure your family would have enough income to live if something happened to you or your spouse.
4)If you own your own business, there are many more opportunities to waste money.
- The big one is your office space. Make sure that you pick the right size and location for your office and you aren’t overpaying for your space. That extra space costs more to maintain, heat and cool, and insure than a smaller space would. Also, if you are renting class “A” office space downtown but could be renting in a strip mall on the Southside, how much extra money are paying every month?
- Employee compensation and turnover: As a business owner, you don’t want to overpay your people. However, underpaying can actually be more expensive over time if your employees are dissatisfied and you have high turnover. The cost of finding and training new people is probably higher than you think. Additionally, dissatisfied workers can lead to dissatisfied customers, which can cost you money in terms of lost revenue.
- Routinely review your expenses and see what is costing you money that you don’t need. Examples of this include software packages, telecom systems, telecom systems, and a thousand other things that you spend money on in your business.
- Inventory can be a big drain on your capital as well. Keeping too much inventory on hand ties up capital that could be spent on growing your business. Too little inventory can lead to delays and lost sales. Inventory that isn’t selling need to be routinely disposed of by selling it at a fire sale or even donating it for a tax write off.
- Fees are another way that we waste money without thinking about it. Do you have the right type of bank account for your business? How much are they charging you for monthly maintenance fees, ATM fees, late fees, bounced check fees, etc.?
- Not having enough credit or having too much debt can cost you money as well. Look at how you are financing your business, and figure out what that costs you on an annual basis. Are you financing your business on credit cards? You are probably paying a fortune in interest and other charges when you might be able to get a line of credit for your business with a much lower rate. If you have a line of credit, would it make more sense to find an investor to finance your business by giving up some of your ownership? There are a lot of options when it comes to raising money, make sure you aren’t overpaying by taking advantage of the easiest option.
- There are hundreds of more examples of how businesses waste money, and I don’t have time to get to all of them today. However, make sure you also think about quality control, waste, outsourcing vs insourcing, part time vs full time workers, and hiring someone who is an expert in an area vs trying to do everything yourself.