Author: Michelle Griffiths, Partner, TAG Financial Services
There are four variables (pillars) that will affect your long-term financial success, only three of which you can control or influence. Yet so many people think they are powerless to affect real change, which could not be further from the truth.
These four ‘pillars’ to long term financial success are:
The element that we are going to focus on here is the spending category – which is where the concept of ‘financial leakage’ comes into play.
I want to take you back to when I was a mother of two teenagers, being the main breadwinner of our family, paying for private school education, a mortgage and running a business. There were many expense items that I could point to that were large as a proportion of our household expenditure. For the most part, they were things that my husband and I had made some very deliberate and conscious decisions about. However, there seemed to be a lot of money going out that did not fall into that category. This is called ‘financial leakage’.
For me, this ‘financial leakage’ was in untraceable spending with cash. It was the fact that if I had $100 in my wallet at the beginning of the week, it would be gone at the end of the week. I could not quite pinpoint where it had gone, and it certainly was not adding to my quality of life in any significant way. It was things like buying lunch once or twice a week, buying a coffee whilst waiting to pick the kids up and buying some snacks at basketball games on the weekend. Just to be clear, I do not mean to say that any expenses of this nature will always be financial leakage. For some, buying a cup of coffee a few times a week is important to them because they really enjoy it – buying a coffee in this context would not be financial leakage.
The distinction being that it is very important to them and the ritual surrounding the coffee is adding to their quality of life. So, it is not the item itself, but rather your relationship to it, that will define it as financial leakage.
Therefore, the key to managing your personal expenditure is to get control of your financial leakage. This is not to say that we should eliminate financial leakage altogether (I think that this is too hard and would take too much energy), but to keep it in control. Doing this will make a significant difference over time to your financial success.
Where do you start?
Step 1
Be more mindful about where your money is going Start recording where you spend your money.
Reducing how much you use cash will make it easier to track. Go back over the past three months of your bank and credit card transactions and categorise your expenditures.
Some banks have reports that you can use that may help you here – but I think to be more mindful and see the patterns of expenditures, you are better doing this process yourself initially.
I caution you to be careful with your emotions as you go through this process. It is very easy to have feelings of overwhelm, guilt, judgement, and blame, all of which are normal, but they will not serve you, so tell these emotions to ‘stand down’.
Step 2
Find one or two expenditure items where you think there may be some financial leakage and think about what you will do differently to try to manage this.
I have some examples below…. 
Step 3
Create a new pattern of behaviour around the areas you have identified so that you can keep track of how you are going with this change until it becomes a new habit.
Remember only to tackle one or two elements at a time otherwise it will become too overwhelming. After some time, once the first ideas are starting to work, start working on the next element.
I suggest having a monthly meeting with yourself (and your family if appropriate) to talk about these issues, commenting on the patterns of expenditure and brainstorming ideas of what to change next. If you have children, then this may also become a helpful learning opportunity, offering them tools about mindful spending, and preparing them for the future.
Step 4
Re-direct the money that you target for your financial leakage repair project into something more meaningful.
This will make the results of your efforts more tangible. Set up a separate bank account to accumulate the additional money. Perhaps set an achievable and measurable goal to aim for.
For example, my husband gave up smoking many years ago, and used this opportunity to save the money he would have spent on cigarettes to buy his first smart TV. He kept taking the cash out of the bank that he would normally have spent and put it all into a large money tin which allowed him to physically see his savings grow. Think about how you might be able to apply this same concept to change your habits.
Remember time is one of the other four pillars to financial success, so using these habit changes and continuing these patterns over a long period of time will be powerful.
For example, the below graph shows the cumulative effect of saving just $100 per week over a ten year period:
| Rate of return | Balance at Year 10 |
| 2.5% | $ 50,285 |
| 6.0% | $ 59,725 |
| 8.0% | $ 66,140 |
Reflect on what is important to you and start to take action that is true to your values. Action is the key to your success.
Resources that might be helpful for you
For some great articles and tools to assist with financial literacy, including a budget planner that will come in handy for these strategies, go to www.moneysmart.gov.au.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2022. Please do not reproduce without the expressed written consent of the author.