Is your financial ‘check engine’ light on?

Is your financial ‘check engine’ light on?

2020 has certainly been a tough year for almost all of us, and if you’re feeling existential dread over how the year has hit your pocket, you are not alone. At times, this year has made me feel like I’m a car going 60 mph down the freeway with my check engine light on--one sputter or clank away from being broken down on the side of the freeway. 

With finances, however, we often don’t get the proverbial check engine light until it’s too late. 

Usually it looks like insufficient funds or overdraft fees showing up on your statement, or it’s a late payment and even more fees. Sometimes it’s even as painfully embarrassing as being in line to purchase and no matter how many cards you swipe, your transaction fails. When that happens, it’s hard not to sink into a pit of self-shaming, depression, and loss of control--even when our financial woes come through no fault of our own.

During our yearly retreat in early February 2020, ileigh and I dubbed 2020 as the “year of inner vision,” and wow, did that manifest itself in some unforeseen ways (yes, I see the irony in that!)! Our business and personal lives went from 60 mph to 0 mph in a sudden screeching stop, and that meant we had to get financially lean to be able to ride out the pandemic.

The area that we addressed immediately was in our recurring expenses, which turned out to be our “check engine light” flashing on the dashboard. Taking a look at our recurring expenses was a first step in a much larger process of becoming more financially fit (a journey we are still on I will add), but it was a helpful place to start.

Why did we start with recurring expenses? 

Because those were the financial commitments we had made that were going to be automatically withdrawn or were due every month—these expenses were happening regardless of our circumstances

With no money coming in, we needed to stop dedicating money to expenses that weren’t a high priority.

Fortunately, we already had this list ready to go. We’ve tracked our AutoPays for years so we could easily update our billing info if we got a new debit card. Next we sat down and looked at each expense. Did we NEED or WANT this expenditure? If it wasn’t a need, then we cancelled or cut back service. 

This gave us a big picture view of our financial commitments, and stopped us from hemorrhaging money needlessly. Through this process, it was easy to see how recurring expenses added up quickly. If they aren’t revisited periodically, it’s also easy to overlook their financial impact. 

As we have navigated our way through the year and tightened our belts, we have had a chance to reflect on the financial traps that came up for us both personally and in our business, and see other traps more easily. I’ll share a few below.

4 Money Pitfalls to Avoid with Automatic Payments

  1. Some recurring expenses and automatic payments may increase their fees over time. I’ve certainly seen this in many of the software programs or services we’ve used over the years. Netflix and YouTube TV certainly aren’t the same price they were a few years ago!
  2. If you use credit cards for recurring expenses and automatic payments, then you may also be accruing interest if you aren’t paying those balances off in full every month.
  3. In some cases you may not even know you have automatic payments being charged. Ever sign up for a “free trial” and forget to cancel before you are charged?
  4. It’s easy to say yes to those small monthly charges. $5 here or $7 there may not seem like a lot of money, but over time you end up with a bloated list of financial commitments that can be a drain on your bank account.

If you have overdraft fees popping up, if you can’t remember which autopay is paid from which account, or if your credit card balance never seems to go down even though you keep paying on it, then you know it’s time to get serious about how much you are spending and where your money is going.

Making a list of your recurring expenses is a great place to start. I always advocate for folks to keep working towards financial fitness beyond simply listing their expenses. For me that means having a solid budget tied to financial goals. But if you don’t have a budget or maybe haven’t revisited your budget in awhile, this can be a great first step

After all, the money you spend is a vote with your dollars. 

Each dollar spent is a statement about what is important to you, and the amount of financial commitments you take on play a role in what work you have to say yes to in order to meet those obligations. The goal is to align your “votes” and “commitments” with your values, but this isn’t “set it and forget it” type of work. It takes diligence, discipline, and determination to achieve your financial goals and live a life with purpose.

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