Plugging Financial Leakages to Save Money for Investing Towards Financial Goals

Soon, the positive balance in the account turned negative. When the negative balance reached a substantial amount, Ajay received a bank intimation to pay the amount. In this article, we will look at identifying such financial leakages, plugging them, and investing the saved money towards financial goals.

What Is Financial Leakage?

Financial or money leakage is money spent on something that goes unnoticed. The expense keeps recurring monthly, quarterly, yearly, etc. Sometimes, you may spot the expense in your bank account statement but may not be able to figure out its details or may not remember on what the amount was spent. Some individuals sometimes don't take the time and effort to close the financial leakage as the amount may be trivial.

In Ajay's case, not closing the earlier salary account resulted in a financial leakage left open. We saw how his ignorance resulted in losing the balance kept in the account and incurring additional MAB charges that piled up over a period of time. The above scenario is common with quite a few people. They don't close the financial leakages like the bank account, demat account, credit card, or subscription they don't need and keep incurring charges.

Common Examples of Financial Leakages

Let us look at some common examples of financial leakages and how to stop wasting money on them.

1) Not Maintaining the Required Balance

Some people don't maintain the required minimum balance in a savings account. It may happen due to various reasons. In some cases, the individual may have opened a new salary account in another bank due to a job change, as we saw earlier in Ajay's case. Another reason can be the individual may have shifted to a different part of the city or another city due to job change. Sometimes it is sheer laziness. It may go unnoticed as the customer may not get any intimation from the bank about the levy of charges.

2) Not Closing Unused Demat Account(s)

Some people have multiple demat accounts. They may have opened the latest demat account under an offer that may offer them lower brokerage or lower/waiver of AMC charges. But they don’t close the earlier demat account and sometimes may just forget about it. 

3) Paying Insurance Premiums on Plans That You May Not Need

An individual may have initially bought a life insurance plan with a lower amount. For example, when the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) was launched, many people subscribed to it. The policy gave a term life insurance coverage of Rs. 2 lakhs for an annual premium of Rs. 330. Later, the individual may have bought another term life insurance cover with a higher cover amount and may not need the previously bought PMJJBY plan. However, they don't close the plan for various reasons and the annual premium keeps getting auto-debited from the bank account.

4) Not Closing Paid Credit Cards That Are Not Being Used

Various banks keep launching new credit cards from time to time with various features. Also, from time to time, banks may devalue the features and benefits of existing credit cards. After devaluation, the card may or may not be that useful to continue. However, some people continue holding the credit card(s) even though they may not use them. They pay the annual fees for these credit cards leading to financial leakage.

5) Continuing With Unwanted Subscriptions/Memberships

Apart from financial services products, many individuals experience financial leakages with several other products and services. Some of these include incurring charges on:

1.  Shopping memberships/plans/schemes
2.  Music and OTT subscriptions, movie passes, DTH channels, etc.
3. Hobby plans/subscriptions
4.  Food delivery and dining subscriptions
5.  Holiday subscriptions
6. Gym, yoga, or sports membership plans, etc.

Some individuals may not find the time to use these services or use them sparingly, making the money paid not worth it.

How to Stop Wasting Money for Goal Achievement?

Now that we have had a look at the various financial leakages, the next step is to stop them. Let us see how can we save money for the future. To stop the leakages, you should first identify them. Scan through your monthly credit card statements and bank account statements to identify the financial leakages.

If there are any bank account(s), demat account(s), credit card(s), etc., that you no longer use, close them. Some banks may give you an option to close them online, while for others, you may have to contact the customer care through email/call, or visit the branch. Once you give the closure application, follow up till it is processed, and take the final closure acknowledgement on email or printed document.

In the case of various subscription plans for shopping memberships, OTT subscriptions, food delivery and dining plans, etc., you will have an option in the app or website to unsubscribe. Visit the manage subscription section and cancel.

Once you identify and stop the financial leakages, you will realise you have additional money to invest towards your financial goals. Now that we have plugged the financial leakages, let us focus on how to save money for long term goals.

Best Ways to Save Money for Long Term Goals

The money saved from financial leakages can be deployed to enhance investments towards financial goals. You can consult an investment expert for guidance on how to set financial goals. They can help you identify and categorise them into short, medium, and long-term financial goals based on the time horizon to achieve them.

Once the goal plan is in place, you can start investing towards your financial goals. While there are different ways, many retail investors consider SIPs the best way to save money for future. SIPs allow you to invest a specified amount every month in a specified mutual fund scheme for a specified tenure. With a step-up SIP, you can increase the monthly investment amount by a specified amount or percentage on an annual basis. It will help you reach your financial goals faster than the regular SIP.

Stop Financial Leakages in Time to Improve Your Overall Finances

If not identified quickly, financial leakages can cost you a lot of money in the long run. As this money is going towards unutilised services or those that are not required, money is going down the drain. When you identify the financial leakage and plug it, you save money. The saved money can then be diverted towards financial goals to achieve them earlier than scheduled. It can help you achieve financial freedom earlier than planned.

FAQ's

How Do I Track My Expenses to Identify Any Financial Leakages?

The best place to look for financial leakages is your bank savings account statements and credit card statements. Check these monthly statements line by line to understand where your money is getting spent. You may also check your SMSs to identify transactions as and when they happen. You may also use certain budgeting or money management apps that help you track and classify your expenses.

What Are Some Hacks/Tips to Save Money on Subscriptions?

Some credit cards offer free access to certain subscriptions as part of joining or annual benefits. For example, some credit cards offer free subscription to Amazon Prime, Swiggy One, Zomato Gold, etc., as part of joining/annual benefits. Some credit cards also offer some of these benefits as part of completing specific spend-based milestones.

Some telecom/broadband plans may also offer certain benefits like a subscription to Netflix, Disney Hotstar, etc. So, rather than spending money from your pocket on these subscriptions, you may use the credit card benefits or telecom plans for these.

How Do I Know Whether I Need to Subscribe to a Specific Service?

Many service providers give you a free trial to assess whether you need a specific service or not. For example, with Amazon Prime, Spotify, etc., you may get a free trial for a specific number of days. During the free trial, you can assess whether you need a paid subscription or not.