How Much Is ‘Winging It’ Costing You? $36k Per Year?
I recently did the sums on what not managing your finances, in the way that you know you should, is costing the average person or family earning $100k a year.
I like to nerd out on this stuff because I work with hundreds of people every year to help them get their finances on track and get ahead.
So Let’s assume, for this exercise, you’re earning about 50 bucks an hour.
Did you know that winging your finances (that is, not having a plan in place for spending and saving) is costing you somewhere in the vicinity of $36k a year?
Some of these costs are to do with money, time, lost opportunity, stress levels and emotions, and health.
So here’s where your money’s going if you’re a middle to high income-earner in Australia without a solid plan.
Let’s look at direct money lost first.
Money spent is not money saved and it’s also money that is not compounding interest over time.
Just $100 extra a week spent is $5200 a year. We’ll talk about the compounding interest loss in a minute.
If you have credit card debts around 10k then at 20% interest that’s $2000 extra per year.
Bounce bill payments and late fees, another huge drain on finances – 20% late fees on just $1200 is $300 per year.
So the total of those things so far is $7500. And If you were to invest that money at 9% interest (the average of the Stockmarket) you could make $675 on that) so the total conservative cost per annum is $8175.
Time is money
Then there’s the time-consuming aspect of having to redo your budget every month. If you spend just 3 hours a month trying to figure it all out that’s 36 hours a year. At $50/hr that’s $1800 a year.
It also takes a lot more focus and attention to pay off debt. Say you spend an hour a week thinking about your debt. At $50 an hour that’s $2600 a year.
The more time you spend at the shops is also less time you have to spend on income generation.
An extra 2 hours a week at the mall is 104 hours a year, and at $50 an hour, that’s $5200 a year.
Then what about the time you spend arguing with your partner about money, or just giving them the silent treatment because you’re pissed off with some aspect of how they’re not aligned with you around money. That’s an hour a week that you could have been focused on income generation. Just one 1 hour argument a week costs you $2600 a year.
(Side Note – I haven’t included any losses or legal costs for relationship breakdown or divorce proceedings when relationships breakdown due to one of the biggest causes – misalignment around money)
The emotional costs of not managing money
Now let’s look at the emotional costs of not managing your money in the way you know you probably should.
Stress shuts off your mind to opportunities, lack of confidence and control also affects your income-generating potential. Let’s say you could add an extra 10k a year to your income if you weren’t so frickin’ worried about money, which eats away at your self confidence. And 10K is conservative.
The physical and health cost of not managing money
There’s one more major financial drain as a result of not managing money well. And that’s the effects on health and your immune system.
Worry, poor sleep, eating out more, smoking, alcohol all cause health issues which means more medical costs and time off work. Just one day off per month – 12 sick days per year – will cost you $5400 plus out of pocket medical costs of $1200. That’s $6600 that stress is costing you (conservatively).
Add all that up and you get $36,000. If you earn more than $50 an hour then it’s likely to be a whole lot more, or less if you earn a bit less.
Do you want to avoid hemorrhaging money like that? Then you need a really clear plan for spending.