You know that feeling when you discover something that creates an uncomfortable tension? One so deep inside your body that you nearly throw up? That’s how I felt earlier this year when I compiled and reviewed our annual household and personal spending for 2017.
How could one household spend that much on groceries? It was a serious WTF moment.
I track every cent I spend with little effort thanks to Mint, Intuit’s personal budgeting and expense tracking app. I connect my credit cards and my bank accounts and Mint sucks in every transaction, correctly categorizing 80% of the charges. I go in and correct the other 20% once a month. Luckily, because all the data is there, I was able to dig into all the grocery transactions and sort them by store and highest to lowest.
I had a mentor once say to me, “without the data you are just another guy with a fucking opinion.” While this is very true, without corrective action from the data you have, well, your just a schmuck with an opinion.
I went through the year without examining the data and taking corrective action. In my business that would never happen and going forward it’s not going to happen in my personal life either, the opportunity is too great.
Here’s what I’m doing differently in 2018 which I believe will have a major impact on my spending.
First, I’ve set alerts by category, by week. So, if my budget for groceries is $500 a month, I’m alerted if I go over $125 in a week. I did not pay attention to how much I was spending until the end of the year in 2017, now we see it every week. So far there’s been a few weeks when we don’t go grocery shopping because we are over budget and you know what? There’s a shit ton of food already in the house every time.
Second, because I can see every transaction for the year and sort it in a variety of ways, I was able to discover a number of items that fall under the latte effect, first coined by Oprah. Essentially, a small cost that happens very frequently and adds up to a lot. An example is the sushi I grab my daughter on the way home from swimming every Monday. There are about 40 weeks we go to swimming during the year, each week we were spending $25. On its own, not a lot, but over the year that’s $1000. I made two tweaks to this for 2018. We are now picking up sushi every other week and I’ve eliminated the roll I get every week. I was only ordering this roll as a treat and was still having a full meal when I got home. I didn’t really need it. The end result is 20 weeks at $16. A difference of $680. This is just one example.
Third, because I’m a big fan of putting dramatic constraints up, I chose a few budget categories outside of groceries, that I could dial back to zero. Clothing as an example. I looked in my closet and made the decision I would be just fine if I did not buy one piece of clothing this year. I have more than enough, in fact, I realized I wear only 20% of what’s in my closet, 80% of the time. So, in 2018, I want for nothing.
I encourage you to create a yearly budget. You can do that inside Mint, but you can also start with something simple, in a spreadsheet. Once you have the budget you need to track spending and then measure if you are under, on, or over budget. The fastest way to do this is using a personal accounting application like Mint. Third, do what I missed last year, taking corrective action before the end of the year. Finally, set one or two major constraints, give up something, it helps build the financial planner muscle.
Good luck in 2018.