I decided to get myself a big ticket item after tracking my expenses for a year. I often feel I spend too much, that I should be saving more money and eating out less, that I can’t afford to travel or go see shows. So I took a suggestion from Barbara Stanny’s Secrets of Six-Figure Women and decided to track my daily spending. I’ve yet to achieve the six-figure income, but Stanny points out that building habits early has big payoff’s in the long run. As I explained in my post What Type of Financial Planner Will I Be? I follow the Balanced Money Formula from Elizabeth Warren’s wonderful personal finance book All Your Worth so I already know where most of my money was going.
Balanced Money Formula
- 50% Must-Have’s (rent, groceries, phone bill, min debt payments etc)
- 30% Wants (internet, gym membership, eating out, etc)
- 20% Savings (retirement savings, debt payments above min, etc)
I focused my tracking on my “Wants” spending, basically on all the non-essentials I could live without if I were to become unemployed. After a year of tracking this I am very happy to report that in 2015 I only spent 18% of my net income on Wants. How do I balance this with the nagging feeling that I’m much too extravagant for having an entire apartment to myself and that it’s ridiculous for me to buy any new clothes given my abhorrence of materialism? By giving myself grace. In order to enjoy my life I remind myself that I can spend money; that hoarding at the expense of enjoyment is not a virtue.
I started off by writing down everything I spend and building a simple tracker on Google docs. I already include internet and my gym membership in my recurrent expenses, for this exercise I was looking at everything I spend in addition to those two things. I had a lot of fun building the tracker because I am a data analyst by trade and I enjoy myself as much working in Excel as I do swing dancing or spending time with friends. My love for numbers is beyond words. After tracking my spending for a few days I began to create categories that reflected what I tended to spend money on.
You can see my main spending categories below with the percentage of the total, and below I’ve listed the smaller ones in order of largest to smallest
40% – Hobbies & Rec
Self-Actualization: Classes on spirituality or other growth related activities
Travel: Includes transportation, lodging, souvenirs, etc
Swing Dancing: …or line dancing, or clubbing, or anything related to dancing including drinks
Toastmasters: Club dues, or events
Entertainment: Going to shows, comedies, anything related to random hobbies
CFP: Events with the Financial Professionals Association or educational materials
30% – Gifts
Celebrations: Weddings, baby showers, Christmas gifts, etc
Birthday: My birthday or other people’s birthday, includes presents and dinners
Self-Care: I treat myself to a Korean Scrub every once in a while, and tattoos!
24% – Eating Out
Friends: This includes eating out with family and anything outside of work
Coworkers: Eating out during work hours
Treat: Mostly Starbucks runs or anything for my sweet tooth aside from a full meal with friends
Convenience: Anytime I forgot to pack a lunch, or needed a snack on the go
4% – Clothing & Other Stuff
New purchases: This includes thrift shops, shoes, jewelry, etc
Dry cleaning: Includes car washes too, I figured my car falls under stuff maintenance
Repairs: I’m a big proponent of wearing out what I own rather than throwing it out
2% – House Misc
Decorating: Anything extra to redecorate or upgrade my house
Make-Up: Includes getting my eyebrows done and hair-cuts
After a year of faithfully tracking everything I am pleased with what I see and very grateful for the experience. My biggest expenses are in “Hobbies and Recreation” along with “Gifts”, that’s exactly what my Wants money is for! Happiness researchers Sonja Lyubomirksy and Joseph Chancellor point out that spending money on experiences brings about more happiness than buying stuff, and I completely agree1. The first few months I did this I felt uncomfortable with the amount I spent eating out, however, after a closer look I saw that I almost exclusively eat out in the company of others. I really enjoy cooking so I always take lunch to work, which means that when I do eat out it’s because I’ll be sharing a meal with someone, and not because of convenience. Eating with coworkers is not only fun, but it can also be good for my career since I often learn about things going on outside my department and potential opportunities. Eating with friends is extremely enjoyable, and as a single person it’s one of the few times I don’t eat alone. I often invite friends over for a meal at my house because like I mentioned earlier I love cooking, however, given traffic in Southern California it’s easier for us to meet halfway rather than one person trekking across traffic.
The experience of tracking my spending increased my trust in myself. I learned that I can be trusted with money, that I do not spend carelessly, that I can relax! For others, it may teach them that they spend too much on things they don’t enjoy or that they would like to focus their spending on bigger items. Regardless, tracking your spending for at least 30 days will be a very enlightening experience. If you feel uncomfortable around your spending knowing your patterns will shine a light on possible changes. I follow the Balanced Money Formula because it combats my natural tendency to hoard and deprive myself when it comes to spending money. I believe everyone needs to take a close look at themselves to see what their money style is and figure out a system that will enhance their life. From this experience I learned that I could comfortably afford a lot more extravagances, in fact, it’s changed my definition of what’s outside of my budget.
One of the extravagances I have always been curious about is having a personal trainer. I work out consistently, but only in gym classes or on the treadmill because I am very intimidated by strength training. I had considered getting a personal trainer, but I felt uncomfortable with the thought of paying someone for something I could potentially learn how to do on my own. However, after two years of going to the gym I have still not learned how to use any of the machines and have never stepped close to the bar bells. During this time my stamina and sleep have improved, plus I definitely benefit from the stress management of exercise, but maybe I could be more effective with my time at the gym.
I recently switched gyms and attended their complimentary personal training session. The cost of a personal trainer is comparable with the monthly fee of having a financial planner, and in fact, there are parallels between both professions. Financial planners and personal trainers are motivational coaches with specialized knowledge. Rather than expecting myself to be an expert at everything I can hire someone to teach me new skills and help keep me accountable. After a review of my Balanced Money Budget I’ve included the personal trainer annual cost by reducing the amount I save down to 36% of my net income. I am excited about learning from a personal trainer and deliberately spending money on an experience I thought I could never afford.