This is something I’ve been thinking about a lot lately. If you earn a six figure salary, is it worth your time to live and die by a line-item budget? Why bother if you make enough that you don’t really need to “save up” for typical things?
To be clear, by typical things, I’m not talking about big ticket items like cars, college funds and down payment for homes. Most of us do need to save for those things, so it would make sense to track your progress in those areas.
But, if you have enough to afford typical things, like clothes, personal care items and daily trips to Starbucks, why would you need to track and control spending on them? It just feels really nickel and dime-y to me.
Before you assume I’m an elitist snob…
I’m not. I’ve had moments in my life where I’ve had to walk miles just to access an ATM machine that distributed money in $10 increments because I only had $18 in my account and nothing in my pocket. I know what broke feels like, up close and personal.
But at the ripe o’l age of 50, I’ve got many years of employment and earning power under my belt, and I’m now in a position where I don’t have to clip coupons or make my own laundry detergent (<- although I never actually did that).
So to count every penny that goes in and out of my life, feels unnecessary at best and a waste of money-earning potential at worst.
Should You Track Your Spending – The Big Ah-ha Moment
The answer to this question came to me while listening to Greg Mckewon’s podcasts with Patrick McGinnus, the creator of the term FOMO, and by extension, the terms JOMO (the joy of missing out) and FOBO.
Early in the podcast, Patrick talked about the process of decision-making and that some things deserve our time and energy to decide, and some things don’t.
So in theory, whether or not to DIY your laundry detergent to save 10 cents per wash, probably doesn’t deserve your time and attention. Deciding whether or not to continue spending $200 at Starbucks every month, probably does.
But here’s the rub – you simply can’t make informed decisions without … information. So how do you know whether or not to cut back on your Starbucks habit unless you know exactly how much you’re spending there every month and year?
Minding + Mining your Money
Here’s where I landed with my 6-figure budget dilemma – you need to know where your money is going in order to decide whether or not it’s worth tracking (or budgeting).
To determine this, I turned to MINT, where I’ve been loosely tracking my spending and savings for the last few years. What I mean by loosely, is that MINT tracks it, and I ignore it. But the stored data was helpful as a starting point for deciding whether or not I need a budget.
Step 1 – Get a grip on your last 6 months of spending
The best and laziest way to analyze your spending is with an online money tracker like MINT or Personal Capital. There are other apps out there, like YNAB (you need a budget), but the first two I mentioned are free (yay, free!).
You simply connect your accounts and credit cards to a system, and presto – you have a full picture of your net worth (scary, but stay with me).
Step 2 – Customize your spending history
To make things super customized, I downloaded all my transactions from MINT for the last several months, and started categorizing my expenses.
BTW, if you’re just starting with an app, it may not be able to give you historical data yet, so you may just need to download your transactions directly from your bank account and credit card statements.
Once you have them combined into one spreadsheet, you can start organizing by month. Try to create a read out of your last 6-months of spending (12 – months is even better if you can stomach it).
I also downloaded all my transactions from Amazon (where I do the bulk of my shopping) and organized all my purchases by category (food, clothes, household items, etc). This made my line items very specific, instead of just a bunch of Amazon charges with nothing to organize them as other than “shopping”.
(Feels like) Step 473 – Be patient and bring wine
I won’t lie, this took HOURS to complete, but it was a very helpful exercise, not only because I found expenses that needed to be disputed or followed up on, I also got to see first hand, my own spending behaviors. This was an eye-opener to say the least.
Now, I will say, I already have what I call a very high-level budget that I don’t actually use and it’s based on guesstimates. It was put together for the sole purpose of understanding my financial independence number, which is 25 times your annual spending (not salary).
I thought that budget was pretty accurate, but it turns out, when I tracked it against my actuals, it was not. Sure, the mortgage and insurance line items were bang on, because they don’t change, but my household, personal care, and “miscellaneous” line items were off by a LONG shot. And without getting into actual numbers, I will say – I’m certainly not underspending.
What I learned from my budget tracking experiment
I need a budget.
Again, I’m not talking about a budget to maniacally focus on how much I spent on laundry detergent and toilet paper. I need a budget because the old adage is true – where focus goes, energy (in this case, money) grows.
The fact that I’m so out of touch with where my money is going on a monthly or annual basis means that I can’t make informed decisions about where I invest my precious time and energy.
It also means that I’m really not that confident that I’m actually FIRE because as it turns out – my 25x spending rate is actually higher than I thought. That means, my net worth and FIRE assumptions aren’t as ironclad as I had assumed.
Back to the drawing board, Caren.
Is it worth your time to budget and track your spending?
I can’t answer that question for you, but if like me, you’re kinda fuzzy on how much you spend every month and year, then it might be worth signing up for a MINT or Personal Capital account and let it track your expenses for you. Then once a month, do a deep dive to see if you’re comfortable with how much you’re spending and on what.
Better yet, start with a guesstimate budget like I did. Then track your monthly actuals. If you’re close to your projected spending, then good for you! You’ve earned a glass of chardonnay and a slice of manchego cheese!
If you’re not, then you probably need a budget too.