Of all the financial planning advice out there, one of the oldest and most basic principles is to spend within your means. Now, this may be a difficult post to read coming off the holidays and having spent dollars on your loved ones. However, with the start of the new year, now is a perfect time to reign in expenses. This exercise can help you whether you make $30,000 or $3 million a year.
You may have heard the suggestion before to track your expenses for a month. If you have never done so, or have not done so for a while, January is a great month to start doing so. Popular budgeting apps like Mint do much of the automatic tracking for you, and NY Times suggested Expenses Ok or Expense Keep. However, you may also keep track via Excel or by old-fashioned pen and paper—whatever you prefer. The important part is that you are writing down what you are spending your money on and why. You may also write down any items you are tempted to buy and your emotional reasoning, which you can refer to later to develop a better understanding of your financial soft spots.
Kristin Wong, writing in the NY Times, mentions she discovered she had spent $636 on Amazon purchases in the previous three months. The items she was buying were not significant – a few travel guides and shoes. She discovered through the process of writing down each expense that her threshold for the so-called $3 latte factor had jumped to $20. When she wanted to buy a nice journal for $20, she would think to herself, “So what? It’s only $20.”
This example highlights how easy it can be for us to adjust our expenses as we climb income brackets. For some people, buying a $6 Starbucks drink may seem like a harmless expense, however the amounts will really add up if they do so a couple times a week, or especially every day. A $6 drink every workday can add up to $120 a month, or $1,440 a year. Others may find that they easily spend money when it comes to online shopping, or going out to restaurants, or doting on their pets.
As with eating, spending is acceptable in moderation—however, it is up to you to determine what is moderate per your budgets. Tracking expenses will help you discover your financial weaknesses and allow you to make necessary adjustments for your spending to be in sync with your highest personal priorities.
TABER Asset Management is a fiduciary and investment advisory firm that offers financial planning, investment management, and wealth management services. Based in Des Moines, IA, we serve clients from across the U.S. Please contact firstname.lastname@example.org or 515-557-1860 for a jumpstart in your financial planning strategy.