Maybe You Spend Too Much On Candles…
People love to tell me they don’t have any money left over for investments and most of the time they give me no proof. While it may not be candles, there is a chance that some of these people are spending way more than they need to on something, and so there is the appearance of having nothing left over. The only way to really prove to yourself(and to me) that you are truly living within your means, and are just squeaking by with every paycheque, is to track everything you spend. This used to be a complicated time-consuming task, reserved for those with accounting and finance backgrounds(like me!) who love spreadsheets(me!). But now there is a super easy way to track your spending and it’s almost automatic. It needs some maintenance and a few tweaks to have it tell your whole financial truth, but overall the process is a breeze. Of course, I’m talking about mint.com. I talk more about mint.com here but for this post I want to stick to basic budgeting concepts.
First, here’s how I track my spending: I have a whole bunch of linked spreadsheets for all my accounts. Cash, Chequing, Credit Cards Savings, Investments, and Shared Spending(these are things that both my wife and I buy separately but need to be split between both of us so it doesn’t look like we’re spending double the amount.) Every week or so, I go through my online statements and update my spreadsheets with new transactions. Then I assign a spending category or call them something else if they are not expenses. Then at the end of the month I have summary sheets that I created with formulas to pull together everything in a nice income statement and balance sheet. Tells me how I’m doing on a monthly basis and then when the year is up, I have a pretty good idea of my average spending. Then I take the average monthly amounts and use them to update my monthly budget so I stay within my means.
However, just because I’m spending a certain amount per month on something, doesn’t mean it makes sense. If I still have a lot of money left over for savings and I’m saving as much as I need to based on my financial goals, then I can go ahead and spend on whatever I like. That’s the whole thing about living your life while saving. You don’t want to have no money to live your life because you’re saving everything in excess of what you need to survive. But you don’t want to spend like crazy without knowing how much you actually have to spend. Maybe you like pies. I sure do. And you found a place with the best pies, but they are $50 each. And you love them so much you buy 4 pies every month. That’s $200/month on pies! If I said to you:
“Do you think you could buy 2 pies per month instead of 4?”
Would you curse at me and call me the devil?
Maybe.
But if we created your Custom Financial Plan and we found out you needed to save a bit more every month to meet your goals, you might reconsider. Or maybe you could retire earlier. Or take that vacation sooner. Or just build good habits and learn to live within your means.
Also, did you know that saving $100/month at a 6% interest rate will get you $200,000 in 40 years? If you are 25 and that is all you do until you are 65, you’ll be like where did this $200,000 come from? That $100 I used to spend on 2 pies?
Stay with me for another minute on the pies: What if…you didn’t buy pies at all? What if you learned to bake pies yourself? You could still eat your 4 pies a month, learn a skill, and probably spend $40/month instead of $200.
How much will that $160/month in savings be over 40 years, you ask?
I’m glad you asked!
$320,000.
So basically learning how to bake made you $320,000.
This is what happens when you invest wisely. Pies turn into $$. You take the time to think about what you are doing and how you can change it to help yourself. You invest in yourself so you have dollars to invest for your future.
