So it comes to this, always to this. In order to get where you want to go, you must first know where you are. I know that, in general terms, we spend less as a family than we earn in income. I know this because we’re able to grow our savings accounts each month without borrowing excessively on our credit cards.
The problem is, I’d like to save a lot more. Or invest more. Or pay down the mortgage faster. Or all of the above. In order to do that, I first need to see where we’re spending money.
And I’m afraid. Very afraid.
We’re in the habit of analyzing our spend from time to time, sometimes to budget for a vacation or some large purchase. Every time we do, we always find things that are, to be nice about it, disappointing.
How much beer are you buying each week?
Wait, (insert service here) costs that much? That’s crazy!
You spent how much on Lula Roe?
I’m sure similar exclamations are made in many households all over the world. Fancy beers and crazy leggings included, there always seem to be things we spend our hard earned cash on that could be put to better use. Now I’m not saying I plan to cut out all splurging, living life only with the bare necessities and never enjoying nicety every now and again. A better, more realistic goal would be to set a budget for discretionary spending and stay firmly within those lines. If I want to buy a growler of that fancy IPA I love so much, I’d have better not blown the budget buying some shiny part for my server.
And so, it starts with listing out and categorizing where your monthly income should be allocated. It’s far easier said than done – simply analyzing your latest bank statements for the month is not sufficient. There are plenty of expenses that come up that are not monthly expenditures – property taxes for a shared family cabin and HOA dues immediately come to mind (we pay our HOA dues through the year just to avoid all the paperwork).
Here’s a first crack at what we came up with for our household monthly expenses:
|Savings/Investing (529 and Roth IRA)||200||No|
|Credit Card payments||152||Yes*|
*While these expenses may not be strictly necessary for survival, they are practically necessities. The credit card payments aren’t discretionary, but wouldn’t be there if we didn’t carry a balance.
So that’s a good start, right? It seems to be a fairly comprehensive list – when stacked up against the $5,200 in salary coming in, that leaves a little over $800 each month.
That can’t be right. I’ve already factored in the bit we contribute to savings, a paltry sum though it may be, but I know that our checking account isn’t magically growing by almost a thousand dollars each month. There must be a gap in my analysis somewhere – the property taxes I mentioned earlier aren’t captured, but they’re way less than $800 a year, let alone a month.
What I need to do is a deep analysis of our cash flow situation and see exactly where all our cash is going. I took the approach of combing through a couple of months of bank statements, then factoring in all the annual and semi-annual expenditures I could think of, but I must have missed something.
My job now is to see if I can spot the gaps on my own with a longer term analysis. If that fails to identify the leakage, I’ll need to explore tools or utilities to help.
Until next time!