Spending and Budgeting

  The other day I was able to sit with two clients and make a material impact on their financial situation by taking an hour and half to really delve through their spending habits.


The real take away from the meeting was the impact spending has on determining a budget.  You can’t budget unless you know how and where you are spending.  You have to go back to the basics.


The “Ah-ha” moment


Have you ever tried to figure something out, but you just aren’t getting it?  Maybe you continue to look on Google, but it still doesn’t make sense?  Then, you walk away from the project/task for a moment or a day or a week.


When you come back or even while you are away you go “ah-ha that’s how it’s done.” You go back and complete the task and realize that the answer was always right in front of you.


Well, that tends to be people’s same reaction with spending.  We are so busy spending that we don’t take time to understand where we are spending.



Do we really know what we are doing with our money?


Here is a list of questions; how many can you answer confidently?


-          Do you know how many times you swipe your credit card every month?

-          Do you know how many times you go to the grocery store every month?

-          Do you know how much money you withdraw from the ATM every month?

-          Do you know where you spend the most money every month?


I think that 50% of the questions are probably answered confidently:  how many times you go to the grocery and how much you take from the ATM every month.  The others are probably a little more difficult.


I would also make the guess, though, that many of us would be proven wrong on our assumption on those answers that we believe to know so confidently.


Every two to four weeks we get a paycheck deposited into our bank accounts. It still seems that the day before that paycheck we are always wondering where the hell all our money went.


Many people say they know where they are spending money, but I think this could be deemed an assumed constraint.  They assume they are spending money at one place, and are constrained from finding the truth because they already have this assumption.


It’s a fast paced world and our credit card helps us keep up


Here is why we really don’t know where we are spending money.


It’s that night we are planning to have friends over for a dinner party.  The guests are set to arrive in about 30 minutes and we realize we are short on some mixers for the vodka and also have no parmesan for our pasta dish.


We jump in the car and head over to Kroger.  On the way, we get a phone call that we need ice and some more garlic toast.  When we get there, we see a dessert that we think our friends will like and put it into our basket.  Oh shoot, we also need something for breakfast tomorrow morning before golf.


Okay, we have everything and we see the smiling cashier who is eager to check us out.  Next thing we know, we swipe that Visa and head out of the grocery store to get back to the house before our guests arrive.


Without even thinking twice, we have spent 60 bucks, and we will likely not remember to account for that in our mental budget… but our real checking account will account for it when the Visa bill comes.


Thus, our assumptions are constrained because we only remember the spending events that happen routinely… not those that help us keep up with the world.


Find where you are spending


During my meeting with the clients I mentioned above, we looked through their spending habits.


By talking it through, we got to a starting point for their spending and budgeting, and set a plan to continue to monitor it until it becomes a habit for them.


During the meeting, they too had that “ah-ha” moment.  The findings of where they were spending weren’t part of their assumptions, rather a little against.  It was eye opening and allowed for us to clear a major hurdle on our way to creating a budget.


Grocery Stores and ATMs


When reviewing where my clients were spending money, the largest category was food.  This isn’t too shocking given they have multiple teenage children.


Here is the problem with grocery stores, as was exposed in the prior grocery example; these stores are masterful at positioning things in places that tempt you to buy.  They convince you that you need the item.


Thus, the more you go to the grocery store when you just need a few things, the more likely it is that you end up with a large receipt.


That was the problem with my clients.  They went to the grocery store three to four times a month in addition to their scheduled weekly trips just pick up random things, but the purchase ticket was near $100 each time!  They were buying things that they may not have necessarily needed.


Planning on what you want to eat for the week, creating a list and going to the store only once can help to eliminate wasteful spending at a grocery store.


The other thing we found with my clients was that they were making withdrawals from the ATM every week.


Be honest with yourself and think about how easy it is to spend cash.  You are in the store and see something that you don’t really need, but, hell, you have the cash in your pocket, might as well get it.


Next thing you know, the cash is gone. By reducing the number of times that you go to the ATM, you can also reduce the amount that you are spending.


Take a baby step… it could make a huge impact


Maybe setting up a budget is a bit daunting to you right now.  Maybe the budget workout blog didn’t cure this.


Okay, that’s fine.


Take a baby step, and take a couple minutes every month to review your bank and credit card statements.  Try to find a common theme of your spending every month.


If you want to take it a step further, begin culminating all of this and find trends in your spending.


Try to begin to really understand where you are spending and see if any adjustments can be made to keep you from saying “where did all my money go?”


Don’t be constrained by your own assumptions with regards to your spending.  Get the facts, because these numbers won’t lie!