These days, I do a fair amount of informal financial coaching for both old friends and newer acquaintances.
It’s an amazing experience. People are able to openly discuss their financial lives without having to hide their finances.
Often, just taking the first step is a great leap to a more prosperous and wealthy life. Talking about money is not something that should be reserved for paid professionals. It is important to discuss money with friends and family and to support each other in our quest for the best life possible.
Through these hundreds of little sessions, I have started seeing a pretty consistent pattern:
- People who struggle with money see the whole subject as a swirling, confusing mess. There are many things to consider when it comes to income, spending, debt and retirement accounts. The situation is described in a lengthy, winding paragraph.
- People who are good with money have this stuff more mentally sorted. They can quickly list their income, their assets and debts, and most importantly they know how much money they spend each year.
- People who have been good with money for a long time have moved even further. Although they might not be able to track it, they have a growing surplus. This is because they are good at managing their money and there is no way they could run out. These people sometimes need to be taught to get out of the “cheap” habit and make the most of their life.
As an MMM reader, you are headed straight for Option #3 above.
To get to Option #3, you will need to go through #1 and #2. This means that you have to track your spending and sort things out.
Tracking Your Spending is Fun, Useful, and Easy (Yes, really! )
I can already hear your collective groan as I give you this prescription, but adding up your past year’s spending is one of the most useful things you can do with a Saturday morning, and here’s why:
- You can see where your money is going to waste and where you can make really easy improvements that completely change the course of your life
- You will get the courage to switch jobs, houses, cars, and other life decisions as your fuzzy swirling financial paralysis transforms to a crystal clear understanding of money – one of life’s most useful and fun tools.
- You can immediately see how much money you will need to retire. (just take your annual spending and multiply it by 25 as recommended by the 4% rule)
I’ll show you my spending if you show me yours.
Now for the fun part. Let’s get to the fun part.
Meanwhile, I have several sources of income which add up to many times more than my living expenses (stock index funds, real estate investments, this website, and side hustles like carpentry and operating the MMM HQ coworking space.)
So I haven’t been keeping track of my spending for quite some time. However, I had a major life-changing event a few years back. The former Mrs. MM and me split up and moved into separate houses in the same area.
With the old routines shaken up, and new things like hosting more parties, outfitting a new home and increased friend/family/long-distance-relationship travel, how has my bachelor spending been transformed?
It’s time for you to find out.
How Do You Track Your Spending?
My expenses are really easy to track: I funnel all my spending through a rewards credit card, which saves me about $2000 each year. (in 2019 I used the two highest-paying cards from Capital One which you can find here.)
Meanwhile, I hook up a third party financial app to automatically monitor these transactions, alert me to any unusual activity, and – the best part – automatically categorize and add everything up for me. I’ve been using one called Truebill for a couple of years*, and it has the simplest interface of anything I’ve tried – you get results like this:
Truebill is great for tracking and improving spending, and you can also track with Personal Capital, which I have used for the last five years or so mostly for keeping tabs on all my net worth (see my 2013 article on that).
BUT you can also all this quite easily with no apps at all, just by downloading the full list of your 2019 transactions from your bank and opening it up as a spreadsheet. Capital One, which I use for my checking account, allows me to click on each account. A link to “Download Transactions” is located at the top of my transactions.
For me, it was extra easy because I used the same bank for both checking and credit cards, so everything shows up on a single login screen like this – kudos for Capital One for doing this so well since most banks have pretty bad websites:
So whether you use an app or a conventional spreadsheet, tracking your spending is quite useful, to know where you are now.
But the biggest message to take home from the results is this:
These are not your “living expenses.” This is your current level of spending, something that is entirely under your control.
There is always a trick for everything, and you get to decide how many of these tricks to apply.
I, for my part, try to only use the tricks that save money and make my life easier in some way. These are win-win situations for me. However, I pay an accountant to handle my taxes. Your own choices may be completely different, but it’s important and empowering to use that word – choices.
Special Notes Before I Share This
The table below will shock some, offend others, and hopefully inspire you to at least consider a few new things. Because of my unique circumstances, I made some unusual choices. These will be explained in advance to make the table more understandable.
Do I really have zero medical expenses?
Yes, and I have for my whole life – this is a probably combination of dumb luck (genetics) and hopefully-smart luck (I made a guess that 1-8 hours of outdoor physical work, bikes, barbells and salads every day would be good for my health and so far it seems to be working.) This isn’t a guarantee for life, as there are no guarantees.
What about kid related expenses?
My little 13-year-old is pretty low-maintenance these days: he develops stuff on the computer, plays the bass and rides scooters with friends. These are the same activities we do together when we’re together. We also enjoy bike rides, hiking, and occasional road trips. If your kids enjoy the activities, it is great that they can afford them. This table includes the half of his food and necessities that I pay for, but does not include any money that changes hands between Former Mrs. MM and myself over these final four years of our co-parenting project. I am grateful for the happy and cooperative arrangement we have had. It is also important to note that neither of us should feel bad about our financial situation.
How can you even sleep, with no house insurance and no health insurance?
This really depends on your personality type – and mine may be unusual in this regard. I don’t worry much over things like fires, thefts, or other disasters. They are certainly possible. However, my mind is more focused on probabilities and statistics than on emotions or fears. Also, I am a little robot. And the robot in me says, “On average you will make a profit and you can afford any worst-case consequences, so why buy insurance?”
For people in situations where losing a material possession would be a big deal, insurance may be appropriate. Insurance may be appropriate for those who are in a situation where losing a material possession would be a major deal.
What Else Are You Hiding From Us?
My businesses pay for some stuff (blog-related trips, this computer, tools, etc.)
My businesses pay for some stuff (blog-related trips, this computer, tools etc.). This may limit my ability to spend personal money on fun stuff.
Charitable donations, which now total over $300,000 (see previous article), are also not part of what I consider spending. These are, to me, a reallocation of a large portion of the website’s income for causes that require it more than I do. If I was only earning enough money to pay for my lifestyle expenses, I wouldn’t be as brave or bold as I am to give so much.
I don’t include income tax in my spending because if someone lived on enough retirement income to cover twice the amount of spending they wouldn’t have to pay any tax. In my case, I earn more than what I spend and pay a lot of tax. Like the charitable donations mentioned in the previous article, income tax is just another way to give back a portion of this super-lucky surplus.
It’s not a huge deal. I find this statement to be true in every area of my life. As you age, your material needs decrease and less things seem important. Let’s get to it.
MMM’s 2019 Bachelor Life Spending
(all figures are for the full year)
|Mortgage + Insurance||0||Bought the current house ($315k) with cash, and I have been self-insured on houses for the last 5 years or so. It’s not for everyone, but I find it works for me.|
|Property Taxes||$1735||My current place is a 3Br/2Ba home in an “up and coming” (i.e. Working class, central area. Pickup trucks are everywhere. The upside: Pickup trucks are everywhere. Walk/ride everywhere!|
|Maintenance and Renovation||$4699||Renovated my kitchen (IKEA), plus assorted painting + lights|
|Utilities – City||$1227||Electric + Water + Trash service. Average electric = $24/month including electric car charging.|
|Utilities – Heat||$353||Natural Gas service (incl. hot water)|
|Household Items||$294||Things like lamps, picture frames, vegetable peelers, wine glasses at places like Target.|
|Groceries||$4615||Mostly fresh, organic higher-end stuff. One active man, and half the time for a growing teenager boy. Costco/Sam’s is the best option, but Whole Foods is also available. Whole Foods has more specialized products and it’s close by.|
|Restaurants||$910||Many more nights out in this new life – expensive but fun.|
|Health Insurance||$0||I decided to self-insure for 2019 as an experiment (because the US coverage mandate was removed), to see if I found it stressful/scary. This article will be updated!|
|Medical Bills||$0||Had a truly fortunate year again – capping 45 years with just about zero medical costs so far. This is not something I take for granted.|
|Dentist||$0||Confession: I have only been ONCE in the last 25 years. I am not prone to cavities because I have never had one. My teeth are healthy and beautiful. Am I pushing my luck?|
|Gasoline||$22. 62||1999 Honda Odyssey – used mainly for construction hauling. It is a loan item that I lend to friends who return it with full gas. For my daily commute, I bike and walk.|
|Maintenance||$0||She had a perfect year (although with low mileage, car breakages are rare)|
|Car Registration||$545||For van, cargo trailer, and Nissan Leaf shared with former Mrs. MM|
|Insurance||$397||Mainly for the Leaf because it includes comprehensive (long story) – this is my half of the shared policy cost. It’s still great to use Geico.|
|Travel Total||$3702||Plane tickets, car rentals, airport transport. Interestingly, most accommodation was “free” due to staying with friends, credit card points and AirBnb Referrals.|
|Entertainment||$400||Plays, Books, Netflix, Google Play movie rentals, even a couple Oculus VR video games.|
|Mobile Phone||$300||I’m still on Google Fi. It’s $20 per month+data, a solid value for lower data users – I like the free international coverage.|
|Internet||$600||This is expensive because we buy Longmont’s gigabit fiber internet, but well worth it for a household of blogger/video gamer/youtubers.|
|Total||$21,470||Hey, not bad!|
|Total “Barebones”||$13,068||My real (still luxurious) living expenses without the travel and $5000 kitchen renovation. Still includes restaurants, booze, cars, gadgets from Amazon, and living in a 3 bedroom detached house!
So, What Now?
Well, this was a pleasant surprise. I had felt like I was living a total billionaire’s life in 2019, because it has been so packed with interesting people and places and experiences. It is almost like I am surrounded by dizzy abundance. I don’t buy anything unless I know it will make me happy. It’s not that expensive to have abundance.
2020 is shaping up to be an even bigger year of personal growth and better friendships and hard work. My bedroom is being used as a sketching area for a second-story deck. The Tesla Model Y comes out in just a few months, and I am in love with it.
It could be expensive.
I’ll keep you posted on how it goes.
In the Comments: do you track your own annual spending? What was your spending last year? If you didn’t, why?
*About Truebill: I heard from Haroon Mokharzada as he was just founding the company, and was impressed with his background of seeming to be on the “good guys” team. Since then, I have been a casual user of Truebill to keep up with their progress. Truebill’s app/service is good enough to be useful for more than just tracking spending. They have a solid development team, and a large and growing user base. Bravo!
Affiliate notice: While I have no financial relationship with Truebill, this blog may get a commission for other recommendations within this page, including Personal Capital, Airbnb and the credit card recommendations. Thank you for using them.
Mr. Money Mustache