Do You Actually Know How Much Money You Spend Per Year?

As back office support for a financial planning firm sometimes I have to create cash flow projections for clients.  The projections can be as simple or as complicated as the financial planner needs/wants it to be.  Today, I had a very interesting discussion with a planner about a particular client and this is not the first time this type of conversation occurred.

Do You Actually Know Your Monthly or Annual Budget?

What happened today:

  • The planner tells me that the client claims to spend $48,000/yr
  • The planner provides me with the client’s tax return which indicates a net income of $111,000
  • Let’s me know they save about $20,000 in qualified accounts throughout the course of the year
  • No non-qualified savings schedule but they don’t think they are saving anything outside of the qualified accounts.

Anyone figure out the problem yet? They are spending $48,000 + $20,000 in savings = $68,000, but they are taking in $111,000 net.   When the client was provided with the information they simply bumped up their monthly need instead of taking the time to just sit down and figure it all out!

While I read a lot of pro-budget personal finance blogs, I am not a huge “budget” kind of guy.  The structure of it all just makes me feel like I am trapped; in my opinion life is more than did I spend my allotted $27.50 in beers this month?  Notwithstanding, it is beyond important that you at least know and understand around what you are spending per month.  How else are you going to plan your life?  So back to

So how much is the client really spending per year? Do you know how much you are really spending per year?

30 Responses to Do You Actually Know How Much Money You Spend Per Year?

  1. When I sat down and looked at how much money my wife and I were spending, I was floored. We consistently spent reactively and didn’t think about what our needs were. We are starting to do better but it isn’t easy. It’s really hard to have a financial conversation but it has to be done.

  2. I know exactly what I spend. That’s what the budget is for.

    It doesn’t stop me from spending money. For example, if I decided to spend +$20 on beer this month, I just need to keep in mind that I probably should make up that $20 in another month or readjust my budget.

  3. I know it down to the day, month and year.

    $35,000 last year for just personal.

    Cut it back this year.. so now it’s around $30,000 this year but with business costs. Personal is on track with $20k including travel

  4. I would like to “Think” I know exactly what I am spending per year…. but in reality I don’t. I need to hold myself more accountable… but…well…. I don’t do that well either.

    Any Suggestions?

    • Starting your blog was the best first step. Accountability is the exact reason I started this blog.

      If you want to hold yourself accountable over here let me know and I’d be happy to have my readers follow your journey

  5. Wait, what???? If they’re only spending & saving 68 grand a year, where’s the other $42,000 going?

    Ohhhh this is EXACTLY what my ex- and I used to do. He pulled down $10,000 a month. We spent insouciantly on cards and with checks. And when the day of reckoning came and my divorce lawyer confronted him with the classic question, where did all that money GO? he had no clue. Neither did I.

    My lawyer, a rabid barracuda, was convinced he was stashing it somewhere, probably offshore. I knew he didn’t lie overtly (his deceptions were made through silence, but, asked directly, he was constitutionally incapable of lying). When he said he had no idea where our money went, he really had no idea.

    So be advised. The time may come when you will need to account for where every penny went.

    I keep track of all expenses in Excel and, on request, can easily tote up the amount I’ve spent over any given period.

    • It sounds like your situation was the exact one this couple finds themselves in today.

      As of the last meeting with this client they will be doing a full out budget to figure out where they are missing tens of thousands of dollars

  6. I have a general frame of reference but not an exact amount. I track the big purchases but skip small things that are under $20.

    • Do you keep it updated? I tried to get into it once and I just couldn’t keep up with all the fixing of categories. Is it better now?

      • Most is automatic and most of our purchases are via our Fidelity Visa Card. Quicken for the most part properly categorizes things. With cash expenses most I put as misc unless it’s a large purchase. Though who uses cash these days?

  7. I am definitely more focused on how much I save, like Sam.

    That said, this will be my first full year of financial data so I plan to sit down and really crunch the numbers.

    A basic four-week month should be around $2500 for the two, but holidays, medical, clothing, extra vehicle repairs, concerts, etc are extra.

    • $2500/month? Do you own place? What part of the Country? Any Student Loans?

      The Wife and I spend a lot more than that per month but I would love to bring it down!!!!

  8. I don’t know how much I’m spending a year but what I’m going to do as I’m going into 2011 is analyze how much I’ve spent so far this year, as well as last year, and if I think it’s too much (which I probably will), I’m going to decrease it by a percentage and increase my savings.

  9. First time posting here I believe, the article caught my attention for 1 main reason.

    I know almost exactly what I spend each month and year.

    99% of purchases that I make are on my CC. This includes eating out, entertainment, buying things I need/want, anything. About the only thing I use cash for,is to pay rent with, which is accounted for in my monthly budget.

    All of my banking is done at 1 bank (savings, checking, cc’s). This means I can see every purchase I make with my CC, and every time I pay it off with my checking acct.

    In my monthly budget, I keep track of every purchase I make using my CC, paying insurance, or any bills I have; As well as cash purchases if some places do not accept CC.

    Some of you stated that as long as you know how much you save, that’s all that matters. Although that may be your personal opinion, I believe that tracking expenses and savings is important and efficient way to track your money going in and out of your life.

    I not only know that last month I had expenses of $969, but also how much income I made and the total that I saved is easily computed.
    It may be easier to not have to know what you spend each month, but its even scarier finding out how much your expenses are when you have no idea.

    • I am glad I finally wrote something that inspired you to comment. Comments make me excited so please feel free to chime in ANYTIME.

      Expenses of $969? That is really low. I am completely jealous.

  10. I’m interested in what I DON’T spend money on.

    Eating at home instead of eating out: about $10 to $20 per meal. Friends eat out upwards of 3 times a week. Say, on average, $12/meal, that would be $1,872/year.

    Watching TV programs off the broadcast waves or on the computer: Average $75/month (http://money.cnn.com/2010/01/06/news/companies/cable_bill_cost_increase/index.htm). That’s $900 not spent.

    Driving my car until it drops dead: Every year it runs is a year I don’t have to spend $15,000 or more on a new(er) vehicle, or, if I paid on time (http://articles.moneycentral.msn.com/SavingandDebt/SaveonaCar/ABCsForAGreatCarLoan.aspx) $479/month, for a savings of $5,748/year.

    Drinking tap water instead of bottled water http://www.newdream.org/water/calculator.php: $548.

    Staying unleashed from cell phones (http://www.mediabistro.com/thinkmobile/average-us-annual-cell-bill-635-85-average-annual-bill-in-finland-131-44-ouch_b4463): $636

    We haven’t even gotten to the question how much less you spend on medical care when you eat whole foods instead of junk and commercially prepared foods, and we’re already saving $9,704 a year.

    When I’m NOT spending almost $10,000 a year, I don’t have to worry so much about what I AM spending. :-)

    • That’s a great way to look at it. I don’t have your kind of discipline…
      The Wife and I eat out a good amount, I am on my smart phone…I drink bottled water (but buy in jugs)…but I am running the car into the ground!

  11. In order to be in control of your financial life (or business) I strongly believe that you have to understand your cash flow and your balance sheet.

    However, I don’t believe that you need to line item everything into a budget and stick to each line item.

    What we did (until retirement came along) was to understand our required outflows (amount and timing), make sure they were covered by inflows (or save up if they weren’t immediately covered), then think about ‘luxuries’ like eating out or bottled water.

    We also lived off one salary and banked the other.

    When we started thinking about retirement, I used a basic spreadsheet to track 3 years back on expenses and non salary income to see what life might be like with no salary – but we still don’t budget line by line in advance!

    So yes, at a macro level, we understand what we spend each year.

  12. I have always been curious about how much I was really spending, but never knew for sure. I will do this for at least a year.
    Doing this has, so far, been eye opening and enlightening. I am spending more in areas i didn’t realize, and less in areas that i thought I was spending more in.

    I would encourage everyone to do this for at least several months.

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