Working Wealthy – Where Does the Money Go?
Have you ever asked yourself, “where does all the money go”? I’m fairly certain you probably have at least once or twice during your lifetime. Most people leave the question dangling and then pour a glass of wine or unwrap a chocolate.
However, you cope with the idea of understanding your spending, you should be commended for at least considering the question. It is a well-known truth within the practice of personal financial planning that controlling your outputs allows for financial success on several different levels.
Even with that aside, why should you care? What does it matter? Understanding your spending matters whether you have more money than you’ll ever need or need every dollar you have.
If you’re still with me, I will offer you a little hope. Figuring out how much you’re actually spending is not the drudgery you might imagine. Consider these three options (descending in order of detail) to help understand your relationship with your money.
1. Your Tax Return is a Fountain of Truth
Taxes are unpleasant. We all have to pay them, but I have yet to meet someone that enjoys the process. However, your tax return can be a quick and easy way to understand how much money you’re using. Starting with a big number can be useful, and taking your Total Income (Form 1040, line 9) and subtracting your Total Tax (Form 1040, line 24) will give you that number. From there, you can divide that number by 12 and pretty easily start to see how much money you are using monthly.
2. Go Back in Time
If you use a credit card or checking account for most of your expenses, consider going back to your old statements or even transaction history to parse out your spending. Start by breaking down your spending into big categories. Do not get caught up in the detail of Whole Foods over Safeway. It’s just groceries. Most financial institutions will have transaction history going back many years. Focus on a year in which your life was typical—no large outlier expenses—and use that data to start to breakout where your money is going.
3. Track It
There is no one way to track your spending; however, tracking it in real-time is a great way to start. Consider using any number of online platforms or apps for tracking your expenses. Be wary of any app or website that shares your data with third parties or tracks your personal information. Without endorsing one application over another, you would be wise to research the more widely used methods and only share the information you wish to track.
For example, my family’s app for tracking household spending only tracks what amount we use on our credit cards. Our checking information is totally private as I do not wish to share my income data.
Your recognition of how you use your money is a healthy exercise. Let’s remove the guilt and pain from figuring it out and look forward to learning from the process.
In his role as Wealth Manager, Nick is primarily responsible for introducing prospective clients to BDF. Nick has served as the head of BDF’s Financial Planning Committee and has participated on the Business Owner Team. He is passionate about the goals-based planning that BDF does for its clients and enjoys focusing on the behavioral aspects of decision making. Nick is a CFP® professional.