Thursday, April 9, 2015

Savings Challenge, Week 6: Spending journal

Last week, the 52-Week Savings Challenge topic at Bankrate.com was an idea that I'd already considered and rejected as unhelpful. This week, by contrast, the savings challenge is unhelpful to me for exactly the opposite reason: it's something I already do all the time, as a matter of course. The challenge is to "keep a weekly 'spend' journal," meticulously tracking every dollar you spend over the course of the week. Doing this, according to the experts quoted in the article, helps you see exactly where your money is going and where you might be able to cut back. The idea is that once you see how much "that daily Starbucks Frappuccino or sushi lunch" is costing you over a whole week—or, when multiplied by 52, over a whole year—you'll realize that this money could be put to much better use.

According to Michael McCall, one of the experts quoted in the article, this exercise is useful because "most people truly do not know where their money is being spent and the volume." However, I know for a fact that I'm not one of those people, because, as I noted last week, I always track my spending anyway. I started doing this back when Brian and I were courting and used to fly across the country to visit each other. We decided to keep track of all the money we spent on these trips so that we could split the cost evenly between us. Later, when he moved in, we took to doing the same thing with our household expenditures: we kept a list on the refrigerator door on which each of us would jot down anything we'd purchased that the two of us would share. At the end of the month we'd total up what each of us had spent, and whoever had spent less would give the other a check for half the difference. So by the time we got married and started drawing all our funds out of a joint account, we were already in the habit of writing down our expenditures, and we decided to keep it up, only in one column instead of two. This written record proved to be handy for all sorts of things, like:
  • Remembering where we'd bought something in case we later wanted to return it—or, by contrast, to find another one that matched
  • Working out a budget, because we already knew roughly how much we were spending each month in different categories
  • Estimating how much we spend each year and how much we save, so we can track our progress toward financial independence 
  • Comparing our spending to that of other households, so we'd know how good a job we were doing of keeping our expenses in check
We have even, once in a while, used the information from this tracking sheet to rein in our spending a bit. For instance, after a couple of months of totting up the cost of our habit of eating out every Thursday night before Morris dance practice, we decided to shift our schedule around on Thursdays, having an early dinner before driving down to Princeton for practice. (This turned out to save us time, too, as the traffic gets lighter after 6:30 pm.) We didn't save as much money this way as Bankrate reporter Jeanine Skowronski (I swear I am not making that name up), who discovered when she took the challenge that she's spending over $4,000 each year on restaurant lunches, bottled water, and Gatorade, but we still made a nice little dent in our monthly food budget.

At this point, however, all those wasteful little habits that were hiding in our spending record have already been ferreted out and fixed. So while it would be quite easy for me to take this week's challenge, just by doing what I'm already doing, it's unlikely I'd learn much from it. So instead, I'm going to to use this week's challenge as an opportunity to take a peek at my results so far for last week's challenge (the "financial fast"). I decided that, rather than buy nothing but "necessities" for a whole month, I would instead track my spending as usual and sort it into three categories: definite necessities, definite luxuries, and sensible investment purchases. (This last category is for things I don't absolutely need, but which will be very useful in the long run.) Here's my spending list for the first week in April, broken down by category:

NECESSITIES: $126.53 (81 percent of spending)
  • April 1: bottle of body wash: $5.76 
    • bottle of skin lotion: $8.16
    • groceries: $12.53
  • April 2: facial sponge: $1.92
    • cat food: $31.02
    • groceries: $7.97
  • April 3: OTC medicines: $33.28
  • April 6: groceries: $8.37
  • April 7: orthotic insoles, vitamin pills: $17.52
LUXURIES: $1.05 (1 percent of spending)
  • April 6: candy, $1.05
INVESTMENTS: $27.75 (18 percent of spending)
  • April 3, new battery for Brian's watch: $4.50
  • April 4, new beard trimmer for Brian: $23.25
    • pens: $1.07
As I noted in my previous post, some of these purchases were kind of hard to classify. For instance, should the skin lotion I bought to treat my KP be considered medicine, which would make it a definite necessity, or is it really a cosmetic, which would be a definite luxury? I ended up taking my cue on this from a report on luxury spending covered on the Conversable Economist blog, which classified all "personal care" products as necessities. Thus, I treated all the products I bought last week to help get my KP under control as necessary expenses.

I could have treated Brian's new beard trimmer (bought to replace an old one with a gradually failing battery) as a "personal care" expense as well, but I decided that since it takes the place of a trip to the barber, it really belongs in the category of "apparel and services." The report treated spending in this category as "indeterminate," neither obvious necessity nor obvious luxury. (Wearing clothes of some sort, unless you live in a nudist colony in a very warm climate, is clearly a necessity, but replacing them as often as many people do is clearly not, so it could go either way.) I think it's a good example of an investment purchase, because it's not something we absolutely needed; even if you concede that a neatly trimmed beard is a necessity, the old trimmer was still technically working; it just took all day to charge. But the new one will save him a lot of time and annoyance, and the old one was definitely not long for this world anyhow, so I think it made sense to invest in something more reliable. (Every cordless trimmer he has ever owned, regardless of brand, has died within a couple of years due to battery failure, so this time we just went for a corded model.)

So basically, the only thing on my list that was clearly a luxury item was the marked-down candy I bought at the Rite Aid on Easter Monday. I could have fudged this by calling it a "grocery" item, but I decided that since it wasn't bought at a grocery store, it didn't really count. So my rule for the rest of the month is going to be that all food bought at grocery stores, even sweets, counts as "groceries" and therefore necessities—but food bought anywhere else, including restaurants, coffeehouses, vending machines, and non-food stores, is a luxury.

So far, then, necessities have accounted for most of our spending, while outright luxuries have accounted for only a tiny percentage. Of course, there are still three weeks left in the month, so that may change, but if I were making the call at this point, I'd have to say that we're doing a pretty good job of avoiding unnecessary spending. Which, if you think about it, might just make us living proof that this week's challenge—tracking your expenditures—really works. We've been doing it regularly for over ten years now, and we've got mindless spending pretty much licked.
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