by David Riedel
“We need to make budgets. We need to stick to those budgets.” You’ve heard these phrases countless times.
Sure, we need budgets. But it’s hard to know what to budget for when you don’t know what you’re spending. There’s the stuff that’s easy to remember: Rent and/or mortgage, parking (if you live in a big city), utilities, clothing, groceries, eating at restaurants, whatever. All the things we do so frequently we think have a good idea what we’re going to spend from one month to the next.
But seriously, you probably don’t know what you’re spending. I didn’t. I was living in New York in 2009 with my then-girlfriend (and now-wife) when we went to dinner with two of her friends, a married couple she’d known for years. They each had one of those tiny Moleskin journals in which they wrote the prices of their drinks, food, and all taxes and tips.
When I asked why they were doing it, one of them said, “We’re hemorrhaging cash and a friend in finance suggested we write down literally everything we spend for one month to see where the bloat is.”
I thought it was bologna until years later my wife and I were hemorrhaging cash (to borrow a phrase), and needed to figure out a budget we could stick to. When we realized that aside from our mortgage and car payments we didn’t have a clear picture of what we were spending our money on. We borrowed their one-month tracking plan and expanded it to three months.
Frankly, one month isn’t enough. Things change. For example, it should come as no surprise that there were a lot of lattes being consumed that could have easily gotten the axe. But we didn’t realize how much fruit we were buying and then watching rot instead of eating it. We thought we ordered takeout or went to a restaurant twice a week. In reality, we averaged four times a week. I had a pre-paid public transportation card that I was wasting money with because I drove to work more often than I took the train. The utilities changed month-to-month, so we were able to come up with an average that was pretty accurate.
The big surprise? Parking tickets. By the time we tracked our spending we had moved to a notoriously parking-strict city, and the meter maids were hammering us without mercy. After we figured out the city was taking a decent chunk of our dough for crimes against it, we adjusted our parking habits and had a reasonable idea of what we could expect to pay if we ran afoul of the burgh again.
Each time we have a big life-altering event, we break out the tiny Moleskin and do it all over (last year we welcomed our second child), then break the money going out into separate categories: A) Permanent expenses (the aforementioned mortgage); B) Temporary expenses (diapers, for example); and C) The unforeseen. We arrive at a monthly number for unforeseen expenses by averaging the three month pattern and extrapolating for the year, then breaking it down month by month.
The process sounds long and arduous, but it’s not. Just a few months ago we found a huge expense that we were kind of ignoring: Replacing landscaping eaten by the local deer. It’s a lot easier to deer-proof your yard than it is to buy new arborvitae each spring. Try the three-month tracking method, and you’ll find ways to save you never thought possible, and you’ll have an excellent budget road map, too.