The subheading of the title of my blog says The Ups and Downs of Learning How to Buck the Consumer Economy, and largely to date since I wrote that, it's mostly been down. I’ve been failing miserably.
I’m really, really good at tracking my spending; I just suck at reining it in. But I think I’ve finally figured out how to fix that and that’s what I want to write about today in the hopes that it helps somebody somewhere.
For instance, I can give you my total household spending per annum for the last three years, and tell you the average monthly spend, and give you the percentage increases year over year, but I couldn’t tell you why it increased when it’s supposed to be decreasing and I couldn’t tell you what I spent it on or why it keeps increasing.
I have been budgeted $2,500 a month for handling the everyday household stuff for several years now. In that $2,500 dollars I include the savings I have to take out every month in order to handle the annual larger bills like the house and vehicle insurance, the firewood delivery and annual wood stove cleaning, and the big one, which is the property tax. I also save for incidentals like vehicle repair, and house maintenance. When the fence blew down a year or so ago, the new one came out of my household savings (and largely wiped it out, I might add). I started with $300 a month and over the course of the years, I've bumped it up to $700 a month, which was really close to our monthly house payment at one time, and makes me very grateful that we don’t have one anymore because I would be in big trouble if we did. As it is, I’m struggling to manage things within my household allowance and largely failing at it, I'm ashamed to admit.
At $2,500 a month, which is $1,250 every pay period, I have only $30,000 per year with which to work, which is actually a lot more than I’d like to be spending. I’d really like to keep it at $24,000 a year, and I had wanted to ratchet my monthly average down to $2,000 a month in order to do that, but instead of my spend going down, it keeps going up. Likely you’re thinking, well, that’s because everything in sight is going up in price, which is somewhat true, but it doesn’t account for all of it.
For instance, in 2014, I spent $31,144.39 with a monthly average of $2,595.37, which wasn’t too bad, but was definitely over budget. Then in 2015, I spent $33,022.30 with a monthly average of $2,751.86, which was a six percent increase over 2014. And in 2016, I spent $33,715.12 with a monthly average of $2,809.59, which was a two percent increase over 2015. Clearly, the problem was that I needed to 1), recognize that the problem was me, and to 2), get a grip on myself!
|Total for 2014:||$31,144.39|
|Monthly Average 2014||$2,595.37|
|Total for 2015:||$33,022.30||6% increase|
|Monthly Average 2015||$2,751.86|
|Total for 2016:||$33,715.12||2% increase|
|Monthly Average 2016||$2,809.59|
But it didn’t get any better. In January of this year I spent $3,607.81, and then in February I spent $3,771.13! What the hell?! Well, okay, January was largely because of going to Phoenix for Thanksgiving (I count the current credit card bills as part of the spend for the month in which I’m paying them, not the month I’m actually spending the money; it simplifies things greatly), and February’s spend was the result of Christmas, and then also in December we had to get the dog spayed which was around $450, and then had to get a barium series done on her which was close to $700, so in truth, January and February were not really within my control. But I realized quickly that if I didn’t get a grip on things right away, there was no way I would come in within budget by the end of this year. And since I’ve already spent well over budget for the months of January and February, I needed to fix it quickly.
So I thought about it. And then I figured it out.
Starting with my $2,500 allowance, and taking out all the fixed costs, like the electric bill (which largely does’t change because we’re on solar - more on that later), the average for the garbage bill, a reasonable average for the natural gas bill, my $700 savings bill, and the city’s bill for water, et al, I determined that I have $190.41 in non-auto-paid bills, which gave me $1,609.59 as my adjusted monthly allowance.
I next removed all the bills that hit the credit card as auto-paid charges like the cable bill, the phone bill and a supplemental insurance bill. I averaged the phone bill, and rounded up the cable and insurance bill to the nearest dollar, and that gave me my FAMA (Final Adjusted Monthly Allowance), which is $1,442.59. And that was the magic number. That is the number to which I have to manage our cash and credit card spend in order to make budget every month.
|24||periods||$11.82||PGE (grid connection charge)|
|$30,000.00||annual housekeeping allowance||$60.00||avg Northwest Natural|
|$2,500.00||monthly allowance||$93.81||City of West Linn minimum|
|-$700.00||monthly savings||$24.78||WL Refuse (billed bi-monthly @ $49.56)|
|-$190.41||total non-auto bills <----->----->||$190.41||total non-auto bills|
|$1,609.59||adjusted monthly allowance|
|$1,442.59||Final Adjusted Monthly Allowance (FAMA)|
|(from which everything else, including food and gas, vacation, etc., has to come)|
And so far it’s working; in March I spent $2454.56, and in April I spent $2,417.42 (all the monthly bills for April are paid and accounted for, and the only ATM withdrawal for this month’s cash, which was actually debited yesterday, have also been accounted for), which is below budget. The big trick for me to keep an eye on my current spend was to take my FAMA and keep a running tally in big pink letters and numbers at the top of my spend tracking spreadsheet. It starts with my FAMA, removes my cash and credit card totals as I spend them and which I track scrupulously, and gives me the remaining spend I have left for the month. And since I’m tracking it through the credit cards (we use only two), I track spend from billing close to billing close, including the cash; I don’t track it by calendar close. It’s probably weird, but it works for me. But having it all in big pink figures made a huge difference for me.
|Number to which you have to manage:||$1,442.59||Current CC charges and cash:||$486.78||Money Remaining:||$921.46|
The above shows that I currently have $921.46 left, which seems like a lot, but that has to last until the 13th, which is billing close for the MC, the card we use the most. The Visa closes on the 15th.
I mentioned earlier that while figuring out my FAMA, I take a reasonable average for my natural gas and phone bills, the former of which I pay manually and the latter of which I pay automatically on my credit card. When we go over on a bill for something that I’ve accounted for already like this month's electrical bill, I add the difference to my credit card tracking and label it, because it’s what I’m looking at all the time. I could just as easily add it to my cash tracking, but the point is, I’m spending extra, so I’m tracking it. It has to come from somewhere and that somewhere is my FAMA, so I have to track it.
And here is where things get a little squirrely and I hope I don’t lose you. I actually keep two columns for my MasterCard bill, because I figured out that I needed to. Originally, I was keeping a running tally on my MC spend because I reconcile it every month with the billing statement. But if I kept only one tally, I was double dipping on the auto-charged stuff because I’d already taken them out to get my FAMA figure. So I keep one column to track my spend, in which I don’t enter auto-charges, and one column in which I do track auto-charges to be reconciled with the bill. To date, I’ve been putting the bill differences in the ‘manage spend’ column and not the ‘match to bill’ column, but as I’m writing this I realize it would really probably make a lot more sense to put it in the cash tracking, since it's really coming out of the checking account, so I guess I’ll start doing that. It doesn’t really matter in the long run as long as I track it somewhere and be consistent about it.
|MC - Autos||MC - Bill|
|Use this column to manage spend||Record this column and match to bill|
|(Do Not include auto-charges)||(include auto-charges)|
* this is a doctor bill which comes out of FSA money, so I don't count it in my spend
** this is that monthly insurance bill that auto-charges, which is why it doesn't get counted in my spend
Once I fill up the first column to be filled I'll take the record totals for each column and move it up to the top cell of its respective column and work from there until billing close.
Speaking of cash tracking, that’s a little squirrely as well. But it works. For my annual and monthly average spend tracking, I just note the amount we’ve removed from the checking account, because in the larger picture, that’s where the rubber hits the road.
For my monthly get-a-grip-on-it-Paula spend tracking, I track the minutia, like $2.00 for my library fine, and $1.99 we spent at Costco for Steve to get a slice of pizza one day. Keeping an eye on the minutia is how we got all the way to the 23rd of this month without making an ATM withdrawal, and by the way, we had zero ATM withdrawals for the month of March. If we don’t spend it this month, we probably won’t have to make a cash withdrawal next month, which should help next month’s numbers look better.
We actually don’t really spend a lot of cash, but that’s because we don’t make any money spending cash. We use our credit cards for just about everything because those lovely credit card companies like to pay us to use their product. The only way this works is to use a credit card that pays you to use them, and this is key, to pay your bill off every month. (According to something I read a long time ago, people who pay their bills off in full every month are known in the credit industry as deadbeats. So I'm a deadbeat. I can live with that.) We’re able to do that because we track everything and treat our credit cards mentally like a debit card, which works, because you know, eventually you have to pay the piper. For emergency situations, or even planned expenses we take money out of our savings account, but we put everything on the MC and pay it off every month.
Right now we’re running everything through Citibank; our Citibank MasterCard pays us a total of 2% (1% when you use the card and 1% when you pay your bill) which we have found to generally be the best deal out there. The other card we use is the Citibank Visa that is associated with Costco, which is also a pretty good deal. The Costco Visa has a tiered reward system that includes 4%, 3%, 2% and 1% on various categories, and we could do a lot better on our rebates than we do, actually. We even have the tiers noted on our smart phone; we just never remember to consult it when we’re shopping. It’s also possible that we could do better on willy nilly various retail credit cards, but keeping things relatively simple goes a very long way to keeping one’s sanity, so we don’t sweat it.
One thing that I am going to sweat, however, is that for this year, I am still hugely over budget to date. Out of my $30,000 annual allowance, I have only $17,748.08 left to spend, which means that I have only $2,218.51 a month instead of $2,500 a month with which to work. This means that if I’m really going to do it this year, I’ll have to adjust my FAMA again. Which is okay. The only way to be successful at life is to keep adapting. I’ll just have to adapt to spending even less.
The only thing I haven’t really covered here is how I actually got a grip on my spend. That required some good old-fashioned belt tightening. No, not that kind of belt tightening; we’re not going hungry, although I did determine that for the February-March billing period, I spent $940.96 on food, which was way too much for only two people! What finally did it for me was to realize that things were never going to get better if I didn’t start behaving myself. So I stopped misbehaving.
I decided that I needed to adopt the old-fashioned maxim of paying as you go, and saving up for larger things. For instance, I have a sewing project in mind, but it’s going to be kind of expensive. So I bought part of it in February (for which I paid in March) and part of it in March (for which I paid in April). There is one more piece of it to buy, but since I don’t plan on wearing it until next fall, I’ve decided I can put off purchasing the last piece of it until later. We have registration costs at $107 apiece coming up on two vehicles this month and next, so I’ll probably wait until June at least to buy the last piece of the project. The last piece would also commit me to the project; if I change my mind about it later, I can still use everything else I bought for something else. The point of all this is, I’m consciously making decisions about what on which I’m spending my FAMA. And I am making myself wait.
There are financial independence people out there who insist that you have to really decide between wants and needs in order to rein in your spend, and that when you decide that you need something, it helps to put off the purchase for thirty days in order to determine for yourself if it’s a need or if it’s really a want. I’m being honest with myself and with you; that’s way more disciplined than I’ll ever be. I recognize that I am a somewhat emotional buyer (Really? Somewhat?), which is kind of funny because by trade, I’m a buyer and emotion has nothing to do with buying for a business. For me, it just makes sense to think about things and to keep my expenditures on the small side, and don’t do them too often. Maybe eventually I’ll get to the point where I can put off purchases for thirty days, but maybe I won’t need to. Right now I need to figure out how to squeeze everything into $2,218 a month. If I can do that for the remainder of this year, then I can certainly get our annual spend down to $24,000 like I wanted.
I realize this post was kind of dry, but I hope it was helpful to some of you. If it was, or you want to share some of your strategies, I’d love to hear about it.
Sorry about the illustrations being so crappy; I could not for the life of me figure out how to get this information into my post any better.