In my last post, I yammered on about budgeting, and keeping it simple. I mentioned how apps like Mint can be a huge help, and they can. But I’ve been taking a closer look over the last few days, and I think there’s a little more to the story, at least for me.
The biggest spending category (both planned and real) on my Mint budget is called “Miscellaneous” ($700). Not so descriptive. In my mind, it’s things like gas and groceries and beer – anything that fell outside the other categories of Storage ($280), Mobile Phone ($120), Internet ($55) and Life Insurance ($40). But after looking a little more closely, it’s possible I am just hiding a bunch of other irresponsible purchases in there too. Is it possible my budget had become too simplified and thus was heightening the detachment I have from purchases, especially those made with credit and debit cards or worse, are automatically debited from our accounts?
Now, at a glance, my budget seems pretty tight. About $1200 per month for everything (I don’t pay rent but I have about $40,000 of debt associated with a home and rental income property I have in Mexico which I am trying to pay off as quickly as possible. I also spend half of my time at a remote work site in Canada and all of my costs are covered while I am here). Which fits the amount in my plan of putting the rest of my income towards debt. So why do I keep failing to meet those goals, and why does my debt linger longer than I want it too?
I decided to do some dirty work and build my budget again from the ground up, using my own spreadsheet. I started by reviewing all my transactions for the last few months on Mint and made sure to account for all of the automatically occurring transactions. These included “Necessities” (which I take to mean “currently unavoidable but far from necessary”) such as Life Insurance ($38.10) and Storage (I have a few things lingering where I used to live in Canada in a much overpriced storage unit still) ($177.45), Mobile Phone ($120), and Internet ($55). Other automatic purchases that I decided to categorize as “Luxuries” (which I take to mean “can be slashed at any given moment if deemed necessary”) include a membership to the Adobe Creative Suite (Photoshop, etc) ($14.65), Apple Music ($9.99), Audible ($19.55) and Netflix ($9.99). There are also a few small monthly charitable donations that I make ($9) and I pay a combined $18.90 in monthly bank account fees. In total, before I’ve spent any cash, at the start of a new month it is guaranteed that of my $1200 Budget, about $475 of it is already spoken for and pre-determined to be withdrawn from my bank account. That leaves over $700 for everything else, which I’ve calculated repeatedly too be a sufficient amount of spending money but somehow I keep failing to achieve. So what other transactions were hiding in there that I had trained myself not to feel?
Well, for one, Interest. One thing we think too little about when carrying debt – especially on credit cards – is Interest. Last month, for example, I paid $232.43 in interest, $186.64 of which came directly from my bank accounts (the others are set to just tack that amount onto the existing loan balance, for me to pay more interest on next month). These are expenses that aren’t accounted for in my Mint budget, and thus get pegged as “Miscellaneous” when I am reviewing my transactions for the month on Mint and allotting them their spots in my Budget. That’s 26.6% of my “Miscellanous” budget which, if you recall, I think of as my every-day expenses type of cash flow. On their own, each of these charges don’t seem like much even if one does notice them in their transactions list. But combined, as you can see, they’re a big part of the reason I’ve been struggling to meet my monthly spending goals.
Further, there’s all sorts of bank fees. Beyond the regular fees, there’s fees such as Overdraft Protection ($4.00) and other things that at some point I guess I thought I needed but am slowly starting to know better. I am calling one bank today to close one of my 3 accounts and have their rewards credit card exchanged for a plain-Jane no-fee credit card. When I have paid the balance of my credit card and Line of Credit with the other bank, I will close all accounts with them entirely ($14.95/month for a standard chequing account). Also, without a mortgage anymore and being single with no dependents, I don’t need the Life Insurance coverage that I have. I have already contacted my provider to set this in motion.
And just by reviewing my transactions a little more carefully yesterday and trying to remove the long-engrained mental barrier stopping me from truly registering many electronic transactions that I make, I have become aware of some of my habits, which will go a long ways in remaining conscious of my spending, and have even identified places to trim some fat. For now, my expenses will be reduced by $49.10. Put away each month to go to work for me in retirement, that $49.10/month will grow to about $33,477 by the time I turn 55*. At that point, I’ll have been retired for 32 years, almost half of my life.
Totally worth it.
Where have you been able to trim some fat just by taking a few moments to look more closely at your spending history? And how much will that add up to by the time you’re 55?* Let me know in the comments.
*Assuming a 7% Annual Return and no inflation