How much are you spending?

Can you tell me how much per year you spend on groceries or cable TV? Or how much money you charge each year on your credit cards?

If you don’t know, you are not alone.

What’s important to many of us is what we can have right now, not what we can have later on.  So it makes sense that our spending habits function much the same way.  We worry if we have enough cash to get a cup of coffee in the morning, not whether we can really afford the habit in the first place.

(I was spending $30/week on my regular fix of coffee and a pastry before we started paying attention. Not only did I blow $750 that year, I gained 8 pounds.)

One of the other reasons we spend money is to soothe ourselves.  This is especially dangerous if you are unhappy with your life, either personally, professionally, or both.  “But I deserve this for all the hours I put in at work,” you might say.  Or perhaps we justify that a new outfit will help us find a mate or that shopping with our girlfriends on weekends is a bonding experience.

Warren and I worked crazy hours in jobs with a lot of responsibility, so on weekends we were carefree with our money to make up for it.  Expensive wine, lunches and dinners out, weekend getaways, or just random shopping trips could easily rack up hundreds of dollars a weekend.  All in an effort to soothe ourselves from working too hard during the week.  It’s crazy when I think about it now, but back then it made perfect sense.

In our last post we talked about the importance of knowing how much money you need to realize your dream.  On the flip side, it is just as important to know how much you are spending today so you can merge those two numbers into a budget that works for you.

Avoiding it won’t make it go away

After my divorce 9 years ago I went on an avoidance spree that cost me $32,000.  Don’t get me wrong – I had a LOT of fun that year in a new city with lots of great experiences waiting for me.  What was not fun, however, was spending the next 3 years paying off the $16,000 that went on credit cards and loans.

I looked for all the easy answers, including a debt consolidation program.  While I don’t necessarily recommend that route (more on that in a later post), what I do recommend is the first thing they had me do:  Write it all down.

Hard to believe I was competent enough to manage 50 people and travel the country meeting with executives for my job but I was not savvy enough to actually list out my debts and try to find a workable solution to my financial problems.

When Warren and I started dating I was already working on my financial recovery and a little bit scared to mesh it with a guy who was also recently divorced.  But because we were both chastened from out of control spending  in our previous lives we did pretty well at keeping our debt under control.   Our spending was still too high and unnecessary, but when you can pay it off every month you learn to justify it.  More on that when we talk about necessary/unnecessary expenses in a future post.

How your spending affects your dream

I’m not against spending, and you shouldn’t be, either.  What you should be against is the kind of spending that takes you further away from your dream for just a moment of pleasure.  When I think back, that $6/day on coffee and pastries only bought me a short period of pleasure followed by a long period of pain (the weight gain and impact to my budget).  There is nothing that coffee and pastry did to bring me closer to my goal.  But to be honest, at that point I didn’t really know what my goal was.  I spent so much time soothing myself for all my hard work that I didn’t really have time to think about the bigger picture.

Think about your spending for a moment.  Is it working toward your bigger dreams, or could it be preventing you from getting there?  Are you so caught up in debt and spending that you haven’t had time to think about what you really want?

Your homework

What I’m about to suggest to you is going to be tough to do.  But on the flip side, it is going to be incredibly liberating when you are done.  You will know exactly where your money is going on an annual basis, which makes it easy to see what is most important to you.  If you don’t like what those numbers say, it is up to you to change them.

Getting real with your money

• Take out all your statements and receipts for the past 12 months.  If you bank online this should be pretty easy for you to do.
• If you have daily habits in cash, be sure to specify those (lunches out, coffees, etc.)
• Document your spending by category on an annual basis and then divide by 12 to get your monthly spending.  Dig deep in your credit cards and spread those balances out among the categories, too.  Don’t just call it “credit cards.”
• Remember your occasional expenses like car repair, property taxes, and healthcare costs and annualize them by adding them up and dividing by 12.
• Use this budget spreadsheet to enter your monthly totals per category.  Don’t worry about income or making it all balance out yet.  Just enter your monthly expenses – all of them.
• Now that you’ve added it all up, it may be a good time for a walk around the block or a stiff drink.

Are you happy with what you see?  Is is helping you move forward to your goals or holding you back?  Are you surprised that you spend that much every year?

Credit cards and loans make it easy for us to overlook how much we actually spend every year.  And for those of you who just realized that you spend more than you make, stop hyperventilating.  You have the power to do something about it now.

In the next few posts we’ll talk about how to set up a budget, online resources for managing your money better, and how to live a great life while you save money to realize your dream.  Because I’m all about living well right now, even while on a budget.  I am no martyr and will never suggest that you be one, either.

I’ll leave you with this one thought:  If we had not gotten control of our spending and eliminated our debt, we would have never been in a place to even contemplate taking this trip around the world.  In other words, our spending could have prevented us from even entertaining the idea when it came up.  And the closer we get to making it happen, the bigger tragedy that seems.

I want you to have what I have – and then some!  So get started on your homework and meet me back here with your results.

This is the part of a series called How We Saved Enough Money to Change Our Lives and How You Can, Too. Click here to get all the posts delivered directly to your email inbox or feed reader.  You’ll want the inside scoop on how we saved $75,000 for the adventure of a lifetime!

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Betsy Talbot writes about carving the lifestyle you want out of the life you already have. When she’s not writing, she’s paring down, saving up, and getting ready for a year of travel with her husband Warren.

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