Evaluate Your Spending To Lead A Fuller Life

As the year ends it’s time once again for us to sit down and evaluate the progress we’ve made towards our financial goals, and to start planning our goals and budgets for the new year.

When I do this it normally involves opening up my Mint.com account and checking how I did on my budget categories, then adjusting them for next year based on where I think I need to spend less money in order to meet my savings goals.

This exercise has worked well enough for me, but I was recently reading a post by Ramit over on I Will Teach You To Be Rich that will change how I evaluate my spending habits going into the new year.

In the post, he lays out three simple questions to ask ourselves about our spending that illuminates the gap between where we’re actually spending our money, and where we’d ideally be spending our money.  They are:

1. Where do I think I’m spending my money?
2. Where do I want to spend my money?
3. Where am I actually spending my money?

It seems simple and intuitive enough, but answer the first two questions before actually looking at where your money has gone over the past year and the answers may surprise you.

My Answers

Where do I think I’m spending my money?

Without looking, I’d say most of my spending was done on the obvious. Mortgage payments, utilities and putting gas in the car. If I stick to voluntary spending, I’d have to guess that I spent the most on dining out and entertainment. These were the two areas I had made a point to try to cut back on coming into the year, but I hadn’t been sticking to my guns on that front as much as I would have liked.

Where do I want to spend my money?

Obviously I don’t want to be spending my money, I want to be saving and investing as much of it as I possibly can. But over the past few years I’ve come to realize that I get much more joy out of spending my money on experiences rather than on physical goods.

I took a 4 day trip to Chicago in the late summer, and that experience will resonate and stay with me much longer than if I’d spent that same amount of money on a new TV or an expensive watch. So I want to focus my spending money on travel, events and other experience type expenditures over anything else.

Where am I actually spending my money?

This year most of my voluntary spending went towards a single purchase, an engagement ring (how did I forget about that earlier!?). If I look at just the things I’m likely to spend my money on on a somewhat regular basis, most of it went towards: Concert tickets, dining out, and clothing.

I’m ok with concert tickets being the top item. They fall under that experience category, and I live for live music.  Next comes dining out which I was pretty sure would be up there. I spent less than I had the year before, but I still spent much more than I would have liked. This will be an area I look to cut back on some more next year. Clothing was the surprise to me. I’m not a person that buys a lot of new clothes, and I didn’t even have a big shopping trip in the past year where I bought a whole new wardrobe. I guess the random item here or there really added up for me this year, because I spent a lot more money on clothes than I had wanted (or realized!).

The Take Away

The purpose of this exercise isn’t to nitpick over your budget. It’s to make you realize that you don’t always need more money to do the things you really want to do in order to lead a more fulfilling life.

If you love the outdoors, you’d probably want to be spending more of your money on hiking or camping trips rather than on movie tickets and bar tabs, right?

I was able to take one short trip this past year. It was great, but it’s the kind of thing I’d like to be able to do more often. So while my main focus is always on saving aggressively and investing as much as possible. I will also be focusing on making sure my spending is on those trips and experiences that will last much longer than the joy of a new iPad, or a dinner out because I’m too lazy to cook anything.

Readers: How do you answer these three questions? How does your actual spending line up with what you place the greatest importance on? 

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Photo: Chicago skyline at night from atop the John Hancock tower. – Jay 2013


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11 Responses to Evaluate Your Spending To Lead A Fuller Life

  1. I like this exercise. I go through a similar one at the end of every calendar year, when my credit card sends me a categorized summary of charges. It’s important to be conscience about our spending……so it matches our values

    • It’s kind of surprising how many people I talk to that really have no idea where their money is going. Have you thought about using a service like Mint.com to track your spending on a more frequent basis as opposed to just once a year?

  2. FI Fighter says:

    I’ve been to Chicago twice this year and really love the city. Like you, I’d rather spend on these experiences than on consumer goods. A lot of the drive to building up passive income is to have the freedom to travel anywhere in the world…

  3. These are three great questions that I need to think about in order to answer. I want to reach financial independence early in life and think I have done a good job on my spending this year, but I haven’t analyzed the numbers for the year so far.

  4. Nick says:

    We just bought a house so most of our spending is going there these days… only a few more projects to go and then… probably a few more… and a few more… and a few more…

    But we’re in no rush.

    And I want to spend my money towards fun money-making ventures. That’s the plan for 2014 for sure.

  5. That’s a great set of questions for goal setting. My spending didn’t exactly come in where I’d have liked as I would prefer to spend my money mainly on experiences, especially vacations. I didn’t get to take any big vacations this year but my wife and I did have a few 3-4 day trips that were great. I think the biggest positive for a budget is that it’ll help you keep on track with what your goal spending is. If you begin to shift your thinking from I can afford this $75 dinner/drink night, to that $75 dinner/drink night is going to keep me from travelling to Chicago or New York, then you’re well on your way to conscious spending.

  6. Elroy says:

    It’s always eye popping to see where your money went. And it is an invaluable exercise.

    My income has more than doubled in 3-4 years (and I was making “six figs” before that). I don’t really watch the small things we spend money on, just the bigger things. I will have to get back to looking at spending monthly.

  7. FatChance says:

    In order:

    Spending Cash
    Purchased car for daughter (Only my portion)
    Eat Out

    I started on my road to FI about two years ago. It was the very first time I looked at what I spent over a year and I was HORRIFIED at the pure waste in my budget. This is NOT wanted I wanted to be spending money on. So here it is two years later and I am in a much better place. Savings is my #1 goal and my number 1 spend. I wanted to start spending cash to feel the pain of spending and that has helped but I cannot catagorize it and I need to work on this for next year. I, too, want experiences over material things so I am glad to see travel so high on my list. Although in 2014 I will try to drive more and fly less to travel as much but not pay as much. The next categories are ones where I need to tweak, but should be pretty close year after year.

    2013 goal:No credit card use. I used a card 3 times but is was when I misplaced my debit card each time.

    2014 goal. Increase savings by $10K. Gulp. Going to be tough.

  8. Pingback: Inspirational Posts of the Week (December 15, 2013)

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