Wasting Food Was Not an Option
Growing up in the Cummings household, there was one big rule all the kids had to follow – you eat everything on your plate. Dad never ordered anything at restaurants, he simply was the garbage disposal of whatever we left behind.
Wasting food was not an option. Why? Probably because his family didn’t grow up with much. Growing up the eldest of six with a single mother and limited food in the pantry formed a certain perspective for my father. (Join me for the podcast, and I will share about the famous Cummings family garbanzo bean canned dinner tale)
I remember sitting at the dinner table for some two hours (or at least it felt that long) because I was stubborn as a mule (and still am) and refused to finish my vegetables. That was the rule, don’t leave the table until you finish.
Meal rationing doesn’t skip a generation. Just ask my wife. When we have guests, I always try to calculate exactly how much food to prepare; I agonize over what the right portions are. An annoying trait for my family to endure, I’m sure.
It was my middle child’s first birthday, and I was responsible for ordering the food. I think you know where this is going. One tray of Chic-Fil-a chicken minis absolutely wasn’t enough. Whoops! I think my mother-in-law might have had to make one or maybe even two trips back to replenish the spread.
Some people are anxious about not having enough for their guests, I sit in the camp concerned about having too much. Yet, as this birthday celebration proved, it’s probably better to overestimate the needed supply rather than underestimating it. We all laugh at it now, but it was both embarrassing and a point of contention with my wife when it happened. Sorry, honey.
This leads us to today’s financial lesson. I want to dive into another underestimating disease that plagues many financial plans.
Sure, many financial plans I see created by other practitioners overestimate returns, but an equally damaging truth is how much investors underestimate their own expenses. Not maliciously, not intentionally, but rather ignorantly.
So, how do you go about figuring out how much you spend? There really is no shortcut, you have to keep a finger on the pulse. You need to track your spending.
Here’s what I’m not saying. I’m not saying you need a budget. You may need one, but I’m not giving that blanket advice. I think budgeting works great for some and not for others. Yet, I feel absolutely comfortable saying everyone does need to know how much they spend.
My very first, Thoughts on Money
The first Thoughts On Money article I ever wrote was on this very subject. I talked about how awareness is so key. Simply knowing and being aware of how much you spend (1) will have an impact on your spending habits and (2) will prepare you for planning how much you need to save to satisfy that spending for when you are no longer earning income.
Awareness has this way of naturally getting us to modify our behavior. If you are keen on losing weight and the menu lists the calorie count of each item, that knowledge/awareness will modify your ordering behavior.
Let me say this. As much as I am writing this article for you, I am also writing this for myself. I built up a great habit of tracking my spending for many years. Yet, over the last couple of years, I’ve let that routine lapse. I let a bunch of other life priorities crowd out this habit, and I’ve become quite disconnected from that faithful process I was once so committed to.
I tried to outsource this process via a bookkeeper, but it just isn’t the same. I don’t have my finger on the pulse anymore, and I’ve lost touch with the cadence and spending rhythms of my family. So, my dearest readers, I’m committed to changing this. To practice what I preach. I’m committed to itemizing my spending starting this month and each month going forward. It’s such a simple and healthy financial habit that everyone should partake in.
With that said, if you put me on the spot and asked how much we currently spend, I’d try to do some quick mental math, but I bet my guesstimate would be a gross underestimate. It’d be my little boy’s birthday party all over again. Why are spending figures so hard to compute in your head? It’s because you start trying to add up your utility expenses and your mortgage, but you forget the one-off expenses that are both varying and often. When you bought a new car, replaced your AC unit, supported a new charity, renovated a bathroom, etc.
For savers aspiring to retire, these underestimates become a big issue. Your planner might’ve concluded that you could retire based on the spending figures you provided, but most planners aren’t adding a 30% premium to that estimate (although maybe they should). Your nest egg is limited, it can support your lifestyle within certain guardrails, but each balance sheet has a breaking point when you overload the expenses and compound that pressure over 30+ years.
In our peak earning years, we tend to grow our income year-over-year. So, in turn, we grow our lifestyle commensurately year over year. Nicer restaurants, eating out more regularly, upgrading vacations, taking more vacations, etc. Yet, many financial plans assume that retirement spending will be less. Really? Less travel and less entertainment? I’d probably challenge that assumption. With the benefit of more time on your hands and a habit of growing your expectations and taste buds, I’d assume that your expenses may continue to creep up year-over-year in your golden years.
Your financial plan shouldn’t pencil in for the most modest lifestyle you can bear. Rather, it should target that cadence and spending rhythms that you are most familiar with. Hence why you need to know exactly what you ACTUALLY spend, not what you THINK you spend.
Perhaps, the greatest impact of your financial plan
At this point, if you’re telling yourself that you’re up for the challenge, take my encouragement and make this a routine rather than an experiment. Tracking expenses for a single month is a start, but it won’t solve the riddle. Spending can be lumpy, which is why you’ll need a whole calendar year of tracking to have a grasp on what those averages really look like.
Now, some habit experts out there are probably pulling their hair out, saying, “You can’t try to get someone to do this for a whole year!” Yes, I’m throwing baby-steps and eating-an-elephant-one-bite-at-a-time out the window. You need to be aware of your spending, so you do need to itemize/categorize transaction by transaction to get this healthy vantage point. It will take you 5 minutes a day or 30 minutes or so a week.
Honestly, this might be the simplest financial practice that also has the potential to make the greatest impact on your financial life. And, if you take me up on my challenge, there will be a lot of unintended benefits to this financial reviewing routine. A thorough understanding of where you spend your money, along with a good grasp of what your daily calendar (where you spend your time) looks like, can tell you a lot about yourself. Knowing what we devote our time and finances to can be a very introspective process; we get an opportunity to reconcile who we aspire to be with who we actually are today.
Ok, I think that’s enough for today. You have quite the homework assignment to get started on. As always, reach out with all comments and questions. You can find me at firstname.lastname@example.org