Bottom Line Up Front (BLUF): Reduced spending = faster financial independence. If you want to understand where your money is going to reduce spending then you need to track your spending, summarize, review and take action!
“What gets measured, gets improved.”
Peter Drucker
In the 1970’s a well known consultant, Peter Drucker, said those words. He was speaking in the application of business but the quote rings true in personal finance. If you want to reduce spending to save more, you have to know where the money is going.
I was never taught to track my spending so I’ve run wild with it my whole life. “Affording” something meant having the credit to buy it and having the payment fit with my paycheck income. I looked at it from a monthly cash flow perspective, not how much it was costing me overall. I don’t remember what made me do it, but after 2018 I decided to look back for the first time in my life at my yearly spending. It was pretty eye opening.
2018 Total Spending – $80,998
2018 was the first year that I sat down at the end of the year to see what I actually spent for the year. I was bit shocked. I bought a used Corvette (2nd car) that I didn’t need and paid $17,000 towards it. I spent close to $6,000 on stuff much due to Amazon! I wasted $600 for a cell phone plan that I wasn’t using. I spent $1,300 on optional company benefits (legal advice, accidental death insurance…etc) that I didn’t need or wasn’t using.
2019 Total Spending – $87,377
In 2019 I made changes to not pay for some services that I wasn’t using and knocked down shopping by $1,000. I did however spend $17,000 buying a used car to replace my primary car – a 15 year old SUV that was up for major repairs. We took the vacation of a lifetime to South America for $15,000 that we had saved for and paid in full. Believe it or not we did find some ways to save $3,000 on that trip but this was before I learned about travel rewards. I made a few positive changes, but they were minor.
2020 Total Spending-$66,537
In 2020, I found the FI movement and really started buying into it. I cancelled services I wasn’t using. I packed my lunch every day. I sold my Corvette. It was fun to drive and I had a couple of great years with it! However, it was also expensive, something to constantly worry about and was another thing to take care of. I sold $3,200 of stuff from around the house that we weren’t using on FB marketplace and Ebay. Obviously this little world event called a pandemic reduced some entertainment spending but that wasn’t the only driver.
Housing: Yeah, housing! Yikes. A new roof moved the needle on that one.
Food: Food was a lot less eating out and a lot more groceries.
Vacation: We had a vacation planned for May and paid for some of it before COVID forced cancellations. We also took a trip to Maine in September that was much needed.
Transportation: No more car changes! Selling the corvette reduced insurance and maintenance costs. Gas was far reduced with much more work from home.
Shopping: This is mostly Amazon food and stuff. I need to separate this better for 2021 because it wasn’t as bad as it seems.
Pets: We have an aging pooch and he is starting to have some issues😢. He had a minor surgery, extra vet visits and a bunch of daycare costs.
Healthcare: I finally looked into options to fixing my mild sleep apnea and increasing sleep quality. I had a dental device made and wow, it has been life changing! So much more energy, I don’t snore and I sleep like a rock. Most of the cost for the year was that device and associated visits.
2021 Goal Spending < $55,000
Where do we go from here to reduce spending? Well, we dive into the 2020 spending and look for any areas to optimize in 2021. Then we take action on those areas. Start with the most expensive budget areas and then work down each one. I look for things to cut that don’t add value to our lives and wouldn’t reduce happiness. For example, entertainment such as going to concerts and events makes us happy so I will keep a larger entertainment budget. On the other hand, paying for life insurance only adds value if I have the right amount. I’m wasting money if I’m overinsured.
I make a budget based on the new target spending in MS Excel and then will track to it in 2021 using You Need A Budget (YNAB). I am brand new to YNAB but I’m impressed so far so more to come on that tool in the future.
Items highlighted in yellow are areas of planned reduction in 2021 and reflect the new target values to achieve our goal budget.
2021 areas of focus:
Housing – $26,783 -> $15,103
Okay, this one feel like cheating. A new roof was needed in 2020 so that’s a $10,850 expense that we better not need anytime soon. You hear me mother nature and vermin of the world!?! On the upside it looks pretty sexy if roofs are your thing. In the home repairs category I’ll look for repair vs. replace savings and more DIY opportunities. I didn’t pay for snow plow service this year so we’ll see if I regret that. One could certainly look into more aggressive ways to reduce spending here like rent out a room or sell the house. At the moment I’m not interested in those options.
Shopping – $4,166 -> $1,500
Damn you Amazon prime and your ultimate convenience! This actually isn’t as bad as it seems as there’s a LOT of food related spending included. Protein shake ingredients, running fuel and vitamins make up a lot of it. I will categorize things better this year. That said, I still get the urge to buy something new sometimes. I’ll give the 72 hour rule from the Frugalwoods a shot – wait for 72 hours to think about it before buying non-essential items – and see how that works.
Insurance – $2,167 -> $1,500?
A bit of a downer topic, but important to talk about. How much life and disability insurance does one need? How much when you’re approaching your FI number? I’ll be explore this topic in its own post and look at whether I can eliminate or reduce this expense substantially in 2021. I have a fancy disability insurance policy costing me $1,200/yr and term life insurance for WAY more coverage than I need for $650/yr.
Food – $9,710 -> $10,400
Umm, have you lost it sir? This is supposed to be a post about reducing spending, not increasing it. Yeah yeah, I know. This one looks bad on the surface but I’m actually reducing food spending overall to hit this number. In 2020 I bought a lot of food items on Amazon but called them shopping. It’s a little bit of a shell game but I’m actually challenging myself to reduce overall food spending. Eating out was down with the pandemic but we do enjoy that occasionally so that will go back up. Usually it’s pretty affordable like this deconstructed sushi bowl, a.k.a. sushi trasher.
Actionable ways to reduce spending:
- Track your spending! Use a spreadsheet, Mint, YNAB or something else but you MUST understand where the money is going.
- Lump spending into categories that work for your lifestyle.
- Sort by largest category to smallest by dollar amount. Start digging into each one and look into options for ways to cut down on spending where it isn’t improving your life.
- Keep the goal of the spending in mind when looking to optimize. If your travel costs are high and you want to visit a city for a week, the goal is to experience the city. Where you stay when there is highly variable cost with many options like hotel, AirBnB, hostel, stay with friends and house sit. Thinking about the goal keeps the solution space open to more creative ways to solve the problem.
How did you do in 2020? How are you planning to optimize or reduce spending in 2021?
