Two readers sent me a New York Times story from M.P. Dunleavey that addresses a problem many of us face, especially this time of year. We do our best to set budgets, to track our spending, and to make smart financial decisions, but when we sit down to run the numbers, somehow we’ve spent too much. Dunleavey writes:
I [totaled] the extra and unexpected costs that had cropped up throughout the year: $4,900 for new windows, $3,100 in co-payments for my appendectomy and $1,500 in car repairs.
I deducted those chunks from our total income — and was horrified to conclude not only that some money was missing, but that someone had apparently absconded with $10,000. There was no way we could have spent it.
Was there?
I ran through the numbers again with my husband, and he reached the same conclusion: approximately $10,000 was missing in action. That was the vacation we didn’t take, part of the new roof we might need, some terrific wine we didn’t drink. Now we really wanted to know where that money went.
It wasn’t long before it showed up. After sitting there for a while at the kitchen table, stunned, my husband said, “Thirty dollars.”
He explained his theory. One day, we were about to visit friends and had offered to pick up dessert and wine — which came to about $30 . The next day we had a birthday to attend and a prescription to pick up, and we spent about $30. We took out the calculator: $10,000 divided by 365 is about $27.
It wasn’t that we spent $30 mindlessly every day, but once we started digging for the “we’re not really spending any money” money — a trip to Lowe’s, new shoes for my son, iTunes downloads for my husband, a new work outfit for me — all the little things fell into place.
I’ve experienced this too, especially after receiving a Christmas bonus or a tax refund. Without noticing, I’d begin to spend a little extra here and there. Just a few bucks — nothing major. When I’d sit down to run the numbers, my forehead would get cold and clammy. My stomach would tie itself into knots. How could I have spent my entire $500 tax refund already? It wouldn’t seem possible.
Some experts argue that we should only pay attention to the Big Stuff because that’s where the most money can be saved. I agree that the Big Stuff is important — but I think the Small Stuff is important, too. We deal with the Small Stuff every day. And as Dunleavey’s story demonstrates, Small Stuff becomes Big Stuff in time.
[The New York Times: A little here, a little there and it's gone]
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I’m convinced this is where our money is going. My wife is very fond of “oh, but we’re going to need this eventually” and before I know it it’s another $80 this week at Target or $70 at Wal-Mart or an extra $20 tacked onto the bill at the grocery store.
I try to track our spending but don’t keep up with it enough. I often enter receipts into Quicken 3 weeks after the purchase.
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we just had one of these small things this past week. my wife wanted to go on a spa weekend and convinced me that it wouldn’t cost much because she was sharing expenses with another person. so, i go, ok, that means $x. so we buy the tickets, getting a discount that we were due from our travel agent. bonus! then the troubles began. her friend’s work was now going to pay so she wanted a separate room. great, now all of a sudden the lodging cost is double. too late to turn back since the tickets are already paid for. her friend was then going to drive them to the airport. wonderful save money on gas. oops, can you please drive us to the airport. great, now i’m flipping the bill for gas. so the story goes on and on.
it’s not the last straw that breaks the camel’s back, it is the accumulative weight of all the straw that does.
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[...] One of my personal finance blog favorites, Get Rich Slowly, looks at Sweating the Small Stuff [...]
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I can relate to this! Even though we do have a budget and try to stick to this, a small amount of money seems to be missing every month. Starting in 2008, we will try to solve this problem by having an “allowance” for gas and $20 weekly for other expenses. We’ll see how well it goes….
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I think the notion of “sweat” is a bit problematic: in terms of managing money, it should be “pay attention to”, not so much “worry about”. I always interpreted “don’t sweat the small stuff” as “don’t spend energy worrying about trivia”.
But some dangerously interpret it as “don’t pay attention to daily life”, and end up with all sorts of problems.
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@T: Try making sandwiches with any combination of: turkey, chicken, portabella mushrooms, eggplant, roasted red peppers, marimated artichokes. You can always roast your own pork loin, turkey breast, whole chicken, etc. in order to have high-quality meats. Grilled tuna is a good choice, in addition to the usual tuna salad, etc. Variations on egg salad, chicken salad, are good, too.
Also try varying your condiments. Instead of just mayo, mustard, ketchup, try hummus (very good with turkey), roasted eggplant spread (baba ganouj), red pepper relish (ajvar or romesco), and all sorts of chutneys and other relishes. Mix pesto or chimichurri into mayo; it goes well with turkey or roast beef.
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I think people misunderstand Elizabeth Warren’s viewpoint on this. Professor Warren is an expert on bankruptcy, and her advice is mainly about structuring your financial life in order to lower the risk that bankruptcy and/or foreclosure will happen to you. The problem with the big stuff is that it usually comes with a long-term contractual obligation, which becomes a dangerous weight to be carrying around in this Brave New World of routine layoffs and $5000 health insurance co-pays.
If you or your spouse lose your job, there’s typically nothing you can do to lower the car or house payment, unless you take the drastic step of selling the car or house. You can, however, cut out all of your “frivolous” spending — but only if you have frivolous spending to begin with. So, that habitual “frivolous” spending actually acts as sort of a cushion when things get bad, as long as you don’t get yourself into consumer debt (Warren is very much against consumer debt — she deprecates credit cards in favor of cash).
And that’s a point she makes in both of her books — Americans, in general, are allocating too much of their incomes to “Must-Have” expenses (Big Stuff)– typically by buying too much house for their income. Warren’s nightmare scenario is when a married couple decides to cut out all of the so-called “latte factor” purchases in order to afford a bigger house payment, and at times some financial gurus seem to advocate doing just that.
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I’ve always looked closely at everything we spend. It just seems logical to me. And it amazes me when I hear people talk about things that are “no big deal”. These same people are somehow always struggling or short.
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[...] read an article over at Get Rich Slowly that really resonated with me. Called Sweating the Small Stuff, it points out how $30 a day expenditures can easily add up to 10K over a year’s [...]
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I’ve been slowly narrowing my focus on things, looking to smaller and smaller units of things for cost cutting. I’m down to detailed analysis of my work lunch habits. Grabbing lunch out has been demoted to “I forgot to buy microwavables yesterday” status. I don’t know if I’ll get to the making my own stuff ahead of time mode. I know from experience that things like sandwiches don’t do well if made the night before and I’m not a morning person, every extra second in the morning routine is a burden beyond the imagination of those who are morning people.
Then there’s those unplanned expenses again. I had a problem with a fog bank and a deer and now I am restarting my emergency fund because of paying to fix the damage. (I will get that article finished one of these days, J.D.) Spare time, what is that? Spare money? HA!
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Although I understand the reason for this post, I find it difficult to believe that a couple does not realize how much money they spend until they sit down at year end to tally things up. I have found that if you keep a spreadsheet on a thumbdrive, and regularly visit your account balance pages for your bank accounts, credit cards, retirement plan(s), and mortgage account, you pretty much know how much money you have and get a feel for your spending habits pretty quickly. If someone assigned the task of creating a budget and tracking purchases to you (a friend, work, etc.), I’m sure most people would do a great job. But so many people won’t take the assignment from themselves. I had the same problem with stocks. If a friend or relative asked me what my favorite stock was, I’d tell them, they’d buy it, and make great gains, but for some reason I’d shy away from buying it myself. When I finally realized that I should treat myself with the same diligence and responsibility that I treat others with, my returns increased dramatically. Something to think about.
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“I cannot fathom how a couple can spend 10k in a year and not notice. 30 dollars has always been a lot of money to me.”
Same here. I’ve never even had a formal budget, but I never spend $30 without knowing exactly what I am buying, why I am buying it and that I cannot get it cheaper. And I earn a little over 100K a year. I don’t even spend $10 mindlessly. I can spend a lot more if it is something I really need or want badly, but I always know what I am doing.
$30 is NOT pocket change. $30 will buy you a nice blouse at Ann Taylor on sale. Add $20 to it, and it is a cheap scanner on amazon. There are a number of things one can buy for $30. When deciding to buy something, I found it is useful to think in terms of what else the same amount of money would buy. Really helps to put things into perspective.
OK, so they bought new shoes, attended a birthday party, spent $30 for wine and a present. Did they do it every day? A trip to Lowe? Any trip is a major expense, so you always need to know in advance how much you expect to spend, even if you don’t have a budget.
By the way, where I work there are lots of highly paid engineers and scientists. Yet, there is always a line to the microwaves. Sure, the majority buy in the cafeteria (thank god for that, I don’t want to wait longer for microwaves…), but quite a lot bring food from home. And our salaries are way above national average. Unless you are super-busy, there is absolutely no reason to buy lunch. Besides, home-made meal is usually better and healthier.
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