For nearly three years, I’ve chronicled my adventures as I learn about money management. I’ve dug myself out of debt, quit my job to write full time, and begun to build wealth. But how well do I practice what I preach? For the most part, I follow my own advice.
I believe there are two components to building wealth:
- Reducing costs
- Boosting income
Doing one or the other can help you meet your goals, but to really succeed, you must do both. My goal has been to create a significant positive monthly cash flow. I’ve managed to do this. But as my income increases, so does the temptation to spend more. Have I been able to fight the urge? It’s time for the annual review of my largest sources of discretionary spending:
- Comic Books (2005: $2810.52, 2006: $3202.91, 2007: $897.08, 2008: $550.51)
- Although I use comics as a prop for laughs at Get Rich Slowly, I’ve genuinely struggled with my spending on them in the past. Not this year. I made vast improvements in 2008, actually spending less on comics than I had planned. There are two reasons for this. First, I’ve narrowed my focus, collecting only those titles I most desire. I’m also making an effort to read all of the books I’ve bought but never finished. These two changes have helped me to spend less on this hobby.
- Books (2005: $1049.91, 2006: $657.96, 2007: $702.73, 2008: $404.49)
- At one time, I spent over $200 a month on books. Now I spend less than $40. I’m content with this number, especially since many of these are for our monthly book group. One reason my inclination to buy books has decreased is that I’m able to purchase personal-finance books through Get Rich Slowly, the business. (Plus authors and publishers send them to me for free.) This gives me a never-ending source of reading material, and makes me less inclined to spend time in a bookstore. And again, I’m trying to read books I own but have never finished.
- Entertainment (2005: $478.81, 2006: $543.55, 2007: $1094.83, 2008: $897.91)
- This number isn’t as bad as it seems. It includes two Decemberists concerts for me and Kris, and it also includes some of our television viewing. (Remember that Kris and I cut back to basic cable, and now we watch TV through Netflix and through the iTunes Music Store.) There’s also a one-time $236 event here that ought to have been a business expense. I’m not unhappy with my spending on Entertainment.
- Pets (2005: $397.76, 2006: $471.03, 2007: $625.52, 2008: $378.75)
- Many personal finance writers view pets as an unnecessary expense. To me, $35 a month to keep four cats is a bargain. It only costs me about a quarter a day for each animal, and they bring much more joy to my life than that. If Kris would let me, I’d be the “crazy cat lady” on the block. (Are there “crazy cat gentlemen”?) Note that our actual pet expenses are greater. Kris pays for their food, and that’s not reflected in these numbers.
- Food (2005: $5290.06, 2006: $5060.04, 2007: $4108.55, 2008: $5522.00)
- which includes Dining out (2005: $1648.63, 2006: $2018.81, 2007: $2051.93, 2008: $2628.08)
I knew going into 2008 that this category needed some work. I didn’t do a good job. In fact, I managed to reduce spending in nearly every other category except for food. Looking closely at the numbers, however, I’m not that worried. Over two-thirds of this spending occurred during the first half of the year, just after I quit working at the box factory. For those first few months, I was still getting adjusted to working from home alone all day, and often pestered Kris to go out to nice restaurants in the evening. During the last quarter of the year, I only spend $445.72 dining out, which is about our 2005 level.
- Vice (2005: $1055.33, 2006: $768.95, 2007: $431.89, 2008: $924.79)
- This includes wine, liquor, pipe tobacco, poker nights, etc. I don’t smoke regularly, but I do smoke a pipe maybe a dozen times a year. Most of this expense is for alcohol at dinner parties and social gatherings. My alcohol consumption did increase during 2008, which is a concern, but that’s not the reason for the increased spending. For the first time ever, we bought a couple of cases of wine. This will actually reduce the “wages of sin” in the long run, but it bumped the number for 2008.
Although this report is interesting, there are problems with my methodology. For example, I’ve included my grocery spending above (although it’s not really discretionary), but have not included spending on exercise equipment (which is discretionary). Also, Kris pays for much of our grocery shopping. Because we keep separate accounts, her share of that expense isn’t reflected in these numbers.
In order to be consistent from year-to-year, however, I’ve elected to continue reporting the same expenses in the same ways. You’ll have to take my word that the figures here are representative of my spending as a whole. This annual report is sort of like tracking a stock market index, I guess. It doesn’t reveal nuances, but it’s still a useful indicator of the Big Picture.
For those keeping score, here’s my discretionary spending on these categories for the past few years:
- $11,082.39 in 2005
- $10,704.44 in 2006
- $7860.60 in 2007
- $8678.45 in 2008
So despite cutting back on the areas that are really important to me — books and comics — my spending increased last year. And most of that increase came from dining out.
What’s interesting to me is that we actually dined out less often in 2008 than in any of the past few years. But with rising food prices and a taste for fancy restaurants, my spending soared. Take a look:
- In 2005, we spent $1423.39 to dine out 100 times, for an average cost of $14.23.
- In 2006, we spent $1869.58 to dine out 108 times, for an average cost of $17.31.
- In 2007, we spent $2051.93 to dine out 84 times, for an average cost of $24.43.
- In 2008, we spent $2628.08 to dine out 77 times, for an average cost of $34.14.
We dined out 23% less often than in 2005, but our average meal cost was more than twice as much! I’ve been complaining to Kris that we don’t eat out often enough. Maybe we can do so a little more often if we curb our expensive tastes. It’s time for more Mike’s and less Gino’s.
In reality, my total expenses in 2008 — which includes everything, and not just those listed here — were the lowest they’ve been since I started tracking them. This is because I have no more debt payments, because of my continued campaign of frugality, and because I’m now working from home.
But here’s a confession: I expect my discretionary spending to rise in 2009. I don’t think it will rise a lot, but it will increase.
Recently I’ve embraced two tools, the balanced money formula and the adult allowance, both of which have help me to see that money isn’t just something to be hoarded. Now that I’ve paid off my debt and accumulated some savings, it’s okay to use money to do things that make me happy. The trick is to never again allow my spending to get out of control. (It’s going to be important for me to continue to fight impulse purchases, for example.)
Remember: there’s nothing inherently wrong with buying things that bring you joy. Problems arise when you finance these purchases with debt. If you’re meeting your other financial goals and have money left over, it’s good to indulge your interests and passions.