This post is from staff writer Sierra Black. Sierra writes about frugality, sustainable living, and getting her kids to eat kale at Childwild.com.
Every month, you spend money you don’t need to. No matter how good your budget is, or how closely you track your spending, something slips through the net.
J.D.’s post last week about casting stones at our friends’ financial choices struck a chord with me. His friend is struggling financially, and yet he’s just bought new iPhones for his whole family. It’s obvious to J.D. that this is a bad financial move, yet his friend seems oblivious to it.
He’s trying to get his act together, but even in the midst of that effort he can’t see that his spending choices are perpetuating his problems. He has huge financial blind spots, areas of his personal finances that are just invisible to him.
We all do.
My own blind spots
When my family was in financial trouble, it felt like we were living as simply as we possibly could. There was no money for luxuries. We couldn’t even cover the basic necessities some months, and we were sinking into debt.
Looking back, though, it’s easy to see how some of the “necessities” we paid for then weren’t really needed at all. Did we have to have a daily newspaper subscription? Two cars? How essential were the swim lessons and music classes our kids were enrolled in? In the midst of that crisis, I spent many nights poring over our budget, trying to find things to cut. Yet somehow I was blind to excesses that now seem so obvious to me.
I assume that I’m still doing the same thing today. I’ve cut the newspaper subscription, and a lot of other major expenses. Our household finances are no longer sinking fast. But we’re still living on a pretty tight budget, and I’d like to be in a more secure position than we’re in.
When I look at the budget each month, it looks so tight to me. We’ve dropped all the extra classes. We canceled all our subscriptions. I’ve slashed our grocery budget in half. What’s left for me to cut?
The simple truth is: I don’t know. Five years from now, I’ll look back on my life today and the waste will stand out like weeds in a garden, but right now I can’t see it.
Finding your blind spots
How can you identify the excesses in your own budget? Here are a few bits of advice:
- Knowledge is power. I’ve said it before but it still bears repeating: Track your spending. When you don’t know what you’re spending your money on, you can’t know if those dollars are well-spent or wasted. Use some system, whether it’s sophisticated software or the back of an envelope, to track every cent that comes into or goes out of your household.
- Ask yourself. As you review your spending, ask yourself a few simple questions about your purchases and expenses. Did I need this? Did I even want it? Did I use it? Was it worth the time and money I put into it? A few careful passes with these questions in mind should help you ditch a lot of the dead weight in your budget.
- Ask someone else. Ultimately, you won’t be able to see into all of your blind spots; you’ll need someone else to help you look at your financial picture if you want to see it clearly. You can hire a financial advisor to do this. If you work for a university or large company, your HR department may even be able to connect you with free financial counseling. If you’d rather take the amateur approach, find a friend who is sensitive and smart, and ask them to go over your expenses for the past few months with you.
Finding the extra expenses in your budget can be painful. Those blind spots are there for a reason. You probably don’t want to know, on some level, that you’re overspending. The places where I still break my budget are entirely emotional ones: I spend too much on my kids, because I like doing nice things for them. I spend too much when I’m sick, or tired, or anxious. I spend too much on dates with my husband, because we get so little time together.
This is why a trusted friend or financial advisor can be such a great weapon against emotion-driven budget busters. Sometimes, we all need someone to very gently and calmly explain that we just can’t afford the new car, or the family vacation, or the sexy boots. That wanting something badly enough doesn’t mean we’re entitled to it, and now isn’t the time to take on a new debt.
Once you’ve cast a light into a wasteful corner of your spending life, do what you can to curb that expense. Cancel the subscription, stop buying the morning latte, take up running around your neighborhood instead of going to the gym.
But accept that you have more blind spots. Do the best you can, knowing that five years from now you will in all likelihood look back on your present life and think, “Really? I spent all that money on that? It seemed so important at the time. What was I thinking?”
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These are the steps we took to get our budget/personal spending under control:
(1) Track all spending via Quicken, when you see where your money is going it is much easier to figure out where one is over spending.
(2) Develop a spending plan
(3) Resist recurring expenses – we try very hard not to sign up for new monthly bills. If we have a bug problem we pay an exterminator for a one time service. If we have a big event coming up we pay a cleaning service for a one time deep clean. We resist lifestyle creep by not signing up for additional services. The only regular service we pay for is a once a week dog walker which comes out of my allowance money (not the family budget).
(4) Use an allowance system. We found it hard to budget for every dinner or lunch out, entertainment expense, etc. so we went with an allowance system, we each have the same amount to spend and when it is gone we can spend no more.
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I’ve found that reading GRS and similar blogs has highlighed at least some of my blind spots. Some of them I’ve acted on (books, chocolate from the vending machine), some of them still need work (I still eat in the canteen most days even though it’s not cheap and the food is pretty awful because I haven’t found a way to regularly make packed lunches with sufficient calories). There are probably others, but I wouldn’t have noticed these without the prodding from reading posts and comments talking about cutting down on similar things.
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I have discussions with many friends that complain about not having enough money, yet they may have a cottage or something really obvious that could be ‘cut’.
However, often times it is the little things that can be eliminated that add up to something big. For instance, one friend of mine stops at the grocery store each day to pick up food for dinner. Whereas I applaud how much she cooks at home, she could do it so much cheaper if she planned her meals ahead of time. I have talked to her about this and she just doesn’t want to change.
So, I wonder. If my friend looked at her grocery spending, would she see it as an opportunity to save more, or would it be more ‘fixed’ because she is already ‘doing everything she can’?
You are definitely right, perspectives can change over time for sure!
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Keeping track of where every penny goes really helps with this. I can look back on each month and then on the year as a whole and know how much I spent on cat litter, cat food, movies, etc. It’s eye-opening to know how much all the tiny amounts add up to each year.
I think one of the big areas people have blind spots are their pets.
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Cutting out a daily newspaper subscription is exactly the type of short sighted thinking that politicians love to employ when finding solutions for problems. You get what you pay for and when the next generation finds that they have “survived” without the benefit of growing up without a daily newspaper reading practice, yes, the hard copy kind where you actually browse the paper instead of the internet kind (where you are paying for the electricity that your computer consumes, and which btw is not a renewable resource like trees, and most likely going to the one or two articles that interest you instead of having an element of discovery in it). We will raise apathetic ill informed generation (or did we already is that the millennials?) A free press was one of the benefits of our fledgling country, but the founding fathers didn’t mean gratis free, they meant free speech free.
I am sure you care about the consequences of the healthcare bill but don’t want to read it’s lengthy tome to dissect it. Likewise you might care about which lobbyists pockets your senator is more familiar with. This is not the terrain of bloggers. If we don’t support newspapers we will get what we deserve, the American public is no bargain either, said Barney Frank. I wonder who reported that?
Other than that I wish you luck with your costcutting. I don’t know how old your kids are, but I would also encourage them to perform chores for neighbors or get a paper route to pay for their extras. I did that since I was 12, and today I’m debt free with a sizeable savings account, and living within my very meager and very below average income, contentedly even. Oh yeah, and I subscribe to three papers (so I guess I am picking up your slack ; ).
Good luck to you.
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In teaching first time buyers, I advise my students to look for places where their spending doesn’t agree with their values. There will always be someone out there telling you to cut something more.
I wonder why people pay for cable. Other people look at me and wonder why I pay for electricity. People who live on canned soup bought with coupons for 25 cents wonder why others buy organic vegetables and meat.
If we look for the blind spots that aren’t in line with our highest values, we’ll probably be happier.
When we’re looking at our tracked expenses, it might help to pretend to be a stranger trying to learn about us by reviewing our receipts. What does this person value based on where they spend?
If Sierra thinks her blind spot revolves around her kids it might just be that raising happy and healthy kids is one of her highest values. So the blind spot might not be spending too much on the kids. Instead, look to see if the spending is really supporting your values.
Chiot’s Run would probably see me as someone with a blind spot regarding my pets. But if I know one of my highest values is living harmoniously with a well-behaved and well-adjusted dog then training classes might be a very appropriate expense. Cute toys that please me more than the dog? Not so much.
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It seems like it would be easy-peasy to find your financial blind-spots as a blogger – just post your real-life budget and ask. I guarantee you there will be hundreds of responses on how you can fine-tune it, people like to offer that sort of advice.
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If the budget is really that tight where you are down to cutting $15-20/month items just to make ends meet, it is time to revisit your large expenses…namely your house(s) and car(s).
Downsizing either (or both) of those has a much more dramatic impact than “swatting at flies” with the smaller stuff. Plus, downsizing those large items is often compounded by reduced upkeep and taxes.
For example, moving to a less expensive house not only decreases your property taxes, but probably will also reduce your monthly utilities, time for upkeep, etc.
Downsizing your car will also generally reduce your taxes, insurance, and gas requirements, especially if you go from an SUV to a passenger car.
For some reason, people agonize over piano lessons and newspaper subscriptions, but ignore the two behemoths in their budget.
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Good points, and well taken. However (since you specifically mentioned music lessons) it is also valuable to keep in mind that one person’s blind spot is another person’s groceries. I am a music teacher with a very small studio (fewer than 10 students) and from a PF perspective, I’m REALLY glad my husband has a good job. Otherwise, I’d be screwed. What I make from lessons literally buys the groceries. Because of the economy, I have fewer than half the students I did a year ago. I could go into a very detailed rant about why music lessons are really not any more of a luxury than eating is, but that would be way off topic. LOL.
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Let’s talk about goals for a second. What goal is it you’re trying to accomplish with this extreme financial minimalism you’re practicing? What is it that you’re working towards that’s more important than your kids being able to swim?
You say: “What’s left for me to cut?”
I ask: “Why do you need to keep cutting?”
“Five years from now, I’ll look back on my life today and the waste will stand out like weeds in a garden, but right now I can’t see it.” This implies that five years from now you’ll be alive and healthy. You didn’t say “if we can make it another five years, because we’re on the verge of financial ruin…” The health and safety of your family is just assumed, so I ask, what are you really gaining by this minimalism if you’re going to be OK either way?
“Every month, you spend money you don’t need to.” Yeah, this is true. This is where “quality-of-life” comes from. There are people in the world who don’t do this, because they absolutely can’t. They’re subsistence farmers in Africa (as an example). They tend to live in poverty, die young, have high infant mortality rates, and in general, it’s not the sort of lifestyle these people would choose if they had the opportunity to switch with one of us. The bare minimums of what’s required for survival are hardly a condition that people enjoy, so why would you imply that is the perfect goal that you’re striving to be closer to?
I just don’t get how this minimalistic cutting of everything makes your life better when you’re already on financially solid ground.
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Swim lessons for your kids are essential. It could be the difference between life and death.
Just one more example of where frugality can sometimes cross the line into stupidity.
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Sierra, you are absolutely right that tracking spending is the best way to find those unnecessary expenditures.
I’m generally quite good at minding my money, so I haven’t tracked my spending in a long time. Perhaps it’s time to do it again.
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My favorite way to find blind spot is to post ones budget on the msn money board. There are so many diverse viewpoints, some I disagree with, that some will find something, if it can be cut.
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Subscriptions were a big thing for me, at one time. I still receive quite a few magazines, but all but three come with various memberships (USAA, AAA, Nature Conservancy, Sunset (comes with state parks membership), IDEA Fitness); the only ones I pay for are Men’s Health and Yoga Journal (deductible business expenses), and The Week. I had to sit down with myself and get clear that design and architecture and art magazines were not moving me forward in life, and therefore not worth the time and money.
I wrote recently about my theory of ‘selective application of intelligence’ and I think this is one of those things. We all do have our blind spots; it is just plain hard to be an objective observer of your own life. So I agree wholeheartedly that getting an “outsider” on board to help you look over your budget can be very helpful.
BUT you have to be willing to see what they point out and really consider whether it’s wasteful or not. If you’re not willing to even consider that what you’re spending may be excessive, no outside viewpoint will help.
As with a commenter on the grocery thread who wouldn’t even consider whether the experiment was worth doing.
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We’re thankfully in a position now where we have enough money that we don’t need to worry about cutting things. (We did our “gazelle-intense” time “living like no one else” and thank goodness that time is over. More than anything else, I enjoy not having to think about where every penny is coming from or going.) We’re pretty good on living a lower middle class life-style by default on an upper middle class income.
But I probably need to do a time audit. Do people on the internet really need to know my every thought? Am I spending my free time in the ways I want to be spending it? Or maybe my morning blog checks have benefits on my productive time that I’m not aware of. It’s hard to say. But like buying help from a fee-only financial counselor takes money, it would take time for me to figure out how I’m mis-optimizing. Still, it’s probably worth it… just as soon as these dratted last-minute deadlines pass.
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Great article! I think this is one of the greatest benefits that a financial advisor can bring – and why I am on the path to be one.
Sometimes – like other things in life – it can be very easy for us to see the danger zones in someone else’s finances, but we can miss them in our own.
That’s also why I love reading pf blogs, because some of these articles serve as a wake up call for me!
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Great reminder post! I keep up with our spending in an Excel sheet and we review it every couple of months to see what can be cut or what we want to add and what would need to change to add it. It really works for us!
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Just don’t beat yourself up too hard. Five years from now, sure your current blind spots will stick out like weeds but you’ll have new ones too!
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It might not always be a Financial Blind Spot though. There does come a point in your life when you CAN’T cut out anything more, because you’re down to the bare minimum needed for survival. The only solution at this point is to Increase Your Earning Power.
I’m pretty much in this spot right now. I’ve cut pretty much everything out of my life that I possibly can (no vehicle at all, no TV, living with parents, and I just have a computer/internet because my freelance job depends on it), but there isn’t anything left to cut. The only solution for me is to increase my earning power, which I’m desperately trying to do.
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The best way to find your blind spots is to use a point of comparison. Even if you do an excellent job tracking your expenses, it can still be very difficult to know whether or not you should be spending less in a particular category. For example, you may be able to establish that you spent $10,000 last year on your transportation expenses. Is that too much or not? It’s hard to know.
To help solve that problem, I’ve been working on developing benchmarks that people can use to gauge the appropriateness of their spending levels. On average, Americans spend about 15% of their net income on transportation. So if, in the above example, your net income is $70,000 or more, $10,000 is probably not too much to spend on transportation. But if your income is much less than that amount, perhaps you could cut back there.
Naturally, there are plenty of reasons to spend more or less than average, and you need to weigh them in developing your budget. But for many people, these benchmarks can provide a perspective you can’t get anywhere else.
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JD, there is no longer a link to the comments of each post on the front page of the blog; we are having to click permalinks to get to the comments area. Just thought I’d let you know in case it’s a little buggy back there!
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Oh that is so true. It’s always easier for others to see things, it seems. One thing that I find helpful if I want to identify the unnecessary is to start with what is truly necessary *to live*. Everything else is technically an extra.
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I can’t say how many times I’ve heard a friend or acquaintance say something like “we’ve already cut everything that we could” in reference to their budget. More times than not those are also the same people who have a $120 cable package, netflix, $100/month cell phone bill, and spends impulsively on things they don’t need. Yes, we’ve all got blind spots to a degree, but in my opinion in many cases it’s a willful blindness – they don’t want to see their spending problems – because it would mean they have to stop.
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@Everyday Tips: Why do you assume your friend is incapable of keeping a running inventory of ingredients in her head? I know I am capable of it, as are most people I know. I shop a couple times a week, much as your friend does. This allows me to eat what I feel like, without going over my food budget at all. I have successfully done this through college, crap sustenance jobs, and good times as well. Sure I may miss some micro-optimizations from doing it all at once, but this is more than made up for with three things:
1. I can then catch daily specials, and further, I can get the half price meat which is on its last day before “sell by”. This is a significant price advantage.
2. I am not stuck trying to decide what I will want to eat a week from now. This saves me a lot of wasted food, as I just don’t eat stuff that doesn’t sound good that day. If i try and guess too much in advance, I end up throwing a lot away, or being angry about eating something I just don’t want to eat.
3. I enjoy the whole process of cooking — from ingredient selection on up. It counts towards entertainment and decompression as well as food, so the lower spending there more than makes up for any minor benefit which could be potentially gained from shopping your way.
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I cut out my blind spots by putting almost all of my money in savings and I never touch it. It’s for a car and a house. I have a couple of regular bills a month – Internet and car insurance – and that’s it. I have a little bit that I allow myself to spend on anything I want, so I don’t feel too confined and that’s it! Pretty simple and very effective.
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I agree on the comment above about grocery shopping. It works better for me to shop on a day to day basis, because I never know what I’ll feel like eating a week from now. Meal plans don’t work for me for that reason. When I try to shop in bulk once a week, I end up with wasted food because I never felt like eating X that week.
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Everytime I get my budget under control…Apple comes out with a new iPhone!
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I doubt that any of us can say that we have no financial blind spots–there’s simply too much out there to keep up with it all.
The key is to do something about it after identifying it/them.
I know what mine are, but have not yet done anything about a few of them.
That’s the key…
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I’m in this process now of pouring over our budget looking for ways we can cut. The reason for this is that we are not currently bringing in enough to support our current budget which includes two “underwater” investment properties we purchased a few years ago at the height of the market (newbies). Fortunately, we have savings as a result of an inheritance in 2007, but we are obviously not trying to spend all of it while we’re ramping up in our sales jobs. I find myself rationalizing when thinking about giving up things. I gave up “x”, so why should I have to give up “y”? I’m also procrastinating about calling Chase to see if we qualify for the Making Homes Affordable Program because I know what I’m in for. That would probably have the biggest impact on my budget.
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Tyler – my reason for cutting when I don’t “have to” is that by cutting out the non-essentials we now have a plan to retire at 55 while still travelling regularly in the meantime.
We both earn good salaries but because we live the way we do, we comfortably live on about 55% of our take home pay. Yes, we could easily have cable, eat out regularly, buy new cars, have a housekeeper and a lawn service. We could also pay just the required amount on our mortgage and put only the recommended 15% into retirement savings. If we did those things we’d do just fine in many people’s eyes. And as a result we’d retire comfortably at 65. We’ve decided that cutting the non-essentials and retiring 10yrs earlier suits us better.
Instead we’ve decided to invest at least 30% into retirement funds and wack down the mortgage asap. We buy used cars with cash, shop at thrift stores, brown bag our lunch, rarely eat out and haven’t had cable in 20yrs. Don’t get me wrong we live in a lovely home we built ourselves. We built for less by doing most of the work ourselves and inflation has taken care of the rest. We have $170k left on the mortgage and the house is worth something just over $500k. Paying off the mortgage fast is critical to our early retirement plans. Our one splurge in an otherwise frugal life is travel. Every year or two we take a major trip. In 2008 we spent a month in Europe (Italy, Greece, Turkey, Germany). We’re still finalizing the plans for this year but we’re leaning towards a month in France, Spain and Portugal. Next year it’s looking like Australia.
Yes, the international travel is counter productive to retiring early but we’ve consciously decided to travel now while our kids are still at home and at a age where they’ll get something out of it. But that’s the point for us. We’ve cut out a ton of other stuff that we can easily afford but isn’t important to us so that we can retire early. We could retire a couple of years earlier if we didn’t travel now but we’re okay with that.
If you’ve got all the bases covered financially and can afford some luxuries in life and that’s what you want then go for it. The point of getting out of debt is that you have choices.
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I experienced this recently. Tracking our spending using mint.com showed me visually how much we were spending on categories that seemed sacrosanct, like childcare, and pet-related expenses. “Well, we HAVE to have childcare,” I said. “We HAVE to buy cat litter.” Then I had to ask myself, ok so we NEED those things, but do we have to pay SO MUCH for them? So we cut back on childcare hours, and switched to a budget brand litter. And it’s made a huge difference. I’m going through the same painful process with our grocery budget… oh, it’s hard to say no to some of those things. But it must be done.
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