As an alternative to a budget and all its negative connotations, we encourage our clients to undertake a Thirty-Day Spending Review. The purpose of a Thirty-Day Spending Review is not to create a paper chase for expenditures but just to create awareness about spending. We have been spending all our lives and have formed habits that we no longer notice. Not being cognizant about where money goes is a common source of financial stress.
A Thirty-Day Spending Review is simple: track your spending for 30 days. Buy a small spiral pocket notebook and always carry it with you for those 30 days. During that time, write down the amount and nature of each and every expenditure at the time you make it, regardless of how small or large, or how it is paid.made. This includes credit and debit card charges, amounts paid in cash and by check, as well as amounts put on account to be billed later. Everything gets recorded from the purchase of a pack of gum to paying the mortgage.
Review the expenditures every Friday or Sunday evening during the 30-day recording period. There are a number of ways to organize the spending information for review.
The Five-Bucket Spending List
Here is one way to categorize spending as suggested by Ron Blue, founder of a financial planning firm bearing his name with over a billion dollars under management:
- Debt payments: payments to creditors including, among other things, credit cards, car loans, school loans, lines of credit, and mortgage payments.
- Tax payments: payments to taxing authorities including among other things, payroll taxes, and state and Federal income taxes.
- Giving: payments to churches and charities.
- Investments: payments to 401k and IRA plans and to building up a rainy-day cash reserve.
- Lifestyle: payments for everything else.
If you are a couple, the drill is to review and make comments on your own expenditure patterns (hard to do) and not to beat on your spouse for their expenditures (easy to do).
For another perspective on the Thirty-Day Spending Review, set a positive spending goal by which to evaluate current spending. Want to go on a trip to Italy next year? Okay, the trip will cost how much? So, how much must be set aside in a savings account each week to pay for the trip? Now, every time you consider buying something, evaluate the expenditure against the goal. Which is more important? The purpose of the process is to make people cognizant of their spending and open to possible modifications; it is not about beating yourself or anyone else up over individual spending decisions.
Other goals that clients have told me about are:
- finding the money to put an additional $200 per month into their 401k
- finding the money to make an extra $300 payment per month on credit cards
In the course of the Thirty-Day Spending Review challenge, two things will happen:
- Some of the spending will be curbed as a result of the sheer inconvenience of getting out the note book and writing down the amount and nature of every expenditure, and
- Patterns of spending will start to emerge that are ripe for reconsideration.
Many times, modification of spending habits is motivated simply by the number of apparently small innocent purchases that surface. Other times, it is the realization that the same item can be purchased for less with a little forethought. After completing the Thirty-Day Spending Review, if not before, changes in spending will happen simply because you are more aware of your spending.
Media stories that look at costly spending habits have focused on the Starbucks latte every day, but that is too easy. How much are you really spending on lunches? What if you “brown bagged” your lunch every Tuesday? If you and your spouse enjoy dining out, does it have to be every night? What would you give up to “pay” for a particular indulgence that you never seem to have enough money for?
The reality is that if you have no interest in how you are spending your money, how can a financial plan help you make any headway toward your goals? Nothing works in personal financial planning unless each person involved -- beginning with you -- is committed to making it to work.
If you are interested in starting your own 30 Day Spending Review you can download our free printable.
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