What I Learned From Reviewing Our Yearly Spending

Every year, for almost 20 years, I have completed the same financial tasks: reviewing the spending for the year that has just ended, updating my (our) new worth, and reviewing my (our) spending goals for the coming year.

I reviewed the net worth and spending goals 2 weeks ago in my yearly financial check-up. Today I go through our yearly spending.

Inquiring minds may wonder: why in the world have been you going through your yearly spending for 2 decades? What you can you possibly get out of this exercise by this point?

The first thing, the obvious thing, is to calculate our spending for the year.

Personally, I calculate our spending by the month, but all I need is a little arithmetic to multiply by 12, and then I have our yearly spending.

Because one of the basic tenets of FIRE is that you can be financially independent once you have a certain multiple of your yearly spending, this is a really important number to know. In the past 7 to 8 years, since learning this principle, I have been particularly interested in calculating our yearly spending.

However, I could figure this out in about 10 minutes, if I just wanted that unadorned number.

Reviewing our spending by category, or even thinking about what category to include, means that I can really look at where my (our) money is going. Which can prompt further reflections, like: is this where I want my money going? Does that seem like a good amount of money to spend on that category? Some years (most years) I learn something new and surprising.

It took a little longer this year, but I finally have a handle on our 2021 spending. As per Mr. PiN’s wishes, I won’t be sharing all the numbers, though there may be some real numbers noted here and there. But I will share some of my thoughts as I look at all of the numbers.

I spent how much on what?

When you are first budgeting, or figuring out where to trim some expenses, this is one of the most useful aspects of reviewing your spending.

I was shocked 12 years ago when I totaled up my spending at Starbucks. I found a way to rationalize it, and I kept going; but I was not entirely pleased with the amount.

Similarly, the year that my Kindle purchases surpassed my spending on real (physical) books prompted some thoughts about being more mindful when clicking the buy now button. Suddenly those daily deals didn’t seem like such a minor expense.

This year I had two surprises waiting for me in my numbers.

One. I decided to add up all the money I spent at that neighborhood bakery, the one that I often either walk to or walk home from. I don’t know if $92 over a year is a lot or a little, but that number did make me think “hmmm.” Is $7.67 a month a fair price for an inducement to exercise, or too much money for simple carbs (but very yummy ones)?

Two. I also was quite surprised by our medical bills. I had an issue at the beginning of the year: I misplaced our FSA charge card. Instead of forgoing prescriptions, I just paid for medications with my personal card. In addition, some bills from 2020 came due after the 2020 FSA funds were used up; they were also charged to my personal credit card. Though the charges from 2020 are not eligible to be paid with my 2021 funds, it’s nevertheless clear that I’m eligible to receive a good of money from my FSA. So I should really take the time to submit my receipts before the end of the grace period.

What we spend on really does change over time.

This is one of the great things about tracking spending over many years. Life isn’t static, and I can see new interests emerge and disappear in my spending.

Example 1. Spending at Starbucks. I started drinking fancy drinks there at the end of residency, and in my first job used my morning walk to the store (1 mile in each direction) as my gym membership. That led to a regular habit, costing $60-90 a month.

Then, apparently in 2018, the Starbucks near work got much slower. There was no time for me to go and pick up a drink in my short lunch hour. So I just stopped.

For this year, we spent $13 a month on coffee, which is probably for the stuff we make at home. I am starting to wonder if it’s even worth breaking out our coffee spending in future years.

Example 2. Spending on the (step) son. For about 5 calendar years, corresponding to the years we supported him in college, he had his own line for costs, which were not insignificant.

Now, thank goodness, he is self-sufficient.

We still spend some money on things for him, but these just fall under the gifts category. And maybe groceries, as his dad most certainly goes nuts at the supermarket when he is expected for dinner.

Example 3. Blogging. When I started blogging in 2018, I signed up with an introductory offer. The costs of starting the blog were more than I expected, but I just threw then into the “misc” section. In 2021, the renewal fees came due, and they were a lot higher. That, plus a few other costs for the website, prompted me to put in a whole other category.

More changes for 2021: Tennis and strength training costs are new or increased, massages and yoga classes are out. Travel was nearly zero (OK it was $12) in 2020, and rebounded in 2021 (though still about 1/2 of our usual spending).

If you had told me five years ago that we would spend as much as we did on tennis gear this year, I would have thought you were crazy. But here we are, and I consider it money well spent.

On the other hand, that amount is just about what we’ve saved as we cut back on expenses that didn’t make sense with the pandemic (massages, going to the fancy locker room at the gym, in-person group meetings).

Perhaps the biggest takeaway is that you just can’t plan on costs staying the same. Not just because of inflation (which is a huge topic of discussion recently), but because life changes.

Who knows what changes the future will bring to our spending choices?

We have a ton of accounts. Not all of them are helpful.

I had mentioned in my other end-of-year post (on net worth) that we probably have too many retirement accounts. Their number been growing over the years, most recently with new IRAs.

Apparently, that’s nothing compared to the bouquet of credit cards we have opened. Each one of which I reviewed for a breakdown of our spending. Thank goodness they all offer a year-end summary one way or another.

I could, in theory, aggregate our spending data in a program like Mint or Personal Capital; but I found so many variations in the labels for different cards that I don’t think this would be helpful. For example, I have a pretty good idea why our gym (community center) spending is categorized as “education,” but I am not clear why Citibank categorizes our grocery store spending as “merchandise.”

Going through each account myself helps me take a stab at getting the categories right. But it’s a pain.

I have noticed that some credit card companies make the yearly review easier than others. Discover and Chase do a nice job of breaking down spending categories for you, and then letting you look at the bills under just one category. Others, like Citi, are less helpful.

Last year, I figured out how to go through my Amazon spending (I love what Ryan Inman says on Money Meets Medicine: Amazon cannot be a spending category). This is super useful now that I buy detergent, grocery staples, and OTC meds for my father in law off the site, in addition to presents and, you know, books. Unfortunately, they don’t categorize purchases, so I just have to go through my purchases, screen after screen, and categorize them myself.

Breaking down expenses could help manage credit card rewards.

Looking through yearly spending by category is a good way to see where (or with which type of merchants) the money is going.

That means I can evaluate some of the credit card deals: 5% back on home improvement stores? I know what we spent there last year—actually, for the last few years—and I can decide if that’s a good rebate for us.

How about restaurants? (More than I thought, but not enough to make 5% a meaningful amount.)

Are we inflating our lifestyle costs or not?

The big question. The first thing I talked about at the beginning of the post, and the key indicator of whether we are getting closer to or further from our Financial Independence Number.

I am pleased to announce that after a huge increase in monthly expenses in 2020, no doubt related to the pandemic, but also related to paying property taxes directly for the first time (long story short: that was not accounted for in prior years), not only has our spending not increased further, but it has dropped back to levels last seen in 2018.

Whew!

Though now, I am wondering if we should be spending more on some categories…

Do you review your spending yearly? More frequently? If so, what lessons have you learned from it?