186 | The Spending Tracking Spectrum

"We need to budget better."

"If we just had a budget, then I'd know what I could spend, and I'd do it."

"How does our spending compare to other people?"

If I had a nickel, for the number of times I've heard those phrases...

But I don't think any of them are the answer.

They are too black and white. Too arbitrary. Too disconnected from reality. Too one-size-fits-all. Too lifeless.

Not only is spending well hard to do, but bad spending tends to undermine all the effort that went into acquiring the funds in the first place.

So, of course, it's a never-ending search for an answer - for everyone.

We can speculate for a long time, but without a doubt, a large part of the answer comes down to some system of tracking, not so you can budget, but so you can reflect.

Because tracking and reflection are the only way to address the two sides of the spending coin - viability and contentment.

But we must be careful and intentional with how we go about it.

Because for some people, tracking spending is the thing that sets them free.

And for others, it's the thing that stops them in their tracks…forever.

Tell me there's nuance without telling me there's nuance.

And where there is nuance, there is a spectrum.

And as long as you're on the spectrum then you can spend well.

183 | A Couple Questions on Second Homes

We all think a second home is about the numbers, but that’s maybe 10% or 20% of the conversation.

A larger chunk of the conversation revolves around the people in your life and your calendar.

How will it impact your existing community?

And I’m not referring to all the people you’ll be able to host, but more so the relationships at risk of being diluted.

Two locations inevitably mean two communities which means both will never be as deep as one community would be.

How will it impact the way you spend your time?

And I’m not referring to all the ways you’ll get to use the new home, but the existing activities and hobbies that will be cannibalized by the new venue.

Even with a time traveling machine, activities in the pre-second home life are going to be squeezed into tighter windows or struck from the calendar regardless of our best efforts to preserve them.

Whether we like it or not, a second home tends to be an either/or more than a both/and.

Not inherently good or bad - just helpful to know when you’re thinking about buying.

179 | “He/She Takes Care of the Money”

So, you experience no financial stress?

No second guessing?

No disappointment?

No disorientation while searching for "enough"?

That feels unlikely.

There is no such thing as one person "taking care of the money".

Maybe one person is more curious - or feels more obligated - to engage in investment shop talk.

But if you spend money, then you are on the "care" team.

There's really no way around it, because our entire financial life is organized around a single, recurring experience.

To be able to spend money now or sometime down the road.

176 | Ratcheting Up Regret

A big home project can make you want to fix everything at once.

"It'll cost more if we come out twice," says the contractor.

"You don’t want to deal with the hassle again," says the neighbor.

"Interest rates might move in next few years," says the lender.

Why stage a master plan when you can do it all at once?

But that ignores the reality of regret.

There's always a chance that you don't know exactly what you want. Or that what you want might change. Or that what you get done just doesn't meet expectations.

And then regret becomes an unwanted squatter in our financial lives.

Every additional dollar spent tends to ratchet up the risk of regret.

Just like every bathroom done today, instead of tomorrow, cranks it up too.

Staging it isn't the same as dragging your feet or kicking the can down the road. It’s certainly not the easy way out either.

But it helps limit the risk of regret even if that cost isn't as easy to measure as the dollars spent.

175 | Leading or Lagging?

A couple of indicators can speak to the quality of our spending – both are hallmarks of the best spenders.

Freedom is a leading indicator – something that can only be assessed before the dollars are spent.

Do I feel freedom to spend even though the future is uncertain?

The tricky part with freedom is figuring out how to feel it when there is no objective way to measure it.

Contentment is a lagging indicator – something that can only be assessed after the dollars are spent.

Given a second chance, would I spend the dollars the same way?

The tricky part with contentment is that your future self will always know more than the prior self that went out on the limb.

We can't forget they are two different questions and they can't have the same answer.

174 | Green Means Proceed

Carl Richards has a saying and sketch that says Profit = Permission.

Profit is the evidence that what you're doing is good and can continue to be freely pursued.

On the other hand, lack of profit is direct feedback that something must change.

Of course, there is insight for our own personal financial lives too.

Spending decisions (real and hypothetical!) come with a financial conscience that pesters us with the question...

Is this responsible?

And oftentimes, we imagine that better budgeting, more accurate projections, or more money will silence the little voice in our head.

But time and time again, we get discouraged by a missed "budget", we get lost in projections, and more leaves us feeling like we have less.

The only practical way that I know to answer the question is to see if the spending will allow you to keep saving.

If green will be gone, pause before you go on.

If you'll still have green, feel freedom to proceed.

167 | The Amazon Box Effect

My hypothesis is that Amazon boxes on the doorstep create more tension in a relationship than bad investment performance.

One person orders something, then the other person sees it on the doorstep, and then the benefit of the doubt is rescinded.

ANOTHER box?

How much did it cost?

P1: What did we get?
P2: I'm not sure what's in THAT one.
P1: You mean you've bought so much you've forgotten what you ordered?

But most Amazon purchases fall in the last one or two $10,000s.

They feel like an easy litmus test for assessing spending, but it's a little bit like using gas prices to evaluate the state of the economy or the president's approval rating.

Just because it's in your face, doesn't mean it's a useful indicator or has to have the last word.

*Thanks to GH for the inspiration on this post!

160 | Why It’s Hard

From the Wall Street Journal on May 19, 2024 at 8:00am...

The Downside of Delayed Gratification

And then a couple hours later at 10:00am...

“What Was I Thinking?” The Big-Ticket Items People Regret

The same publication posting both articles before the eggs in the buffet line can get cold feels less like an ignorant editor than it feels like an unintentionally poignant acknowledgement that it's hard to spend well.

From the first article, “the mere act of saying ‘not now, maybe later’ triggered an instinct to keep putting [something] off and waiting for a better moment” which leads to a “specialness spiral” where you never actually pull the trigger on spending money for special things.

The only way this one could have struck a louder chord with me was if the author had been kind enough to open it with “Dear Richard:”.

And just as I'm really getting stoked about saying “yes” once and for all to special things, the second article knocks the wind out of the sails in two lines, “While it may be true that money can't buy happiness, that doesn't stop people from trying. And then wishing they hadn't.”

On one end, we have regret because we’ve waited too long to spend on special things.

And on the other end, we have regret because we spent and then realized the things weren't as special as we expected.

Woof...

No matter who you are, spending well is hard to do.

155 | The Physics of Spending

Spending is an expectations game, and some spending has properties that are hard to see with the naked eye.

There's spending that begets more spending - the gravity of spending.

The home renovation that demands new furniture and more maintenance.

The neighborhood choice that influences your landscaping, car, and school decisions.

The travel destination that raises the bar on food, accommodations, and activities for every future trip.

The initial decision has a certain gravitational pull that draws subsequent decisions to the new level of expectations.

Then there's spending in motion that stays in motion - the inertia of spending.

Restaurant and grocery routines.

Entertainment preferences.

Online shopping habits.

These come with a certain inertia that allow them to hang around as baseline expectations much longer than we may have originally intended.

The only chance you have against spending gravity is knowing about it before you get to the new planet because it's hard to fight it once you're there.

And a way to combat spending inertia is by experimenting with the thing that is in motion to see if it really has to stay in motion.

149 | The Last $10,000

I glanced at all our credit card transactions from last year and sorted by dollar amount from largest to smallest.

The first $10,000 was spent in ~10 transactions – 10 chances to say yes or no.*

The last $10,000 was spent in ~500 transactions – 500 chances to say yes or no.

If you’re trying to be more intentional with your spending, it’s not going to happen by buying fewer coffees, cancelling your Netflix subscription, or even having fewer Amazon boxes show up on your front porch.

They are all part of the last $10,000 – too many individual decisions with too little impact.

Even when it’s this obvious, I still think it can be a lifelong journey to trust the math.

It seems like this could be a helpful nugget when we’re tempted to evaluate someone else’s last $10,000 too.

*This year, our first $10,000 will be spent in two decisions, because that is how life happens!

148 | Without a Mirror

I asked a client which financial habits were most impactful for them over their lifetime.

With a sheepish look and tone, the client said, “Well, I don’t know, I’ve just tried to glance at my credit card statement most months for the past 25 years and reflect on the past month’s transactions – sometimes it can be sort of fun.”

“Ah yes, that was a great meal with those friends.”

“Oof, that didn’t turn out like I expected – I probably won’t do that again!”

“Oh, I forgot about that one, but I wouldn’t change it!”

No tracking, no budgeting, no judgment, no rights, no wrongs – just reminiscing.

It’s too simple to think it works, until you realize that most people don’t do it.

It’s as if we’re trying to manage our weight, not without stepping on a scale, but without even glancing in a mirror.

146 | Just a Bad Guess

Once you add up what you made and subtract what you saved or spent in certain ways then you can figure out what you owe in taxes.

If you paid less than that during the year, you'll have to pay more at tax time - you didn't "stick it to the government" and you didn't necessarily do anything wrong.

If you paid more than that during the year, you'll get some back at tax time - you didn't "win" or do your taxes any better than the next guy or gal.

In both cases, you just made a bad guess - because you probably couldn't have all the information - and are fixing it.

145 | There Are No Loopholes

When you make money, you pay income taxes*.

If you don’t make money, you don’t pay income taxes.

The fastest way to reduce your taxes is to reduce your income.

But there’s the rub.

We like the sound of less taxes, but not so much the sound of less income.

So we’re left with two choices…

You can spend in certain ways to pay a little less in taxes.

You can save in certain ways to pay a little less in taxes.

But the key is actually saving or spending in those certain ways to pay less in taxes.

There are no loopholes.

*Of course, someone is going to note that you don’t pay taxes on municipal bond interest – so I’m noting it here.

136 | When Things Go South

Debt allows us to keep our blue and gray bars for now by paying for it with a smaller green bar later.

No debt means that we will use our blue and gray bars now and likely have a larger green bar later.

Debt is not innately evil or reckless.

Nor is it an automatic slam dunk or something to do for fun.

Things tend to go south in seasons without blue and green bars.

135 | Don’t Knock It ‘Til You’ve Tried It

It’s easy to be convinced that you should avoid debt.

And if you haven’t learned to save yet, then please stop reading – do not pass GO, do not collect $200.

But if you’ve established a habit of saving (which also means you know how to govern your lifestyle), then debt doesn’t have to be the devil.

Debt, in its healthiest form, helps us spread cost over time – nothing more and nothing less.

And sometimes spreading some costs over time, even onto a future self, gives us the flexibility, cushion, and even relief that some seasons of life demand.

No need to knock it ’til you’ve tried it.

132 | A Friendly Reminder on Paying Taxes

It’s easy to forget that the only reason you pay income taxes is because you made money.

Gratitude for money made or grumbling about taxes paid.

Which one is it going to be?

124 | Spending Observations

Financial wealth you have accumulated means nothing without the context of what you need.

What you need - or expect - is best reflected by what you spend.

Reflecting on a single month of spending is misleading. Reflecting on a year of spending is interesting. Reflecting on a few years of spending tells a story.

Some spending happens on purpose. Some by accident. Some out of obligation. Some with discretion. Some happens once. Some happens over and over again. But it all counts as spending.

Most feelings and emotions around spending point back to two questions - is my level of spending viable? Does my spending drive lasting contentment?

Many "one-time" things can make for one recurring expectation. There is no end to the list of things that we can spend on.

Debt is a tool to spread cost over time, which is a polite way of saying debt allows you to buy something that you can't afford right now.

Paradoxically, debt often decreases contentment, while generosity often increases contentment.

It's easy to think you'll be generous once you have "enough". I think you'll begin to more clearly see "enough" once you are generous.

A good filter for any spending decision is “how will this change my expectations in the future?”.

Some spending is a standalone event and some spending begets more spending - the latter is the one that allows our expectations to change without even realizing it. The former is not as big of a deal as we often tend to make it.

It's easy to think that "spending less" is good and "spending more" is bad - I'm more interested in the non-financial benefits that accompany spending. The best spending leads to non-financial wealth.

A crude quality of spending metric is hours of contentment per dollar spent. Hours spent anticipating and reminiscing can count in the equation too.

Most everyone says they prefer spending on experiences over things, but that's not how everyone actually spends.

Inevitably, you will regret some spending decisions - forgive yourself for them, but don't totally forget them.

Knowing where you spend dollars provides a freedom that reveals itself in the tighter times, "we need to spend less on _________" is a sneaky freedom that is 100x different from "we need to spend less". *If your income has never decreased, you probably can’t appreciate this one.

It's a lot easier to say "no" to 1 thing than it is to say "no" to 1,000 things. Spending $5,000 less on a home or a car or any other big thing is the same as saying no to a daily coffee for almost 3 years.

No one ever built financial wealth by accumulating sign up bonuses for credit cards or getting 5% on travel.

Missing one monthly budget never wrecked anyone's finances. Missing every month's budget probably means you have a bad budget.

A built-in governor for lifestyle creep is to buy (or wait to buy!) luxury items once you have non-wage income.

If you fear seeing the monthly credit card balance, switch to paying it down weekly or even daily for a season. Decreased fear and increased awareness is a good combo.

Trying to predict someone’s financial well being by observing a few spending decisions is about as reliable as a 365-day forecast would be from a meteorologist.

104 | Homebuying Series: No Plans To Sell

Talk to any realtor, contractor, architect, mortgage broker, financial advisor, or friend about a home and the conversation will inevitably move towards resale value.

“Buy the smallest house on a good street…so you capture good resale value.”

“Renovate the kitchen or the bathrooms… because that’s where you capture the most resale value.”

“If we were to do this renovation…would it be good for resale value?”

But…

What if you had no plans of selling?

What if the resale tail didn’t wag the building-a-life dog?

The equation begins to change.

No plans of selling provides a different kind of freedom when investing in a home.

A quirky layout is no longer a flaw that you’re afraid for others to see but instead a feature that is part of the home’s DNA and your experience in it.

A bathroom renovation might be secondary priority to a play space, because the time with kids in the house is limited and a working sink, toilet, and shower are all that kids need if they’re busy having fun.

An over-budget addition might be hard to stomach in the moment, but the dollars spent will become fuzzier with time as the relationships with neighbors deepen and milestone moments in the home multiply.

Of course, this is not a rubber stamp to funnel every dollar you have into your home.

Nor is it a recommendation to cash in all your chips at once or satisfy every single one of your heart’s bougie desires.

It’s more a granting of permission to ask more than, “How will this impact resale value?” when evaluating how you want to improve your home.

What parts of your home will you remember the most as of today?

What parts of your home do you want to remember the most in a few decades?

If you’re not planning to sell and you’re using money to discover the answer to these questions, I think it’s OK to dance with the risk of over-investing in a home.

96 | The Cost of Doing Life

The idea of 3% waste came from a friend who read it in a tweet. I’ve searched to try to give credit, but alas, I have not found the original thinker. I imagine and hope he or she would appreciate this elaboration on the idea if they were to come across it.

The general gist is that there is a baseline level of waste in everyone’s experience with money and…

That is OK.

If you’re wasting more than 3%, you’re probably being a little aloof.

If you’re wasting less than 3%, you’re probably trying to control more than can be controlled.

But for every $100,000 in income a year, we’re talking about $3,000 that will be regretted, second-guessed, forgotten, or just have less impact than originally hoped for or expected.

The 3% figure passes my sniff test, but I’d probably call it the inevitable “cost of doing life” instead of “waste”.

We’re talking about…

The convenience meal that totally disappoints.

The monthly subscription that continues many months past the last use.

The cost of groceries at a tourist destination.

The exercise equipment optimistically purchased only to collect dust in the corner.

The price increase because you waited a few more weeks to buy something that was cheaper when you first started looking.

The hidden fee that presents itself at the 11th hour of a decision.

The list is endless, but the feelings of frustration or disappointment are often eerily similar.

I think the rule of thumb is less a hall pass to freely waste, and more of a clipper for financial hangnails that have the ability to drive us crazy and even hurt if we don’t deal with them and move on.

These things don’t have to go on a permanent ledger to remind us of our mistakes.

They are better used as a mental note that might better inform the next time, and a gentle reminder that perfection is often the enemy of very good.

93 | See Then Spend

Two of our three children have allowance jars. They get $1 per week that is disconnected from any chore or activity within the household.

My wife noticed that the jars tend to accumulate dollars when the kids are not thinking about them, but if the jars are top of mind, then there is always something to buy.

If they see, then they spend.

This feels eerily similar to how many of us still operate our financial household in adulthood.

We look at our account balances and then decide to spend dollars if there are enough there.

Or we look at our account balances and then decide not to spend dollars because there isn’t enough there.

Both modes of operating are just like a kid with an allowance jar - see then spend.

The challenge is that in either case, the money is at risk of driving the decision more than the values.

If there is more, then spend. If there is less, then don’t spend.

I think we all want the freedom to be able to spend or not spend without having to look every single time - decisions that aren’t determined by the dollars.

Of course, I’m not granting permission to spend without ever looking - that inevitably leads to a nagging shortfall of contentment or a perpetual uneasiness about viability.

I’m more describing a special freedom that accompanies a consistent routine of reflecting on spending and saving - without judgment, shame, or blame - that begins to allow values to drive decisions instead of account balances.

We can spend, then we can see.

This freedom isn’t tied to dollars in the jar, but a willingness to exchange 1,000 account balance refreshes or 100 “missed budgets” with 1 honest reflection.

Additional Reading

The freedom loop by Seth Godin