Relationship with Money
A blog that knows money is more than numbers
191 | The Spending Tracking Spectrum: Level 4
We'll call this the "Storytelling Level" because there's finally enough detail to tell a compelling story about where our money goes.
This level sharpens the focus of Level 3 without the unwieldiness of Level 5.
And it's an ideal landing spot if you want to be more intentional.
The outcome will be something like...
I spent $6,500 this month – $800 was taxes, $900 was giving, $100 was professional fees, $500 was medical, $1,500 was fixed home costs, $300 was utilities, $300 was car, $500 was variable home costs, $900 was food, $300 was kids, $200 was gifts, $100 was fun, and $100 was travel.
Of course it's more effort than Level 3 - because of the categories.
But it's also more informative than Level 3 - because of the categories.
The tiny bit of categorizing pushes us to reflect on contentment, not just viability.
Because we're capturing the character of spending, not just the amount.
This is the first level where the money story in our head begins to interact with the money story on paper.
Which can affirm where we're heading or help turn us around.
190 | The Spending Tracking Spectrum: Level 3
We’ll call this the “Rudy Level” because we’ve moved from watching from the sidelines to playing the game.
There's a chance you might need some "walk-on" energy to make the leap to this level too.
This is the first level with groups, but it's only three - enough to help us acknowledge what we can and can’t control without torpedoing our efforts.
The outcome will be something like…
I spent $6,500 this month – $1,500 was income dependent, $2,800 was less discretionary, and $2,200 was more discretionary.
The first group is spending that increases when you make more money.
For us, these are taxes, giving, and professional fees.
You don't need to beat yourself up when you make more money, you're more generous, or you invest in your career.
The second group is spending that's fairly set in stone or would be painful to change in a big way.
For us, these are medical, some home costs (mortgage, property taxes, and home insurance), utilities, and car.
A handful of decisions in these groups tend to cement lifestyle expectations. And another handful are just a result of how the cookie crumbles.
The third group is spending that is the simplest to change and where most of the color of life resides.
For us, these are all the other home costs, food, kids, gifts, fun, and travel.
Often, these are small, but common purchases. And they tend to differ the most from year to year as preferences and seasons of life change.
At this level, we're more focused than Level 1 and 2 without the effort of Level 4 and 5 - a fine place to land if you’re trying to make sense of ballooning spending.
189 | The Spending Tracking Spectrum: Level 2
We’ll call this the “Fisherman Level” because we’re only talking about the big ones.
Glance through the transactions from Level 1 and begin to note the largest ones.
The outcome will be something like…
I spent $6,500 this month – $1,500 was the mortgage, $500 was a car repair, $800 were flights for a weekend trip, so everything else was $3,700.
Allow your natural curiosity to govern how far you go, but know that the risk here is getting lost in the weeds.
As you glance, you’ll start to appreciate what’s actually moving the needle and slowly whittle down the black hole of "everything else".
Going forward, notice how the total changes. Notice the individual items you've highlighted in prior months. Even notice how “everything else” is changing each month too.
For most people, this is as far as the venture needs to go because further adventure will lead to injury.
188 | The Spending Tracking Spectrum: Level 1
We'll call this the "Caveman Level" because there is so little to track that it could go on a rock wall.
Add up the withdrawals from any active bank accounts (this will inevitably include what you paid towards any credit cards) for the past month.
The outcome will be something like...
I spent $6,500 this month.
Notice whether it feels like a number that is larger or smaller than you expected.
If you’re feeling wild, glance at some of the bigger transactions and ask yourself, “Would I spend it again under the same circumstances?”.
Remembering that "under the same circumstances" is not the same as "based on what I know now".
Pat yourself on the back because Level 1 is a higher level of tracking than most people.
Repeat this for as many months as it takes for it to feel easy and constructive.
If this is the highest level you reach, it still counts as tracking your spending.
187 | The Spending Tracking Spectrum: Richard's Rules
Having no system for tracking spending tends to "work" for two groups of people:
- Those with income that dramatically exceeds their spending, OR
- People who are resigned to being perpetually stressed out about finances.
For the first group, the level of income tends to address concerns of viability, but not necessarily contentment.
For the second group, the experience is as peaceful and predictable as driving a car with a broken fuel gauge.
But tracking spending is not the same as budgeting. It's less emotional and more practical.
A few basic rules can allow you to track without losing your mind...or a relationship.
Richard’s Rules
- Start with Level 1 and only proceed to the next level once you feel like a master of the current level.
- Never skip a level - most frustration comes from trying Level 4 or 5 when Level 1 or 2 is all you need.
- If you progress to a level and become overwhelmed, then return to your prior level knowing that you've found the bookkeeping equivalent of your favorite cozy sweatshirt.
Richard's Reminders
- Any tracking tool will work – usually the hunt for the best tool is a clever way to procrastinate, AND
- Reflecting on...monthly spending is mostly useless, annual spending is interesting, and multiple years begins to tell a story.
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.
185 | Unlocking Golden Handcuffs
If you spend all your income, then those handcuffs are solid gold, and the key is going to be hard to find.
But if you've been able to spend less than you've made, the key is probably in your pocket.
Financially, the key isn't much more than building up some cash, and pursuing a level of income that comes close to covering your spending (no dramatic lifestyle cuts needed, but probably no big additions for a brief period too!).
A few break-even years never killed anyone, particularly when you move from something you've grown to hate into something that's closer to what you love.
Emotionally, it's going to be recalibrating to account balances that feel more like a glassy lake than an ocean that keeps delivering wave after wave of new funds with each payroll run.
And that's going to be the hard part - the feeling, not the funds - especially in a world that likes metrics and struggles with intangibles.
But if you cringe at the work you do.
Or the culture of your company is deteriorating.
Or your remote work arrangement has been pulled out from under you.
There's a pretty good chance that a few break-even years will do less harm than trying to gut it out with your hands behind your back.
184 | Spokes and Hubs
Investment management. Insurance products. Tax planning.
These are the spokes that our industry has turned into hubs of our relationship with money.
By marketing them. By charging for them. By discussing them ad nauseam. By making them more complicated than they ever needed to be.
When you try to make a spoke the hub, the bike won’t go.
That’s why we still struggle to answer the timeless, nagging questions…
What counts as progress?
Am I being responsible?
Am I doing this the right way?
How will I know when I have enough?
What does financial independence feel like?
We can answer these questions when we continually revisit where we’ve been, where we are, and where we’re trying to go.
We need the right hub, so the spokes can be spokes.
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.
182 | Creating Space
Everything you need is at your fingertips…
Good questions to reflect on.
Endless lists of pros and cons compiled by strangers.
And all the potential tactics your heart could desire.
But access to these things isn’t valuable.
The value is in creating space to actually reflect on the questions, in order to personalize the pros and cons, which inevitably clarifies if any tactics are needed.
Too often, we chase tactics based on someone else’s pros and cons without creating the space to reflect on the question.
181 | The Primary Question of Each Recession
The stock market is a lot like humans - it’s not big on uncertainty.
When the future feels less certain, the stock market and its underlying businesses tend to decrease in value.
When the future feels more certain, they tend to increase in value.
Of course it's this way because “the stock market” is only the sum of humans’ perceived uncertainty about the well-being of the world’s businesses.
Most of the time, one person’s uncertainty is offset by another person’s certainty, so we get negligible changes in the value of the entire market.
But one or twice a decade, there are single questions that make almost everyone feel uncertain…
2022 - Were we too optimistic about our rebound from COVID?
2020 – How many people are going to die from COVID?
2008 – How many people made a bet on or were debtors to a bad mortgage?
2002 – How many companies do not have a viable business model?
Nearly 100% of the market decline in each of these seasons could be tied to our collective inability to answer these questions.
And the subsequent market rebounds happened as the answers to these questions became less squishy.
Not by coincidence, none of these questions had a thing to do with the next president, a change to tax code, or a Federal Reserve interest rate adjustment.
The next recession will likely be the next time we have an unanswerable question, it’s just hard to know the question before it’s asked.
180 | Perpetually Uncommitted
The holy grail in investing is a level of commitment that can see beyond benchmarks, novel products, and market forecasts.
A basic understanding and set of beliefs that underpin the way you've decided to invest that slowly reduces your desire to evaluate or even acknowledge alternatives.
Not like an ostrich with its head in the sand, but more like a spouse that stops evaluating candidates for marriage once they've said, "I do."
There's a freedom that comes from commitment.
And an anxious prison that comes from the endless search for something else.
Seeing a headline about the highest performing stock of the year - an invitation to de-commit.
Catching a bad market cycle in your first year with an advisor - an invitation to de-commit.
Presuming that someone's elevated lifestyle choices are a direct result of their investment savviness - an invitation to de-commit.
Seeing your account lag a benchmark, a friend, or a faulty expectation - an invitation to de-commit.
Just like a relationship, once we commit, there is peace of mind, freedom from second-guessing, grace for mishaps and disappointment, and compounding that begins to surpass all expectations.
That sounds like a good outcome.
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.
178 | Why So Serious?
The secrets to being good with money aren’t much more than…
Income that gets more fun to generate with each passing year.
Spending as much as you can on things you love and as little as possible on things you don’t.
Saving often enough to prove to yourself that you know how to live within your means.
Investing that cares for some basic principles and then is really patient.
Beyond that it’s mostly emotions, personal circumstances, and dealing with an uncertain future.
None of that requires a conference room. A market update. An investment product pitch. A special type of account. An insurance premium. Or a conversation that makes you feel lost.
We have made this whole money thing more serious than it needs to be.
177 | It's a Relationship, not a Recipe
It's tempting to think money is a matter of accumulation.
Or an exercise in bundling the right tactics.
Or a series of individual races with arbitrary finish lines that are never crossed or never quite feel like the finish line once you reach them.
It starts to feel like a recipe that we can't get right, when in fact it’s a relationship.
Said that way, it becomes more apparent that accumulation, tactics, and finish lines aren't going to do much to change it.
A relationship is too emotional, and the future of a relationship is too uncertain.
And where you stand at any moment only makes sense if we appreciate where we've been and where we’re going.
Once it’s clear there’s a relationship, it’s clear the best actions are those that strengthen the relationship for this season of life…and the next one…and the next one.
Extra Perspectives
It Doesn't Go Away with Money by Jared Korver
"Wealth is rarely what it seems, and we who are wealthy would do well to be wary of what it’s doing when we aren’t paying attention. If we don’t take care, I think it can start to make us feel invincible, rather than present. Powerful, rather than resilient. Lauded, rather than loved. Smart, rather than wise. Philanthropic, rather than charitable. Seen, rather than known. Anxious, rather than content."
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.
173 | Long Term Planning
It’s tempting to get carried away projecting and solving for the “long term”.
But this becomes a slippery slope of living in a hypothetical world instead of a real world.
The long term is only a bunch of short terms bundled together.
If those short terms are lived with…
Peace of mind.
Lack of regret.
Purpose.
Contentment.
Order.
Then the long term is going to be filled with those same feelings too.
Instead of speculating on the long term, we’re building good short terms so the long term takes care of itself.
172 | One Step Forward, Two Steps Back
Usually, financial independence is referring to "independence from current sources of income".
If your income goes up (one step forward), but your level of spending increases to meet the raise, then you are becoming more dependent on that income stream (two steps back).
If you're OK being dependent on your current income stream, then spend away!
If you're looking for financial independence, then please save some!