Tuesday, January 20, 2015

When spending is out of control

I don't mean what you'd think I mean when I say, "our family's spending is out of control".

What "out of control" usually means is "we're spending so danged much that Bad Stuff is happening, and we can't make it stop".   Fortunately, that's not the case for us.  Instead of racking up debt, we're doing just the opposite:  last year we actually maxed out our retirement accounts, opened up and maxed-out a Roth IRA, put money into Flexible Spending Accounts, gave a healthy amount of pre-tax money to United Way through my employer, . . . and even after diverting all of that money out of our possible paychecks, we still spent about $18K less than our take-home pay.

When I say that our spending is "out of control", I don't even mean that our spending is escalating in ways that freak me out.  Thanks in part to paying off our mortgage a few years ago, but also in part to my being a little bit obsessive about money, 2014 was our lowest spending year in the past few years.

No, all I mean by "out of control" is that I don't actually know what we actually spend our money on. That is, I don't have control over our spending.

I know a little bit about where our money went, it's true.  I know we spent more than 6.7% of our take-home pay on charity, which was more than the 6.1% that went to utilities (gas/electric/water/cell-phone/cable/internet), and that makes me happy.  I know that a whopping 26.9% of our take-home pay went to child-related expenses, thanks in large part to starting our boys at the nearby Quaker Local School.  I know that, with the mortgage long behind us, only about 5% of our take-home pay went to housing costs (mostly taxes, but also a few repairs and maintenance expenses).

But a full 51% of the money that left our checking accounts was either via cash or credit card.  And where that money went -- well, that's just a Big Mystery to me.  The majority of our spending is a giant gray hole.

Now, I know many people say that paying by credit card allows them to track expenses exactly.  But those people are not married to my husband.  My husband, I do not need to tell you, uses credit cards and cash far more exuberantly than I do.  (The ratio of him:me is about 4:1).  He uses his card for a dizzying mixture of business and personal, which makes categorizing expenses like "Pizza Place" a bit tricky (was that a personal pizza, or a professional pizza?).   Worse yet, his credit card statements come with mysterious charges to places like "Pmn Inq Dn" (that is a verbatim entry) or "Uncle Nick" (which is apparently a business expense, because it's some restaurant-with-clients thing).

Even more, each month brings a humongous tally of these charges, so trying to interview my husband in hopes of pinning each one of these charges into a particular category would become an inquisition.  I don't have the heart (or the guts) to grill him each month over the multi-page masterpiece of a bill that our credit card companies send us.

So, instead, I choose to live in a world where the majority of our family's spending is out of my control.

I regain control where I can.  Each month I tally where our money goes, and each month I do a report to my husband.  ("We spent X on charity.  We spent Y on childcare.  We spent Z on utilities.  We spent thus-and-such on credit cards and so-and-so on cash.  Here's how much we  have in our accounts now.  Here's are the big bills we have coming down the pike.")   Sometimes I add a caution about cash flow ("if you're going to get cash from the ATM, warn me so I can make sure we can cover it.").  Sometimes he decides he needs to get busy filing expenses that his employer should reimburse.  But generally, it's just a report.  No fingers get pointed.  The monthly finance report is actually a ritual we've both come to look forward to.

This year, I did an end-of-year report which included the observation about the 51%-gray-hole in my knowledge.  The percentage surprised my husband.  He knew he occasionally had large credit card bills (well, okay, pretty-much-always has large credit card bills), but he hadn't actually realized how wonkily those bills messed with my reckoning.  Since he's a bit of a fan of spreadsheets, he decided that he wanted to help fix this.

So I showed him how to go into Mint and mark up his credit card purchases.  This is the reason that I now know that "Pmn Inq Dn" is a reimbursable business expense, just like "Uncle Nick" is.  Playing with his recent expenses has become a bit of a video game for him.

We're going about the personal finance thing backwards, I know.  Traditionally, first you document every penny you spend; then you  use that to figure out how to spend less than you earn.  In our case, we did this in reverse order:  it's the comfort of knowing we're doing okay that has given my husband the confidence to finally track his spending.

It's a different way of gaining control of spending.
If this works.
I'm not completely optimistic that the new-found enthusiasm for labeling his expenses is going to persist.  But on the other hand, being in control isn't the ultimate goal, is it?


  1. My credit card has a year end statement that list expenses by category, "restaurants" was higher than my memory of the meal, funnily thrift store spending was under the heading of "charity."

    1. Love the thrift shopping/charity mix-up! On my own credit card, the money that goes to our sponsored children through World Vision gets listed as "services". (?!?) -MM

  2. Wow, I thought as long as you're spending less than you earn, you're golden, i.e. you no longer have to really track spending. I tracked our spending for one whole year and I now have a better idea of our spending, but my spouse is not very interested in money talk and our cash spending is a mystery. Luckily my husband and I charge most things so I can still track spending reasonably well.

    1. Yeah, maybe if you're in a period of utter stability, you don't need to track spending. For us, though, we're in a period of transition. For one thing, my husband went part-time starting last September, and so I wanted to make sure I understand the effect of his reduced salary on our day-to-day life.

      Another important aspect of this is that we're pushing for retirement, first for him and then for me. What will this do to our future expenses? If I knew more about how we spend our money now (for example, how much of that credit card is commuting costs/job-related expenses), that would help me.

      But even more, at least for me, I think it's important for my husband and I not to be complacent about spending money on ourselves. Giving back to our community and our world is more important (to me) than merely spending beneath our income. So I want to understand areas where we could continue to reasonable cut back on ourselves so that we can be more generous with others. -MM