This post is based on my personal experience and financial position. I’m fortunate enough to have a roof over my head, food on the table, and a healthy savings account. Many people will be in a different position, so take this with a grain of salt.
A lot of people limit their spending on a monthly, weekly, and even daily basis. They’re constantly in and out of their bank apps checking how much they’re spending. They worry about that dinner where they paid $30 more than they usually do. They may even justify skipping a coffee or lunch with a friend later in the week to make up for the cost of that dinner. That’s stressful, unfortunate, and I’d argue, not even accurate. It’s not the full picture.
Some days are more expensive than others. That’s just how life goes. Maybe on Wednesday, you go out to dinner and spend $30. On Thursday, you have a busy work day and cook at home. You spend $0. On Friday, you have a big night out with friends and drop $100. That big night probably weighs on you. It was a fun night, but now it’s time to save. You can’t be that irresponsible again this week, and maybe even next week. But looking at that expense in isolation is missing the big picture.
Just like how some days are more expensive than other days, some weeks are more expensive than other weeks, and some months are more expensive than other months. Some weeks you’re visiting family or having family visit. You’re just more active. One month you go on that big exciting Europe vacation with your partner. Your July full of concerts, traveling, and beach trips, ends up being a lot more expensive than your February of Netflix and video games.
If you check your expenses too frequently, all you tend to see is how much you’ve spent, not how much you’ve saved. You see an expensive week and you tell yourself that next week has to be a cheaper week. You don’t realize that you’ll probably have cheaper weeks many times throughout the year that will in some capacity may make up for this expensive week. You perform stressful mental math calculations and limit what you can do based on your short-term view of what you immediately just spent.
Everyone has periods of time when they spend more than usual. But people also have periods of time when they save more than usual. Loss aversion is a strong cognitive bias. It causes us to get caught up on moments when we’ve spent more money than we’re comfortable with and be more likely to forget moments when we’ve saved more than usual. We beat ourselves up for spending too much. We should also credit ourselves for the saving we do when we don’t even initially realize it.
I’ve found that how much I spend can vary widely on a day-by-day, week-by-week, and month-by-month basis. But on a year-by-year basis, my spending is relatively constant.
I judge my spending once a year. At the beginning of every year, almost like a new years resolution, I do my “spending analysis”. I sum up how much I paid in rent, download expense reports for my credit cards, and throw it all into my own spreadsheet. I do a basic sum of all the expenses to see how much I spent over the last year. (I subtract out obvious red flags, e.g. I took a trip to London for work in 2019 which came out to $5k+ all paid for by work, but put on my credit card for the points 😏).
I’ve done this analysis the last four years and have found that my spending doesn’t fluctuate by more than 10–20% every year. For me, this has always landed in a range I’m comfortable with. It’s also fun. I’m a Chipotle lover (maybe fanatic is a better word). From my analysis, I can quickly see that I ate at Chipotle more than 70 times in 2020. Yes, there may be a problem there, but let’s leave that discussion for another time.
What has this taught me? I can trust myself. If I continue to live about the same way I have been living, I know where my expenses will land me at the end of the year. I can trust continuing to eat way too much Chipotle. I can trust prioritizing travel year round. I can trust not feeling guilty about paying for rental cars, Ubers, and scooters. I trust myself and my way of life, and feel comfortable supporting it financially without having to stress about finances on a daily, weekly, or monthly basis.
If at the end of the year I find that I spent more than I usually do, I can deep dive into why. I can make a decision to either change some spending habit going forward, or accept my new way of life even if it costs more because it probably makes me happy. I’ve found that going to Chipotle an extra 20 times a year isn’t going to make a sizable difference in my spending amount at the end of the year. 20 x $9 burritos is less than $200. For me, that’s not something to stress over when I’m looking at how much I’ve spent in total for the entire year, and actually an awesome tradeoff if it saved me 20 nights of cooking when I was feeling a bit more busy or tired. For expenses, I’ve also found the Pareto principle to be relatively accurate. 80% of your money spent probably comes from 20% of your purchases. Looking at my own expenses, rent, travel, and groceries make up that 80%. If I’m really looking to save money, those are the costs to tackle, not an extra Chipotle dinner every couple of weeks.
Trust your habits and trust yourself.
