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Okay, I’ve tracked my spending. But how do I make sense of the data?

Flow FP's block woman has assembled a lot of data, but finds the result confusing.

Tiller. Mint. YNAB. Spreadsheets. Pencil and paper.

If you want to find out where your money is going, there’s a solution for you out there. After all, to channel all the data nerds I know: You can’t manage what you don’t measure.

So let’s assume you have the discipline to track your spending. You want to know where your money is going. Maybe you think you spend too much overall. Or too much on one category. Or you need to save more for a down payment so you need to find where to cut back. Or you’re just kinda uncomfortable not knowing.

You get a few months’ worth of spending data. NOW WHAT?

How do you turn this data into something meaningful, information that can help you change your spending in a way that will improve your life?

As with most things in life, and especially in personal finance, there’s no one right way. You can slice and dice the data in many ways, all of which will give you different insights into your spending. Try ‘em all! I’ll even throw in this 6-in-1 kitchen tool if you do it in the next 30 minutes!

Ways to Categorize Your Spending

There are some traditional ways of categorizing your spending, which are the first three I list below. Those of us “enlightened” <ahem> financial planners also think you should evaluate your spending through the lens of your values. After all, even if you’re only spending $50/mo on clothing, if you don’t give a rip about clothing, it’s still too much!

Discretionary (You don’t have to spend it) vs. Non-discretionary (You have to spend it)

If you’re looking to change your spending, this is probably the best lens to view your spending through. (Yeah, I did it. I put a preposition at the end of a sentence. Adulthood is so liberating!) Because, to belabor the perhaps obvious, if you want or need to spend less money, stop spending on things you don’t need (“discretionary” spending).

Discretionary spending is things like restaurants or travel or interior decoration or clothing. Non-discretionary spending is things you have no choice but to spend on: rent or mortgage, groceries, insurance of many stripes, loan payments.

The more of your spending that is non-discretionary, the harder it will be to reduce your spending.

How to use this:
If you’re thinking about making a change to your spending—say by buying a car or buying a home or renting a different apartment or taking a loan out or taking a job at a tiny startup that requires you to pay for your own health insurance—keep in mind how this will increase (or decrease!) your non-discretionary spending.

The higher your non-discretionary spending, the less flexibility you have about your income. You have to have a high-enough income to cover your non-discretionary spending. On the flip side, the lower your non-discretionary spending, the more flexibility you have when it comes to your job and income.

I see this most often when it comes to buying a home. I understand the desire to buy a home. I bought one, too, after all! But if your monthly housing payment increases from $4k to $7k, then you’ve just committed yourself to a higher salary:

    • $3k/mo x 12 = $36k higher salary per year in after-tax dollars
    • If your top tax rate is 35%, then that turns into $55k higher “gross” salary

Monthly Recurring vs. Infrequent or Unpredictable

This is the one that screws people up.

You track expenses for a month, and then either:

    1. it’s unrealistically low because it wasn’t the month you paid your annual $10k property tax, or
    2. you’re tempted to say “Oh, yes, but that vacation was unusual. I don’t travel every month. So I will mentally remove that expense from my spending which makes total spending look much more virtuous.”

To deal with this, you need to look at longer time frames. Ideally, an entire year’s worth of spending. Then you can average expenses out over a year. These infrequent expenses can add a lot to your total spending, so you are just lying to yourself (admittedly, a comforting activity I often indulge in) if you’re not accounting for them.

How to use this:
One of the major benefits of this lens is that it helps you manage your cash flow/savings/bank accounts better. You can set aside money every month or paycheck for infrequent expenses in a separate bank account instead of the account you live out of every month. That way you don’t get taken by nasty surprise when your insurance bill or your plane tickets come due.

Fixed vs. Variable

Fixed spending is things like your internet, cell phone bill, rent, or your auto insurance. Charges that are the same every month and you can rely on them being the same.

Variable spending is spending that changes in amount, and kind of unpredictably, each month. Groceries, restaurants, clothing, travel.

How to use this:
It’s a lot easier to change variable spending than fixed.

If you want to change your, say, internet costs, you’d have to call up Xfinity or Verizon or AT&T, wade through voicemail jail, find out what other packages exist, negotiate increasingly painfully with the agent, and maybe end up with a cheaper internet package. Changing your rent means moving (unless you’re a truly excellent negotiator…in which case…call me).

Changing spending on variable costs is easier to do immediately. Changing how much you spend in restaurants simply requires going to restaurants less often or ordering fewer drinks. But you kind of have to keep at it, so that you’re spending less in restaurants month after month.

Changing spending on fixed costs is harder to do. But once you’ve done it, you usually don’t have to make any further effort to stay at that new level of spending. (Which, if you’re trying to reduce spending, is good. But if you happen to raise a fixed cost while you’re in cost-cutting mode, isn’t.)

Does it support your values?

This might be the best way to evaluate your spending. It competes with “Discretionary vs. Non-Discretionary” for the title.

Of course, doing this requires having a notion of your values. So, uh, yeah…do that first. I know some advisors who take their clients through a targeted values exercise. Something like this. I take my clients through a well-known (in my professional world, at least) set of 3 questions that gets down to, maybe not values so much, as things of core importance to them.

But once you identify your values (or something similar), you can ask yourself about every single purchase: Does this support my values? Does this help me live a life full of the things I actually want?

How to use this:
If the answer is “No, this doesn’t support my values,” then maybe don’t spend your money on it. If the answer is “Yes, it does support my values,” then maybe spend more on it.

When I have led people through a values-based spending exercised, I often get questions like, “Well, paying for new brakes in my car isn’t exactly related to values. How, then, do I think about it?” And I totally get that.

It turns out, though, that it’s usually pretty easy to find a way to evaluate even such mundane expenses in the context of values. Ask yourself, for example, “Why am I spending money to get new brakes?” So I don’t die a fiery death because I couldn’t brake on the highway. “Why is it important I don’t die a fiery death?” Because I love myself and want to spend more time with my family. Voila, that’s one of my core values!

This is slightly tongue in cheek, but even boring expenses like “life insurance premium” can be easily tied back to core values like “my family” or “health” or “freedom.”

I quite enjoy reviewing spending, both my own and with my clients. And my clients, once they’re reassured that this isn’t a budgeting exercise, and that I’m not going to Judge Them, almost always observe something interesting in their spending.

Sometimes clients decide that they don’t want to change anything. Sometimes they decide they want to cut back (usually when it comes to food, mostly restaurants). And sometimes they decide they want to spend more (travel and healthy food are the two examples I’ve seen recently).

So go on, give it a try. I’ll be surprised if you don’t find something interesting.

Does this all sound great but you know you won’t do it on your own? Reach out to me at  or schedule a free consultation.

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.

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