Build Your Spending Plan on an Annual Basis, Not Monthly

Believe it or not, May is my most expensive month for skiing.  

I don’t even ski in May.  I don’t much care for spring skiing, and I’m not going to travel to the Southern Hemisphere to ski.  

Yet here I am loading up on ski passes for the following season, and ski passes aren’t cheap.

This is why I keep track of my spending annually and you might too.

Big Ticket Items Happen Less Often, But They Happen Regularly

There are other items that typically get paid for once or twice a year:  quarterly income taxes, property taxes, vacation travel, large medical expenses, and this list goes on.

They are not going away.  (Nor do you want them to, including, if you’re honest, the taxes.)

You want money around to pay them.  Most of my clients do, even if by simply not overspending.  The money ends up available in their accounts when it’s needed.

Paying for those expenses aside, there’s real value to know how much you spend annually.  

Keeping Track of Annual Expenses Has Gotten Easier

Hear me on this:  You do not need to keep track of every last penny and where it was spent to make good decisions about your spending.  Tracking pennies will keep just about anyone from starting the task.

Instead, lean on tools you probably already have.

These days, most of your banking and credit card institutions send you a history of how you spent your money over the last year.

The categorization is terrible.  Ignore it.  (Or fix it, but again, not necessary.)

What you want to see is how much you spent.  

This is a great marker to compare to your gross income, your take-home pay, and what you spent last year.

While looking at your spending compared to your gross and net income gives you some short-term perspective, the real value is in the long-term view.

Compare Last Year to This Year

Most banking platforms will also have a function where you can ask it to compare this year’s spending to last year’s spending.  Run the report.

What I like about this function is it allows you to see:

• One-time big-ticket items.   
  
  • How often are these happening?  
  • What are they?
  • If they’re happening annually, it’s time to consider them part of your spending plan rather than thinking “well, that won’t happen again.” If something “random” is going to happen again, it might as well be planned for.

• The effect of life changes.
  
  • Do you really spend less when the kids are off at college?
  • Do you really spend less when a kid is no longer on “payroll”?
  • Do you really spend less when a household income earner is no longer bringing home a paycheck?

• The effect of world events.
  
  • Did your spending really go down during the pandemic in 2020?
  • Did inflation in 2023 really affect your household or did you just talk about the price of eggs?
  • Is inflation a regular experience that you don’t feel when it’s not dramatic?

Valuable Lessons To Take from this Exercise

Every person/family’s spending is different and personal.  

Sure, I can ballpark what a family of four living in the San Francisco Bay Area might spend in a year.   However, some will spend far more and some will spend far less.

And it doesn’t matter to anyone except that person and/or that person’s family.

The information is hugely valuable to you, though, because that helps you plan for the long-haul.  

• You know what you can expect to spend.
• You know how you will behave if a big expenditure comes up that is out of your control.
• You have some insight about how you will spend your time and your money once you quit working.
• You will create priorities among expenditures that are important to you as you move into the last third of your life.

The best part:  you only need an annual review to get that perspective.  

If you want to talk about spending plans or planning, please reach out.