RPF0513-What_Gets_Measured_Gets_Managed
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00:00:29.800 | Today on Radical Personal Finance, we continue with very practical advice on how to adjust
00:00:38.400 | your record keeping to actually help you figure out how to save money on the categories that
00:00:44.200 | matter most to you this year.
00:00:46.800 | Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge,
00:01:06.120 | skills, insight, and encouragement you need to live a rich and meaningful life now while
00:01:09.880 | building a plan for financial freedom in 10 years or less.
00:01:13.520 | My name is Joshua and I am your host.
00:01:15.480 | I think, I think, I think, I think, I think this will be the last one in this series wherein
00:01:20.800 | I try to get your new year started off right by giving you the tools that you can use and
00:01:25.600 | implement into your budget to save you some serious money.
00:01:35.480 | As always, there are multiple areas in which we need to focus on finances.
00:01:39.080 | We need to focus on increasing income and there's a lot of things that we can do there
00:01:43.520 | and working and finishing up this course that I'm doing on how to increase your income for
00:01:48.600 | those who purchased the beta version.
00:01:50.640 | We can decrease your expenses and usually decreasing expenses for most people is the
00:01:54.920 | fastest way to make progress.
00:01:57.680 | You can invest wisely.
00:01:59.000 | It's very, very important but usually takes a huge amount of time.
00:02:02.800 | You can avoid catastrophe and you can optimize your lifestyle.
00:02:05.940 | All of those are the basic components and building blocks of how we approach finance
00:02:10.080 | and that's what we do each and every day.
00:02:11.960 | However, today, for the last couple of weeks as we started the new year, I've been working
00:02:15.840 | on helping you to save money in your budget and I've been using the example from my own
00:02:21.880 | budget of me cutting back on grocery expenses and food expenses as a way of helping you
00:02:27.720 | with some practical tips around food and grocery expenses but also as a way of teaching you
00:02:32.240 | some skills that you can apply to other areas of your budget.
00:02:35.880 | My hope is that even if your grocery budget is well on track that you've been able to
00:02:41.720 | use some of these ideas and apply them to other areas.
00:02:45.040 | So I have at least this one more in this series and then we'll maybe move on to other topics
00:02:50.560 | but I wanted to really focus in on helping you save money as we begin the new year.
00:02:55.760 | If your life is anything like mine, you have some good habits, you have some good practices
00:03:02.200 | that you put in place but when at the end of the year, you look back on a whole calendar
00:03:06.680 | year, I get a little frustrated at how much money I spent and so it's nice to use that
00:03:10.640 | energy and that frustration for me frankly.
00:03:13.720 | It's nice to use that frustration and the energy from it to make some changes that will
00:03:18.600 | save me some money so that in January of next year, I'll be sitting here looking back and
00:03:23.600 | a little bit happier.
00:03:24.600 | I can compare year to year and see the progress that we're making.
00:03:29.240 | For me, probably groceries and again, I'm using this as an example.
00:03:31.920 | There are other areas as well but groceries is one of those things where as my family
00:03:35.720 | grows, so does our grocery bill.
00:03:37.560 | And so what was well squared away with a few years ago now needs additional work.
00:03:42.160 | Today, I want to talk about the importance of budget categories.
00:03:45.600 | Now, if you haven't heard it, I would recommend you go back and listen to episode 408 from
00:03:50.320 | January of last year wherein I discussed budget categories for the new year that actually
00:03:55.080 | matter.
00:03:56.080 | Again, episode 408, budget categories for the new year that actually matter and the
00:03:59.880 | point of that show and the point of that content is to look at your budget categories in a
00:04:05.800 | practical way in your financial tracking system, whatever that is, whether it's a piece of
00:04:12.040 | paper and you write things down, whether it's Mint.com, whether it's YNAB, radicalpersonalfinance.com/ynab
00:04:18.120 | for a free trial, whether it's personal capital, use the personal capital link on the website.
00:04:22.560 | I think it's radicalpersonalfinance.com/personalcapital.
00:04:26.120 | Whatever system is that you use, you need to have categories that are useful for you.
00:04:30.000 | Maybe you use something that's on your bank.
00:04:32.080 | And most people start with generic categories, the idea of, "Well, this is food or this
00:04:37.920 | is fuel or this is rent," and those things are useful.
00:04:41.680 | But the whole point of tracking your money is so that you can make progress with your
00:04:47.080 | money.
00:04:48.080 | We don't just budget because it's fun.
00:04:49.600 | We don't just track our money because it's fun.
00:04:52.080 | We track it because it's useful and for some of us, it's fun.
00:04:56.520 | Better to have a hobby of tracking your money and figuring out ways to save money sometimes
00:05:00.960 | than some other things that you can do.
00:05:03.080 | But we do it because it's useful so we can actually use the data.
00:05:05.880 | Well, in order for you to use the data, you've got to articulate it and put it into a way
00:05:09.800 | that makes sense for you.
00:05:11.520 | So in episode 408, I talked about how you should have some budget categories that are
00:05:15.720 | the ones that you want to minimize, pure costs, things that don't bring you joy and benefit
00:05:21.160 | to your life.
00:05:22.160 | There are some categories that you want to moderate, things that are important to you,
00:05:26.920 | things that are expenditures that perhaps you don't strictly have to make.
00:05:31.840 | You wouldn't make them in an emergency situation but they're things that add measurably to
00:05:36.260 | your quality of life.
00:05:37.260 | They're things that add measurably to your achievement of your goals.
00:05:40.360 | They're things that add measurably to the joie de vivre that you actually experience.
00:05:46.120 | Those may be the kind of things that you want to make sure are included in your budget but
00:05:49.360 | you don't want to let them get out of hand.
00:05:52.660 | You may enjoy fine food and so for you, it's very important to on occasion buy really fancy
00:05:59.760 | food and make a really special meal to enjoy with your friends or to buy a really nice
00:06:04.080 | wine or to go out into a nice dinner on occasion.
00:06:06.960 | Well, those are the kinds of things that can add measurably if that's your deal, that can
00:06:11.240 | add measurably to your quality of life.
00:06:13.940 | But if you do it every day, then it could get out of hand and it could actually diminish
00:06:17.520 | the enjoyment of the experience, things that are special.
00:06:21.680 | If you have them too much, become less special.
00:06:24.320 | There was a friend of mine who used to live in Cape Town, South Africa where lobster was
00:06:28.000 | cheap said, "To me," he said, "if you eat lobster all the time, it starts to taste like
00:06:32.080 | soap."
00:06:33.440 | Just about anything, if you do it in excess, it loses that sense of excitement.
00:06:37.640 | Then there are certain budget categories that you may choose to maximize and you may say,
00:06:43.360 | these things are important.
00:06:44.360 | A simple example would be savings.
00:06:46.640 | It's very important that anything that you do that's savings is differentiated from other
00:06:52.200 | areas of your budget because you want to maximize your savings and there are certain things
00:06:56.440 | that perhaps are expenses in some cases but are savings in another.
00:07:02.600 | Simple two examples from that show and I'm not going to rehash the whole show.
00:07:06.160 | I want to get to the point of today's show.
00:07:08.000 | But two simple examples would be I always separate out my purchase of assets from my
00:07:14.040 | purchase of just simple expenses.
00:07:17.120 | So when I buy something, I buy a pickup truck as I did recently, then I sit and I categorize
00:07:22.960 | that as an asset purchase.
00:07:25.160 | The reason is that when I buy an asset, I'm paying cash for it.
00:07:29.920 | So I'm writing a huge check for – or handing over stacks of $100 bills to somebody is the
00:07:35.680 | way that I buy vehicles.
00:07:37.280 | Then I hand over stacks of $100 bills.
00:07:38.720 | That's a giant outflow from my life.
00:07:41.580 | But I'm doing my very best when I buy a thing to buy something that's going to have
00:07:46.960 | a very low amount of depreciation.
00:07:49.720 | So I need a mental separation in my own life of what to do.
00:07:53.760 | So as an example, I recently – let's just use this pickup truck that I recently bought
00:07:57.360 | and I will share more about this in a forthcoming episode about our plans for 2018.
00:08:01.320 | But I bought a diesel pickup truck.
00:08:03.520 | Now a diesel pickup truck of the kind that I bought is not inexpensive.
00:08:08.040 | It's pretty expensive.
00:08:10.580 | Diesel pickup trucks are very expensive right now.
00:08:13.720 | I very carefully thought through my purchase and my categorization and whatnot about how
00:08:19.360 | I was going to do it.
00:08:20.360 | But I paid probably at least $4,000 to $5,000 more to have a diesel pickup truck than what
00:08:26.440 | I could have paid to have something that was a gas pickup truck.
00:08:30.480 | But on the flip side, I also am fully aware that for my application, towing a trailer
00:08:35.200 | significantly, which are our plans for 2018, I decided after making a mistake with the
00:08:40.160 | gas engine vehicle, I decided to go ahead and move to a diesel pickup truck to have
00:08:44.440 | a more pleasurable towing experience.
00:08:47.200 | And secondarily, I know that that diesel pickup truck holds its value.
00:08:50.640 | There's good resale value.
00:08:52.560 | And so I'm consciously making a choice to spend more capital and putting it into an
00:08:57.920 | asset that will probably – if things work out, it will probably depreciate less than
00:09:03.960 | certain other choices I could make.
00:09:06.300 | So that big cash outflow from my budget is not necessarily a pure expense.
00:09:11.720 | And you may do this with other areas in your budget.
00:09:15.160 | This is why it's so important to separate things out.
00:09:17.720 | You might say, "I'm not going to go down to Ikea and buy the cheap bookcase that will
00:09:24.320 | last me for three years.
00:09:26.420 | What I'm actually going to do is I'm going to go to an antique store and buy something
00:09:30.980 | more expensive," but that by choosing carefully the quality of the antique and the name brand,
00:09:36.980 | it's something that will not lose value.
00:09:39.260 | But you're going to spend triple or quadruple the cash out of your pocket, but you're
00:09:42.900 | doing it in a way that's an asset expenditure.
00:09:45.980 | That's the type of thing that needs to be clearly differentiated.
00:09:48.840 | Is this an asset expenditure or is this a consumption item?
00:09:53.060 | The Ikea bookshelf that you buy will be very cheap to buy, but it will quickly depreciate
00:09:59.960 | to a value of zero.
00:10:02.540 | There's not a big market for it in the resale world, in the secondary market.
00:10:07.580 | The antique bookcase that you buy or the antique four-poster bed that you choose to furnish
00:10:12.020 | your house with may be very expensive to buy relative to the Ikea version, but perhaps
00:10:18.440 | its actual terminal value stays consistent and/or goes up.
00:10:22.820 | So I like to separate those things into the category of what I just use as asset expenditures.
00:10:26.940 | Then of course I track all of the expenses that are associated with that asset.
00:10:30.940 | That separation in your tracking system is very valuable to put your head in a different
00:10:35.420 | space.
00:10:36.420 | Now of course if you're going to buy an asset, you want to get the best deal possible.
00:10:39.500 | But you don't want to mess yourself up and say, "Well, I'm scrimping and saving
00:10:43.820 | over here on tortilla chips by trying to find the cheapest tortilla chips and that makes
00:10:48.080 | an impact of $3 on my annual spending budget.
00:10:51.500 | Meanwhile over here I'm going to buy this expensive thing, so I'm just going to blow
00:10:54.060 | my budget.
00:10:55.060 | What's the point?"
00:10:56.060 | If you have that philosophy and that attitude, then they quickly – everything falls apart
00:11:00.540 | and they wind up spending more than they have.
00:11:02.940 | So I'll skip the second example for now.
00:11:05.460 | Go back and listen to episode 408 for more information on that.
00:11:09.100 | But today I want to talk about the granularity of your spending categories.
00:11:14.260 | The whole point of tracking your money is to help you make better decisions.
00:11:19.100 | So you need to keep your budget categories, your transactional categories at a level of
00:11:24.260 | granularity that's appropriate for you.
00:11:27.740 | This level of granularity will change depending on your situation and it will change over
00:11:33.560 | your life.
00:11:36.580 | For today, I'm going to assume that you're just getting started.
00:11:40.340 | When you're just getting started, you've made a New Year's resolution to save more
00:11:43.740 | money.
00:11:44.740 | You need good tools and you're going to need to build new habits.
00:11:48.260 | Once those habits are built, it's going to be less important for you to track them
00:11:51.940 | carefully and specifically.
00:11:54.060 | But as you're going through the process of building those habits, you'll need to
00:11:59.380 | track things in a detailed way.
00:12:02.340 | Almost every diet book that I've read or diet plan that I've observed has begun with
00:12:08.660 | some form of a food journal.
00:12:12.940 | The food journal is a useful tool to try to figure out your baseline.
00:12:17.540 | What do you currently eat?
00:12:19.140 | How do you currently eat?
00:12:20.620 | And then the diet plan or the diet coach will start to adjust that.
00:12:23.820 | Now sometimes it's a whole scale adjustment and they want you to go from all the way from
00:12:28.180 | the standard American diet onto the Whole30 Cleanse diet.
00:12:32.300 | Or sometimes it's a minor adjustment and the person has a philosophy and says, "Well,
00:12:35.860 | let's just start by changing out a few structural things."
00:12:40.540 | But it always starts with tracking.
00:12:43.260 | People who are advanced in their healthy food consumption generally don't write down every
00:12:50.500 | bite of food that they eat.
00:12:53.020 | There's no need for it.
00:12:54.020 | That would be a poor use of the time because they've built those habits.
00:12:58.700 | But people who are beginners need that level of granularity and that same thing with money.
00:13:05.080 | If you're going to build wealth and maintain it, there will never be a point in time at
00:13:10.360 | which you can walk away from having an awareness of your budget.
00:13:16.700 | Doubt me.
00:13:17.700 | Just search for common celebrities who make tens of millions of dollars and a few years
00:13:22.320 | later are totally broke and bankrupt.
00:13:23.900 | They're very sad stories but usually it's because they don't have a grasp on how much
00:13:28.540 | money is coming in and going out.
00:13:30.940 | Yes, it sounds like a lot of money to earn $10 million in a year and it is.
00:13:36.600 | But executive jets are not inexpensive.
00:13:41.580 | It wouldn't be uncommon for somebody who maintains their own plane to spend a couple million
00:13:44.820 | bucks a year on that particular habit, not even including the purchase price.
00:13:49.220 | So anything can get out of hand.
00:13:51.340 | Frequently, people who earn a lot of money, if they don't keep an eye on the outgo, they
00:13:55.420 | don't have the system in place where they're going to be able to make good decisions long
00:14:00.340 | term.
00:14:01.880 | So I'm about to talk about groceries.
00:14:03.260 | I don't want you to think that somebody who is earning millions of dollars per year needs
00:14:07.740 | to sit down and carefully itemize their receipt for their grocery expenditures.
00:14:12.780 | You don't.
00:14:14.500 | But almost every millionaire I've ever interacted with or I've ever read will at least have
00:14:19.140 | a general idea of how much their family spends on food in a given year.
00:14:25.660 | It can be as simple as having the end of the year Amex statement or it can be as simple
00:14:32.120 | as just sitting down with whatever is built into their bank and say, "Okay, we may have
00:14:35.700 | spent about this amount of money."
00:14:37.380 | But you need to have some idea of those categories.
00:14:40.120 | When you're starting, however, a different level of granularity is helpful.
00:14:45.420 | Now let's start with the basics.
00:14:47.540 | A good place to start for many people in terms of tracking the money that they're spending
00:14:52.380 | so that they can make better decisions would be something as simple as differentiating
00:14:57.380 | the amount of money that they spend on groceries versus the amount of money that they spend
00:15:01.740 | dining out.
00:15:03.900 | If you're just getting started, start there.
00:15:07.700 | Just start tracking how much money you spend on restaurants and how much money you spend
00:15:10.980 | on groceries.
00:15:12.460 | It would not be at all unusual for a family who's given to profligate spending and trying
00:15:17.680 | to cut back to discover that they're spending $1,000 a month on restaurants.
00:15:23.560 | Relatively easy to do if you're not a single person but you have a habit of eating out
00:15:27.500 | consistently.
00:15:29.360 | It wouldn't be unusual to spend $500 a month on restaurants.
00:15:34.120 | That would be fairly common among middle-class US Americans.
00:15:39.360 | The first place of specificity could be how much am I spending on restaurants versus how
00:15:43.960 | much am I spending on groceries.
00:15:45.480 | You might have a goal and might make major progress just by pulling back on the number
00:15:50.460 | of times that you dine out and pushing over in the direction of buying groceries.
00:15:56.680 | For somebody that's given to consistent eating out, that could save 50% on your food budget
00:16:03.400 | right there.
00:16:06.120 | That would be the right place to start.
00:16:08.260 | It's relatively simple.
00:16:09.280 | You just have to track the difference between groceries and dining out and that can make
00:16:12.960 | progress.
00:16:13.960 | But what's the next step?
00:16:16.320 | Perhaps you've decided that you're still not happy with your performance in a certain
00:16:20.720 | area and this is the case for me.
00:16:22.720 | I've always tracked the difference between eating out and groceries.
00:16:27.160 | I've always accounted for that difference but I'm unhappy with my expenditures in this
00:16:32.180 | particular area.
00:16:34.160 | The next thing I need to do then is figure out what's going on.
00:16:38.680 | There are different levels at which I need to figure that out.
00:16:41.640 | Many of us will shop at stores like Walmart or Costco or Sam's Club or Target and these
00:16:48.240 | stores can be very challenging because they sell essentially everything.
00:16:52.280 | If I'm looking at a bill on a bank statement or a credit card statement for Target, am
00:16:59.560 | I looking at a bill for groceries, new swimsuits for the children, a new GPS for my car or
00:17:08.160 | a refill card for my prepaid cell phone?
00:17:11.960 | I can't tell that by just looking at the bank statement.
00:17:15.080 | If I'm looking at an entry for Costco, am I looking at tires, dog food, paper towels
00:17:23.240 | and toilet paper or cheap rolled oats that we use to make our morning oatmeal?
00:17:30.400 | So let's start with that.
00:17:31.840 | The first thing to do is to make sure that your tracking system is going to be differentiated
00:17:36.600 | more – on a more granular level.
00:17:40.520 | This may include things that are part of your household but are not.
00:17:43.880 | So the best example here is – relates to groceries.
00:17:46.640 | It's very common that we'll buy paper products for the household and things like
00:17:50.840 | cleaning supplies with our groceries.
00:17:54.680 | The first thing when you start trying to compare grocery budgets with people is you need to
00:17:57.360 | ask them, "Does that include things like toilet paper and paper towels or does that
00:18:01.040 | – and wipes for the babies or diapers or does that include just pure groceries?"
00:18:08.360 | Those categories make a big difference and many people, because they do that shopping
00:18:12.400 | concurrently, don't know the difference.
00:18:14.940 | In my own accounting system last year until I really started focusing in a few months
00:18:18.840 | ago, I wasn't entirely sure that I had been perfect with separating those transactions
00:18:23.080 | out.
00:18:24.080 | It's a little bit of work to take your receipt home from Costco or from Target or from Walmart
00:18:28.320 | and actually figure out what did I spend.
00:18:30.440 | Target makes it the easiest because they break it out into categories automatically.
00:18:33.340 | But Walmart and Costco don't.
00:18:35.240 | So you got to think about it and especially if you don't even do something like – a
00:18:39.520 | little trick that I use is make sure that – you may bring it up in separate transactions
00:18:45.320 | although I only do that if I'm purchasing things that are business expenses and personal
00:18:50.900 | expenses to make sure I have separate receipts.
00:18:53.180 | If I'm purchasing printing copy paper at Costco and groceries, then I'll bring it
00:18:58.400 | up in two separate transactions for business expenses and personal expenses.
00:19:03.920 | But put it on the cart – sorry, put it on the conveyor belt in an organized manner.
00:19:08.200 | So keep all your food together and then if you're buying oil for your oil change and
00:19:11.960 | put that separate with the little doodad, the $100 thing that you thought would be cool
00:19:17.600 | to buy because it was advertised and then put your paper products at the end.
00:19:22.640 | So that way when you get home and you analyze your receipt, you can properly enter the data.
00:19:26.080 | You have to do this manually and it takes work.
00:19:28.800 | But that's the first level and that's important because you might find that your
00:19:32.520 | $1,000 a month average is actually being caused by the $200 a month impulse expenditures that
00:19:40.340 | you make because it's a great deal on a cool thing.
00:19:44.520 | For most of us who shop at those stores, Costco is the worst and the best, simultaneously
00:19:48.760 | the worst and the best.
00:19:50.360 | Why?
00:19:51.360 | The way that Costco works is they have a certain products that they always have.
00:19:55.840 | Then they're always bringing in new products.
00:19:58.600 | When Costco brings in a product, they'll offer a good product, a good deal, but they
00:20:02.400 | won't keep it around forever.
00:20:04.360 | So you know if you think you're going to want it, you basically have to buy it now
00:20:08.280 | or come back a few days later because it's not going to be there next month.
00:20:12.320 | That results in more binge buying, more impulse buying or at least a stronger temptation to
00:20:16.800 | do that.
00:20:18.640 | Based upon their strategy of sizing large packages, you wind up spending more money
00:20:23.120 | than you might otherwise spend.
00:20:25.740 | You didn't know that you were going to go shopping today for high-quality leather work
00:20:32.600 | gloves, but of course here are some and that would be useful to have.
00:20:36.160 | It would be nice to have that.
00:20:38.320 | But of course it's not just one pair.
00:20:40.320 | So you've got to go ahead and buy a package of three pairs or you didn't know you were
00:20:43.520 | shopping for flashlights today, but you know what?
00:20:45.840 | It would be nice to have an extra flashlight or two, but this is a set of four.
00:20:50.320 | Now you got four flashlights instead of one.
00:20:52.080 | That's the great temptation of some of these stores.
00:20:56.160 | So it starts by breaking those things out so you can look and maybe what you find is
00:20:59.000 | you don't actually spend too much money on groceries.
00:21:02.200 | What you actually spend too much money on is those impulse purchases.
00:21:07.800 | That's helpful.
00:21:08.900 | Now you can adjust your behavior by finding out what's actually going on.
00:21:16.520 | This simple practice can solve a lot of marital stress.
00:21:23.240 | I know I've talked to a number of husbands who get all mad at their wives and say, "Honey,
00:21:30.360 | why are we spending so much money on groceries?"
00:21:33.880 | Especially if she's – usually if she's the one who is responsible for the food budget.
00:21:39.720 | She might go through and look at it and what she actually find is that it's not the wife
00:21:43.720 | who's spending too much money on groceries.
00:21:46.680 | It's the husband who when he goes with her to Costco every other week, always find some
00:21:50.680 | new doodad, some new cool gadget and that's the problem.
00:21:54.560 | So this level of tracking granularity might bring a little bit of marital peace to your
00:21:58.560 | household.
00:21:59.560 | But you might go farther.
00:22:01.900 | So I've done an OK job in the past of breaking those things out.
00:22:06.440 | But I'm still not happy with my results in our grocery expenditure.
00:22:10.560 | So what I've done is I've taken things to a deeper level.
00:22:14.560 | The reason that I've done this is so that I have better data to find out what's going
00:22:20.000 | on in my household so that we can make major progress.
00:22:24.920 | I won't do this forever.
00:22:26.920 | But for now and probably for this entire year, I've broken things out to an even more granular
00:22:32.640 | level.
00:22:35.480 | So I switched from just saying groceries to the actual categories of groceries.
00:22:40.960 | I created in my budgeting software new categories for fruits and vegetables, meats, eggs, dairy,
00:22:48.040 | bread, grains, coffee, alcohol, sweets, non-categorized groceries.
00:22:57.340 | I put all of these things and broke all of these things out so that I can understand
00:23:01.200 | what's actually going on.
00:23:04.040 | It's one thing for someone to say, "Hey, you'll save money by buying less meat."
00:23:08.080 | It's another thing to look down and realize, "Oh, you know what?
00:23:11.280 | I'm actually spending $100 a month on really nice meat that I really enjoy eating but it's
00:23:15.960 | expensive meat."
00:23:17.640 | That may be perfectly fine in your situation.
00:23:21.320 | But you may choose that decision actively.
00:23:27.320 | But at least you'll have the data.
00:23:29.160 | And so by breaking things out into very tangible categories, I can start to see how much am
00:23:34.020 | I spending in these different categories.
00:23:35.760 | What's the percentage makeup of our budget?
00:23:38.360 | And then we can make a decision appropriately.
00:23:42.800 | Now I think I have a pretty good idea of how these categories are going to shake out.
00:23:47.520 | I don't think my coffee habit is costing me $20 a month.
00:23:51.400 | I think it's less than that.
00:23:53.900 | But the data will tell.
00:23:57.180 | The categories will help me.
00:23:59.320 | Now is it work to come home with a receipt and to break it out and to calculate it?
00:24:03.480 | Yes, it is.
00:24:04.480 | But that's a good thing because when you're trying to save money on something and you're
00:24:08.960 | trying to make an intentional habit, being aware of what's going on will help you.
00:24:15.800 | That's the key, is awareness.
00:24:18.760 | And that process of sorting out the receipt, and I want to make it simple by trying to
00:24:24.200 | group things according to my budget categories, but that process will help you to solve and
00:24:28.700 | understand what's going on.
00:24:30.680 | Now I've applied similar things to things like eating out.
00:24:34.600 | So we don't do a lot of eating out.
00:24:38.200 | But one of the things that I've wondered is what percentage of our dining out is planned
00:24:44.840 | versus unplanned?
00:24:45.840 | Perhaps you would do planned meals out or unplanned meals out.
00:24:48.320 | What do I mean?
00:24:49.320 | Well, there's a difference between scheduling to go out with some friends and we're going
00:24:52.460 | to go out to an intentional dining out choice.
00:24:55.440 | We're going to go to a restaurant that we enjoy eating at for a specific occasion and
00:24:59.840 | we're going for the experience of eating out with friends.
00:25:03.320 | That in my mind is a very different thing than arriving late in the day, everyone's
00:25:08.600 | falling apart, we don't have any food prepared and so we just have to go out and we wind
00:25:13.640 | up eating out just because that's what – it was a stressful situation.
00:25:19.360 | And that's different than we're traveling across the state and we stop and wind up eating
00:25:24.200 | fast food instead of having food from home.
00:25:26.440 | So I've broken all of our dining out into different categories that are useful.
00:25:31.600 | Meals for convenience or meals for celebration or sweets out, trying to get a tracking on
00:25:37.040 | what's actually going on.
00:25:39.320 | Make up your own categories but figure out how to use a category that's going to apply
00:25:44.520 | to the thing that you're trying to accomplish.
00:25:47.780 | If you notice yourself spending by being forced into spending by circumstances, that's the
00:25:56.000 | time at which you recognize what's going on.
00:25:59.140 | You probably go ahead and make the expenditure under the circumstances in order to solve
00:26:03.080 | the crisis.
00:26:04.720 | But then you've got to come back and make a new plan.
00:26:09.280 | So one thing that we try to do is have food options in our house that are quick convenience
00:26:15.640 | foods that can solve that problem.
00:26:18.080 | So when we don't have time to cook from scratch or we don't have time to cook something
00:26:22.400 | that is totally homemade or which would be usually more healthful and less expensive,
00:26:30.720 | at least we have some in-between prepared foods.
00:26:33.640 | If those in-between prepared foods are there, they're a whole lot easier and cheaper than
00:26:39.040 | going out to eat.
00:26:40.040 | Yes, they're more expensive than the ultimate baseline but let's solve that problem of convenience
00:26:45.720 | with something that is convenient but it's not as expensive as taking a whole family
00:26:51.680 | with children out to a sit-down restaurant.
00:26:55.200 | Or here's another strategy that you could use.
00:26:57.600 | Perhaps your particular situation doesn't involve wanting to have convenience foods
00:27:04.040 | at home.
00:27:05.040 | But can you think through where you would go and what you would do to have convenient
00:27:08.280 | but less expensive restaurant food?
00:27:10.780 | You can put together a strategy that allows you to dine out – actually out but does
00:27:15.960 | it cheaper.
00:27:16.960 | So here would be my example.
00:27:17.960 | I think the best value, at least with restaurants around me and I'm blessed to have many,
00:27:21.800 | but I think the best value for this type of thing is Chipotle.
00:27:24.680 | At least at Chipotle, I can get – it's a quick-serve restaurant.
00:27:27.720 | We can be served quickly.
00:27:29.600 | It's healthy food.
00:27:31.680 | It's basic whole food.
00:27:33.080 | It's not weird stuff that I don't know all of the ingredients that are in it.
00:27:36.840 | It's essential food of decent quality.
00:27:39.440 | I'm a burrito bowl fan.
00:27:41.720 | I think a burrito bowl is the best deal out there.
00:27:45.280 | Half of a burrito bowl will fill me up and feed me.
00:27:48.800 | It works well with the children.
00:27:50.800 | It's a sit-down restaurant.
00:27:52.440 | We have a sit-down restaurant but there's no tip required, which adds 20 percent to
00:27:57.520 | a standard restaurant bill.
00:28:00.200 | So I can think about that and I can say, "All right.
00:28:02.000 | Well, our plan for when we need one of those crisis meals is going to be Chipotle."
00:28:06.600 | So thinking in advance, recognizing the triggering event, perhaps you may go online and go ahead
00:28:12.880 | and purchase some Chipotle gift cards from one of the gift card swap sites and get yourself
00:28:17.520 | a discount, 3, 4, 5, 6, 7, 8 percent discount on Chipotle cards and you go ahead and purchase
00:28:22.560 | some of those and have those ready to go.
00:28:24.960 | Now the next time it's Thursday night, everyone's hot, everyone's tired and you need to go
00:28:30.120 | out, you've got a plan.
00:28:34.080 | Another triggering event from our lifestyle is traveling.
00:28:37.720 | When traveling with children, everyone starts to get tired.
00:28:40.440 | Everyone starts to get hot and just done and needing some food.
00:28:44.880 | And often when we're traveling, we're trying to go at an in-between time.
00:28:48.360 | So I've been annoyed and frustrated at times where we wind up having a big fast food bill
00:28:53.320 | when it's not particularly the quality of food that I'd like to have and it's not particularly
00:28:57.520 | the price of food that I'd like to have.
00:28:59.780 | So got to solve it.
00:29:01.400 | Got to make a plan.
00:29:02.400 | Well, what do we need?
00:29:03.400 | How do we eat on the road?
00:29:04.800 | What convenient food can we have that will solve the problem and how can we stock up
00:29:08.800 | in advance?
00:29:09.880 | So then the solution becomes purchasing some car snacks or some things that are always
00:29:13.440 | available, adding to our packing checklist when we're leaving, what food are we going
00:29:17.800 | to have available so we can avoid a $20 fast food stop.
00:29:23.640 | These are all examples from the world of food, but the same principle applies to other areas.
00:29:30.200 | In order for you to make measurable progress, you usually have to get more granular in your
00:29:36.200 | analysis.
00:29:37.200 | You've decided that you'd like to save money on electricity.
00:29:41.160 | Great.
00:29:42.320 | How do you do that?
00:29:43.320 | Well, you can flip some lights off here and there, but then you might be a little bit
00:29:47.280 | annoyed when your bill next month is still only $2 less than it was the month before.
00:29:54.380 | If you're going to save money on electricity, you start with analysis.
00:29:57.000 | Here's how I would do that if I were doing it for you.
00:30:00.640 | We go around your house and we try to identify all of the users of electricity.
00:30:06.400 | We try to figure out if – to the best we can, what's going to make the biggest impact.
00:30:11.240 | Now in the world of electricity, there's going to be the big ones and the little ones.
00:30:16.200 | Some of the big ones you can change or maybe willing to change and some of them you may
00:30:19.600 | not.
00:30:20.600 | But let's go ahead and we would make a list of all of those things.
00:30:24.480 | So I would start with things like appliances, the air conditioning or if you have an electric
00:30:28.840 | heater, electric heat, the dishwasher, the washing machine, the electric clothes dryer,
00:30:35.840 | the electric water heater.
00:30:37.840 | Then you go to different things that are around the house, the microwave, the lights, the
00:30:42.680 | fans, etc.
00:30:45.280 | If possible, if you can get the data, for example, it's relatively easy to calculate
00:30:50.160 | the light draw of a lamp.
00:30:52.840 | You can either do it based upon the bulb or you can get yourself a kilowatt meter and
00:30:56.600 | plug it in and that's a brand name, Kilwatt, W-A-T-T.
00:31:03.120 | Get yourself one of those little devices and plug it in and measure the actual power draw
00:31:07.480 | of it.
00:31:08.560 | Measure the power draw of your toaster.
00:31:10.960 | And then you can start and start to implement different strategies.
00:31:14.600 | One strategy may be how do I kill the phantom power draw of my TV, my cable box, my internet
00:31:22.520 | when I'm not using it.
00:31:24.720 | Trot down to Harbor Freight, grab a couple of dollar power strips, plug it in where you
00:31:28.440 | have an off switch and install a new habit into your life where when you're done watching
00:31:33.080 | TV or when you're done with the computer, go ahead and flip the switch and completely
00:31:38.240 | kill the outlet to stop the phantom power load.
00:31:43.080 | That'll save you a little bit but every little bit counts.
00:31:46.960 | So learning about the phantom power load and calculating the phantom power load will help
00:31:50.720 | you to cut your electricity bill.
00:31:53.520 | You may go through and install a new habit into yourself and your family of turning off
00:31:58.360 | lights when you're not using them.
00:32:01.320 | And actually doing that will start to save you some money.
00:32:04.640 | You may change out some of your lamps for slightly lower wattage bulbs or you may go
00:32:09.360 | ahead and upgrade the bulbs in your house and move from incandescent into CFL or LED
00:32:16.040 | or upgrade your CFL bulbs when they go to LED.
00:32:19.600 | On that case, your way of cutting is you're going to start shopping, find a good deal
00:32:22.840 | on LED bulbs and start purchasing them using some of the discount purchase strategies and
00:32:26.720 | swap those out.
00:32:28.080 | That'll be helpful to you.
00:32:29.080 | That'll save you money.
00:32:30.800 | And then you may look at each of your appliances and you may start to do an analysis there.
00:32:34.760 | Perhaps you're – I'm not about to start washing my clothes by hand to save money on
00:32:39.080 | electricity on my washing machine.
00:32:40.560 | That's a big deal.
00:32:41.560 | But you could run the washing machine with a full load instead of with a partial load.
00:32:46.320 | So instead of doing your laundry so frequently with small loads, purchase a few more clothes
00:32:51.560 | so that you can get it through and run it with a full load.
00:32:55.040 | That may be more efficient.
00:32:56.780 | With your electric clothes dryer, you go down and you string up a clothesline outside and
00:33:02.120 | you either dry your clothes fully in the sunshine or if you need them to be fluffed and softened,
00:33:07.120 | dry them mostly in the sunshine and then just finish them up in the dryer.
00:33:10.200 | That will save you electricity.
00:33:11.800 | Or install a clothesline inside.
00:33:13.440 | If you don't want to leave your clothes out through the freezing winter and have them
00:33:16.160 | freeze themselves dry as our great-grandparents did, go ahead and install one somewhere else
00:33:20.940 | in your house, in your bathroom, in your garage or in some way where you can dry the clothes
00:33:25.800 | at least partially inside instead of just constantly using the electric clothes dryer.
00:33:30.880 | That would be a strategy for drying clothes.
00:33:34.640 | Your water heater, maybe you turn down the temperature.
00:33:37.680 | Your safe operating temperature on your water heater needs to be 120 degrees.
00:33:40.240 | It always needs to be hot enough in order to kill bacteria.
00:33:43.000 | But you may turn it down.
00:33:44.000 | There's no reason for it to be 150.
00:33:45.880 | Turn it down to 120 degrees.
00:33:47.960 | Perhaps you can go and purchase an insulating blanket to install – and install better
00:33:52.740 | insulation on your water heater or perhaps it's time to go ahead and upgrade your water
00:33:56.560 | heater to an instant hot water heater, electric or gas, or one that's more energy efficient.
00:34:04.440 | Do the calculations and figure out if that's the right move.
00:34:07.240 | With your air conditioner, perhaps this is the time to go ahead and have spray foam insulation
00:34:11.800 | sprayed into your attic or to upgrade the actual air conditioner or just to get a new
00:34:16.240 | thermostat.
00:34:17.240 | Instead of having a standard thermostat, you will go ahead and install a smart thermostat
00:34:23.060 | which will help you to save money by changing the rating, the thermostat rating at a time
00:34:30.560 | that you don't use it.
00:34:31.560 | Or go ahead and install some fans.
00:34:32.840 | If you'll install a fan and put a fan by your feet at your desk or install a ceiling
00:34:38.880 | fan in your bedroom, you'll be able to be more comfortable by having some circulation
00:34:44.680 | of the air which takes the heat away from your skin.
00:34:46.680 | You'll be able to be more comfortable at a higher temperature on the air conditioner.
00:34:50.800 | Or perhaps you can install a window unit into your bedroom and at night when you are in
00:34:56.480 | your bedroom, you turn off the central AC and you just simply use your window unit.
00:35:01.000 | The point of these discussions is to give you specific practical ideas to save on your
00:35:08.000 | electric bill but also to demonstrate to you a method of analysis wherein you break things
00:35:13.880 | down based upon their category so that you can figure out the tricks to apply to savings.
00:35:21.600 | One more on the electric bill.
00:35:23.360 | The reason I'm doing this is that your electric bill is not something that you can really
00:35:27.400 | beautifully itemize sometimes.
00:35:30.000 | Sometimes your electric bill is just an electric bill and if you just – you have your canceled
00:35:33.880 | check or the line on your bank statement that says electric bill.
00:35:38.320 | So you're not going to use this method of detailed analysis in your budgeting software
00:35:42.760 | but you can use this in your analysis if you look at it the way that I've done.
00:35:48.120 | You would analyze your actual electric bill in terms of the things that might be available
00:35:52.780 | from your electric company.
00:35:54.720 | With our electric company, they offer something where if you sign up for their overflow program,
00:36:00.600 | forget the name of it, they'll give you a discount on your bill.
00:36:03.280 | So they install a switch in your house and by installing that switch, they have the option
00:36:07.440 | to turn off a couple of your major appliances during times of high load.
00:36:12.620 | For us, it's the summertime when it's very hot.
00:36:15.040 | They have the option of turning off your circuits to your air conditioning in order to keep
00:36:21.480 | their grid working effectively and well.
00:36:24.560 | There's a savings for that and because of that savings being there, it's worth it.
00:36:30.960 | In my experience after years of having this in the houses that I've lived in, I'm
00:36:35.000 | not aware of any time they've actually used it.
00:36:37.120 | But it's a good savings mechanism to lower and get a discount on your bill.
00:36:42.080 | Or another example would be if your electric company may offer a difference of peak versus
00:36:46.980 | non-peak billing and they'll bill you instead of having a flat rate for 24 hours a day,
00:36:52.560 | they'll bill you a higher or a lower rate based upon peak usage.
00:36:56.800 | Well, analyze your usage.
00:36:58.160 | Usually they'll help you do this and you may be able to change some of your usage patterns
00:37:02.960 | in order to use electricity at off-peak numbers versus the peak debt times.
00:37:10.080 | If you might do laundry at nighttime instead of during the daytime.
00:37:14.160 | Here in Florida, the peak hours are during the daytime when there's the giant load
00:37:18.880 | for air conditioner – for an air conditioning.
00:37:21.760 | If your house is empty because you're at your office all day, there's no reason
00:37:25.440 | for you not to go ahead and participate in that program.
00:37:29.360 | You can leave your air conditioning off or turned up while you're away at work and
00:37:32.920 | then when you come home, that's the time that you turn your air conditioning on, start
00:37:36.240 | your electric stove.
00:37:37.240 | That's the time that you wash your laundry and dry it anyway.
00:37:40.920 | So why not take the savings and use the off-peak hours?
00:37:45.160 | You have the ability to do this for every category of your budget.
00:37:50.560 | I'm not going to go through every category.
00:37:53.280 | I'm going to encourage you to do it.
00:37:55.740 | But the point is for you to take and think in advance about the things that are impacting
00:38:02.060 | your budget.
00:38:03.320 | I'll give you one last final category example.
00:38:07.800 | With your giving and your gift, I think you should track that.
00:38:14.400 | But I think you should have a level of granularity that doesn't just say giving because there
00:38:19.040 | are some types of giving that you can minimize the cost of without minimizing the impact
00:38:25.560 | and the effect.
00:38:28.260 | If you're giving your money directly, that should be tracked and that should be tracked
00:38:36.420 | so for your own personal accountability.
00:38:40.300 | If you are tithing to your local church, that's a dollar financial contribution that comes
00:38:46.740 | right off the top of your budget and so that should be counted as tithe.
00:38:50.940 | A tithe is not to your local church.
00:38:52.820 | A tithe is not a three percent.
00:38:56.460 | That's a ten percent of your income into your local church.
00:38:59.820 | Similarly, that's not a contribution to your favorite animal charity.
00:39:07.100 | Perhaps you want to support your favorite animal charity but that should be reflected
00:39:10.100 | as a different category.
00:39:12.060 | Now that type of giving or giving personally to people who are in need, giving them cash,
00:39:16.940 | that type of giving is different than the giving of gifts at scheduled occasions such
00:39:23.620 | as Christmas gifts or birthday gifts.
00:39:26.660 | For many people, this is one of those challenges especially when you have children and your
00:39:30.140 | children have friends.
00:39:31.720 | It can be expensive to develop birthday gifts.
00:39:34.860 | Well, plan ahead.
00:39:37.020 | Develop a category called birthday gifts in your budget tracking system so that you are
00:39:43.060 | aware of how much money you're actually spending on the birthday gifts for your friends.
00:39:49.300 | Depending on age appropriateness, you can start to plan ahead.
00:39:52.220 | When my wife was growing up, her mom always maintained a birthday box, a box of toys and
00:39:59.220 | gifts that were new, freshly available but that were purchased on discount and clearance
00:40:04.900 | and they were always available so that when there was a birthday invitation, then they
00:40:08.740 | always had a box.
00:40:09.740 | Just go to the birthday box, grab a present and that way it will pass that along as a
00:40:13.900 | birthday gift.
00:40:15.420 | But you can buy those presents during the after Christmas sale and get them for 20 cents
00:40:19.780 | on the dollar.
00:40:21.620 | That's a good way of cutting back on your birthday expenses.
00:40:24.980 | You need to isolate what's the problem.
00:40:27.580 | The problem is birthday gifts.
00:40:29.740 | Do I want to participate?
00:40:30.740 | For most of us, yes, I want to participate.
00:40:33.140 | Giving a birthday gift is valuable.
00:40:35.180 | But participating doesn't mean I have to go out at the last minute and pay full retail
00:40:39.300 | price for some piece of plastic.
00:40:41.900 | I can participate in a way that is more sensible and is done in advance.
00:40:48.580 | Check it out appropriately to help you analyze ways to save money.
00:40:54.380 | The business philosopher and theorist Peter Drucker famously said, "What gets measured
00:41:00.200 | gets managed."
00:41:01.200 | That's perfectly true in the world of finance.
00:41:08.700 | What gets measured gets managed.
00:41:13.260 | Finance is perhaps the ultimate expression of this because we're dealing with numbers
00:41:18.380 | in and of themselves and it's easy to measure those things.
00:41:22.540 | But measure them across your budget.
00:41:24.380 | Don't fall prey to the idea of, "Oh, I'm just good enough to figure it out."
00:41:29.220 | Guess what?
00:41:30.220 | You're not.
00:41:31.220 | You're not.
00:41:34.860 | Nobody is that consistent and that in tune with what's going on in their life mathematically
00:41:40.260 | that they can just figure it out.
00:41:42.900 | You need to have a baseline of measurement.
00:41:45.860 | Now, recognize that there will be growth but look at some area of your budget this month
00:41:53.420 | and start measuring it so that you can manage it and so that you can improve it.
00:41:59.100 | Whether this is at the small end of measuring how much money you're spending on meat, how
00:42:03.300 | much money you're spending on fruit and veggies, and how much money you're spending on the
00:42:06.940 | sales tax of your food.
00:42:08.380 | That's not a category that I maintain, a sales tax.
00:42:10.340 | It's interesting because by making different choices, make your own granola.
00:42:15.180 | You can buy raw food and there's no sales tax.
00:42:18.660 | Make by the pre-made granola and you pay sales tax on it.
00:42:21.700 | It's where I live in a sales tax state.
00:42:23.260 | That's a 6% savings.
00:42:24.260 | Right there, it just has an example.
00:42:26.420 | So whether it's at the small end of your food or your electric usage or your mortgage and
00:42:32.940 | figuring out how much money you're paying interest and you go to the market and you
00:42:35.620 | shop it or whether it's looking at your investment portfolio and going through and calculating
00:42:39.940 | the expense ratio on your mutual funds and calculating the mortality and expense charges
00:42:44.800 | on your annuities and on your life insurance policies or on your disability insurance or
00:42:49.380 | your car insurance, what gets measured gets managed.
00:42:53.800 | You can't measure everything all the time or at least I think very few people can do
00:42:58.500 | that.
00:42:59.500 | Many people, they just don't enjoy the minutiae enough to do that.
00:43:02.980 | You might.
00:43:03.980 | I do.
00:43:04.980 | I enjoy the minutiae.
00:43:05.980 | But you can measure it in specific points at a time and establish a baseline.
00:43:10.340 | And once you've established a baseline of comfort level, then you can start to improve
00:43:14.060 | things from there.
00:43:16.540 | So get detailed with your budget.
00:43:17.980 | Your tracking is there to serve you, not to do just because it's objectively good.
00:43:23.500 | Thank you so much for listening to today's show.
00:43:24.820 | I hope this has been useful to you.
00:43:26.260 | I think this will be my last one on this theme for a little while unless I have something
00:43:30.020 | else to share.
00:43:31.020 | We'll move on to more topics in the future.
00:43:32.940 | If you would like to support me and the work that I do, I'd be grateful if you'd become
00:43:35.660 | a patron of the show.
00:43:36.660 | Go to RadicalPersonalFinance.com/patron.
00:43:37.660 | RadicalPersonalFinance.com/patron.
00:43:42.180 | If this information has been valuable for you, I deeply appreciate that.
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00:43:54.940 | This show is part of the Radical Life Media network of podcasts and resources.
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