My learnings from setting a budget and tracking expenses reveal that stress impacts wallet. I want to not just save more money, but to also build a happy life. This is my experience and its lessons.
Choosing where to live
In October of 2015, my boyfriend and I moved in together and decided to combine our finances by setting a budget and tracking expenses. To chose where to live, we opted to rent instead of buy because we value convenience. However, houses near convenient areas are over-priced. While we have the cash to buy, we chose to invest in the stock market instead. Residing in a central area isn’t cheap, but it means that neither one of us need to drive to work, thus allowing us to keep using our beat-up car.
We found a small one bedroom apartment for $2250 in an ideal location. At barely 600 square footage, it is small but new and offers free parking. Plus, and the limited space has forced us not to accumulate too much stuff.
Setting a budget
My boyfriend and I are both financially responsible people, and we are lucky enough to have good-paying jobs. We don’t know what our new life together will bring, so we made some simple rules. First, we set a cap on our monthly budget at $7,000 per month. This budget includes student loans and will allow us to save 50% of our income. If we go under the $7000 budget, we will money the difference into a vacation fund.
Personal Capital is the tool we use to track our spending. Because we are not married, we have two separate accounts, and we each use Personal Capital to monitor and categorize all of our expenses automatically.
Personal Capital is good at tracking spending, but not good at offering a holistic view of expenditures. So I built an excel model to do that. We use the model each month to go over how much we had spent.
Learnings from tracking expenses: high-level view
Below is our monthly expenses tracked in the past 16 months (October 2015 to Jan 2017). The blue line is the actual spending excluding vacations. The red line is a 6-month moving average. By excluding vacations, I can look at how our “normal life” expenses are changing over time.
Here are my two takeaways from the chart above:
- Yes, we can, and yes we did! We created a budget, and it allowed us to save more than 50% of our income into stocks and build a vacation fund.
- My stress level at work impacts how much I spend. It is not a coincidence that in August of 2016, our expenses started to rise as I started on a project with a toxic culture. As a result of all the stress I gained at work, I stopped running and went home every day unhappy. When I am stressed out, I feel more justified to spend to reward myself.
Learnings from setting a budget: deep dive
When I added up all the expenditure in the past 16 months (10/2015-1/207) and broke them into categories, the table below shows that we had spent $6,810 per month including vacation spending.
But setting a budget is not just to save money, but also to find happiness. To get happier through budgeting, we want to see if we could review and see if we change anything:
- 56% of my overall expenses are non-negotiable expenses in rent and loans. Our rent is already on the low end in an expensive city, and we are not willing to move outside of the city. Our loans are being aggressively paid off. This is all good.
- 15% of my overall expenses go to food: We spent 11% of our budget on restaurants and only 4% on groceries. This is a lot. Americans spend 9%-12% on food; we ought to eat out less and cook more at home in 2017.
- 8% of our overall expenses went to travel: We value experiences more than items; we are totally okay with this.
- 20% of our expenses went to “living life” – from paying for our cell phones, buying movie tickets to toothpaste, to paying for our car insurance and dental cleanups. Overall, I don’t see any alarm bells. To save more and find happiness, I think we will do more, and buy less.
- 2% of our expenses went to “gifts & business” – My boyfriend buys a lot of gifts to his families whereas my family and I are not into gifting. But it is part of his culture, and the expense is reasonable.