While I’ve been tracking my historical spending for a while, it took time to come up with a system and categories that I was happy with: in fact, it took me years to get to a set of Master Categories that actually helped me reduce my spending, instead of just tracking my spending.

The Importance of Master Categories

Back in 2016 my budget and my tracking historical spending was a mess – I had over 2 dozen (maybe 3 dozen?) master categories and everything was so broken down that I never had more than a few grand worth of spending in any one category. Things like “Clothing” and “Supplements” were major categories: through trial and error I now know that, ideally, these items should be sub-categories.

Reviewing my spending 2 years ago, I was baffled – I thought we made decent coin. Where was all the money going? How on earth could Millennials that made less than me, had more debt than me, and lived in more expensive cities than I am (I‘m looking at you Toronto and Vancouver) actually make ends meet??

It wasn’t until I found Million Dollar Journey that I began to see where things were off – he had maybe a dozen spending categories, and everything in them seemed somehow right: the amounts in each category, the categories themselves…something about them seemed to resonate with me. And he had 2 kids to boot. So I refined the master categories in my historical spending tracker to be no more than 10.

I was in for a BIG surprise:

spending_2016

2016 Spending by Percent

For YEARS I had the nagging sensation in the back of my mind that we could (or should?) be saving 30% of our income – at a MINIMUM. It wasn’t until the fall of 2017 that I finally found the tools I needed to turn things around.

I dug a little further into that “Spending” category and found it contained items like:

spending_2016_breakdown
I don’t regret the appliances – my GOD I love my new appliances. 99% of rest of the items here? Not necessary in the least.

How does my spending in 2016 affect my financial goals? This accounts for almost $30,000 in spending – out the door! Don’t get me wrong, I replaced our fridge and dishwasher and couldn’t be happier (I have a thing about appliances – not to mention using my old fridge was actually hurting my back from it’s awkward design).

Even with the purchase of new appliances, there’s still quite a bit going out the door. If I had cut this spending in half, I would have an extra $15,000 in my pocket – if that money was invested at an annual average return of 8%, I could have had an additional $70,000 in capital gains 20 years – by the time I was in my early 50s. Ungh, it hurts.

But capital gains is not one of my financial goals, and it’s important to me to remind myself to stay on track with what I really want, which is:

  1. Replace my income with dividend cash flow (long-term goal) (approx. $50,000-$60,000/yr) (okay, this may be a little higher than my actual income…)
  2. Replace a portion of my income so I can go down to working 4 days a week without feeling a hit financially (short-term goal) (approx. $4,800/yr or $400/m)

If I had invested that $15,000 in dividend funds at a 4% dividend rate, I’d have an additional $600/year – CASH. I’d be $600/year (12.5%) closer to my short term financial goals.

But you know what?

I’m not going to beat myself up over it

Looking back on my spending in 2016 was a real eye-opener: but having the right tools and systems in place to break down where things went wrong was even more important. The same tools and systems that helped me identify the spending problems I had in 2016 will also help me avoid making those same mistakes in 2018 and beyond.

So even though 2016 was a bummer year in terms of financial prowess, I’m glad I’ve made the progress that I have since then: I’ll celebrate my progress, and leave perfection at the door.