At the end of every month, I review my finaces and track basic thinks like my savings balances, debt balances, how much I earned, and how much I spent. This is usually pretty standard work, with my debt going down, my savings going up, and my income and spending staying the same. This is good on a monthly basis, but at the end of the year, I look at everything as well to see patters that may need to be adjusted. When I looked at my numbers for last year, I was a bit shocked.
I made a bit more money (gross) than I did in 2010 – mainly because I changed jobs. I thought that this would lead to a whole slew of savings – less money on gas (I fill up about 2 times per month now, as opposed to 3 times per week), more time to earn more money, and all of those things. The numbers however, slapped me straight across the cheek. I spent almost 10k more in 2011 than I did in 2010. I’m trying to figure out where that is, but I think one reason is because I spent so little money in 2010 (less than 15k) and of that 15k, approximately 6k (!!!) was on gas! Those results probably were not sustainable for the long term.
What I like to look for in large increases like this (and large bills) is a small number of relatively large purchases that make up the majority of the increase, as opposed to a whole bunch of 10-20 dollar purchases. If I found out that most of these purchases were dining out, extra shopping, etc then obviously, i’d have a lifestyle inflation problem. However, if these were big purchases that I’d been preparing for and was ready to make, they wouldnt be that big of a deal.
One of the large purchases that contributed to this was getting an engagement ring for H. This alone took up quite a bit of the extra spending, but it was something that I was planning on doing in 2011 and was ready for it. I didnt quite get as much saved as I would have liked, but I was able to cash flow the purchase more or less. Though it was planned, it was an expense nonetheless. Obviously, this wont be an expense again in 2012, though the process that this set in motion could (and has) taken its place.
One of the other large purchases I made (not by choice) was payment of taxes. I call this a purchase because I dont know what else to call it, but it was a huge expense for me in 2011, and it added quite a bit to this total as well. Not only did I have to pay federal taxes, but because of my working/living situation in 2010, I had to pay state taxes for a state that I didnt even live in! (Not to all of you that live on state borders – work in the state with low income taxes, but live in whichever state you like better). Unfortunately, I didn’t have much of a choice because I needed a job. This will be an expense in 2012, though not near as bad as in 2011. I’ll still have to pay a small amount of state taxes (I’m guessing less than 300 dollars) and dont know about my federal taxes. I did change my withholding amount with my new job because I didnt want another huge tax bill as a pre-summer “surprise”. Back of the envelope calculations I made suggest that I’ll be nearing the magic “zero” mark for taxes this year – which is where I want to be.
The last one wasnt quite a 1 time expense like this, but it does deserve an honorable mention: all the damn traveling I did in 2011. From January to december I felt like I was on the road the whole time. I went to Portland (OR), Multiple Trips to Colorado, St. Louis, Des Moines (IA), Las Vegas (NV), Minden (WV), Aspen (CO), Anchorage (AK), Chicago (IL), Washington (DC), Milwaukee (WI), Pittsburg (PA) and Chicago (IL)(again). This was a lot of travel – too much, actually. I’m working on getting it down to hopefully half that for this year, but I’ve already got a handful of tickets booked/trips planned, for the honeymoon and other things.
Obviously, these will be large categories to watch for 2012. While most of the expenses wont come again - their offshoots will (like wedding expenses) or more travel. I’ll need to be diligent if I want to keep making progress in 2012.
Readers: What were your big expenses in 2011? Were they 1 time deals, or was it a bunch of small recurring transactions?
Even big one time purchases can by a sign of lifestyle inflation. The traveling particularly. Because yes the traveling you did was one time but of course you will travel again and if you don’t put a monetary limit on that traveling then it can turn into lifestyle inflation.
We bought a second car. Paid cash for it. the car itself is a one time expense but with increased gas and car insurance it isn’t. But since it was a planned expense we adjusted our budget for these increases and cut back on other things before we started incurring the new costs.
I think travelling is a big one emily – and one that I have pretty much put the breaks on in 2012 except for the wedding/honeymoon, and traveling related to accomplishing my goals for the year.
That is awesome that you paid cash for your car! I hope that I can do that with my next cars.
We did a lot of traveling in 2011. A lot. But it was all because the wife was quitting her job this year and we are going to have kids next year so we wanted to squeeze it all in.
thats some great reasoning – it sounds like you were more prepared than I was for lots of traveling.
We didn’t spend much money in 2011. No new car, traveling, or anything like that. It was a pretty low key year.
The baby didn’t cost all that much because we saved in other areas like eating out and travel. Good luck in 2012!
that is awesome joe! Great way to have a low-key year.
I spent a lot of money on the business school application process, weekend getaways, and deposits for the wedding. On the “small expenses” side – we also went out to eat SEVERAL times a week. Not so good for the waistline or the wallet. We’re trying to fix that.. I wish I had been more disciplined last year. We could have easily saved a few thousand bucks if we weren’t so careless with dining out.
I think that usually it’s the smaller expenses on trips like eating out that really end up getting to you – you expect to spend X on the trip, but totally forget that you’ve got to eat as well.
Our big-time expense for last year was a new (to us) minivan. The old one had a transmission failure. We’re paying it off now but thankfully we could take advantage of a ridiculously low used car loan rate.
I use Quickbooks to track my spending and income and know that our rent and utilities have gradually increased over the years. Little by little, it now eats up 45% of our income! Ouch. However, I’ve also been able to reduce some of our other expenses like eating out. And we just paid off our car, so our auto expenses should decrease (except, gas has increased so hopefully this won’t be a wash!) I like comparing previous years with current years, so QB is a great tool for me.
that is awesome about paying off your car, but that must be some expensive rent! Sheesh!
We bought a car and it is not as efficient on gas as our other car…I saw the spike in our budget on account of this expense.
I think most of my spending was on travel, but I’m going to curtail that this year. I have some miles that I will redeem instead. My plan for 2012 (Feb-Dec because I made the decision too late for Jan) is to stick to a savings plan where I have to save a pre-determined minimum no matter what pops up.
The birth of my son – because he was immediately admitted to NICU after birth, I had to pay HIS deductible on top of my own (most healthy babies are included under their mothers deductible for the birthing process). Between both of our out-of-pocket maxes, we put $3500 into medical expenses. What’s more, it wasn’t even enough to itemize!
My biggest expense was the birth of my son. Because he went to NICU immediately after delivery, I had to pay for his deductible (and subsequently his out of pocket max) on top of my own – a total of $3500!
Lifestyle inflation is unavoidable at times. Specially if you really need to spend even if you don’t want to. Here is one tip I could share: Cut some bills that are unnecessary, an example is some credit card that you just keep in your wallet. Annual fees are large too you know.
Let us all be aware that lifestyle inflation is so easy to fall into and so hard to get out of.
It would be easy to get used to having more money without thinking about it. When my student loans are paid off in less than three months, it will be like having an extra $700 per month. I have a plan in place to make sure I invest it and save it rather than spend it.
I had a lot of travel expenses and tax payments last year too. I’m hoping not to have any big surprises this year though. I have a few trips already planned but other than that I’m in savings mode right now. -Sydney
2011 was my first full year of tracking everything so I can’t say which purchases stood out. I did learn a few things though! Because I lost a little bit of weight I knew I spent more onclothing than I did in the two years before, but I was surprised at how much (something like 1700) ouch. I also spend WAY more on eating out than i thought as well. I have a feeling I’ll owe some tax this year too.. hmmm.
thats good that you lost some weight, a great reason to update the wardrobe. The best part about all this tracking will be in a few years when you’ve got lots of data behind you