It's Just Money

Dave Ramsey Tip: List Your Expenses by Priority

I was listening to Dave Ramsey on XM Radio today (It's okay Dave, I didn't go into debt for XM), and heard a tip from him that I thought I'd pass along.  The caller was a woman who owned her own business.  The biggest problem that she was having was with inconsistent revenue.  Some months she makes more than her planned budget, and some months, she makes less.

The problem that she had was planning her budget with inconsistent cash flow.  This is a problem that is also shared by commission based salespeople and independent contractors.  When you follow Dave's plan, "every penny has a name."  In other words, at the beginning of each month, plan out where every single penny of income will go.  That includes necessities like rent or mortgage payments, food, and utilities.  It also includes discretionary spending such as entertainment, gifts, travel.  It also includes debt service and saving.  Perhaps the last group is the most important.

Most budgets operate on a similar premise.  Allocate your money, don't go over.  However, inconsistent earners find such budgets difficult to maintain.  Dave has a recommendation that I really like.  He told the caller to list all of her expenses.  He then asked her to put a "1" by the most important item (such as food), and a "2" by the second most important item (such as utilities).  The benefit is two-fold.  First, when you have less money in any given month, the most important items on your budget get addressed first.  Second, it gives you an opportunity to apply your priorities and values to your budget.

I have written many budgets, but I have never ranked them in order of priority.  I think it's also a good idea for couples to do this so that you can each see how your priorities match up with your spouse/significant other (it won't).  And where it does not, the two of you have a leaping off point for a discussion in which you may learn more about your spouse/significant other than just money.

Anyway, I have been critical of Dave in the past.  Just wanted to extend a hat tip for this good idea.

Five New Yorkers' Spending Diaries

You ever wonder how other people spend their money?  You ever look at someone and think, "how can he afford that?" or hear a friend or co-worker complain, "man, is it payday yet?  I don't know where it all went!"  and you think, "yea, what the heck do you spend your money on?"

Well, New York Magazine asked five New Yorkers to keep a spending diary for one week.  They profiled a grad student being subsidized by his folks, a junior professional who makes 54k, a mid-career fund raiser with a $150k income, an investment banker who lives on a hefty expense account and pulls in about $700k, and a Wall Street trader who brings in over a million bucks a year.

This is financial voyeurism at its finest.  Like other personal finance bloggers, I share my net worth every month.  For some that's already too much information.  But a lot of factors go into that balance sheet.  Unexpected income, wasteful expenses, cost cutting brown bag lunches, investment gains or losses, all mesh together to form a month end picture.  But, as we all know, the devil is in the details.  I would never display the transaction record from my credit card statement.  I certainly don't need, "I can't believe you would spend $xxx.xx on __________.  What a waste."

These New Yorkers were anonymous, but they bared it all.

We know that the 26 year old, $20k Grad Student spent $34.10 for dinner on a Monday night at a place called Bombay Talkie.  He spent $15.08 on Olive Oil and Mayonnaise from a grocery store called Gristedes.  $15.08?  And his parents pay for his $140/month gym membership.

We know that the $54k per year Junior Professional had soup and steamed vegetables for lunch at Angelica Kitchen for $19.  Saturday involved seeing the movie Marie Antoinette where he bought Milk Duds and bottled water for $6.50 (that's pretty reasonable, actually). No mention of tickets, so someone else must have bought the tickets.  Dinner was soup and grilled chicken at Cafe Orlin for $42.  This was followed by beer and smokes from a bodega on 2nd.  A bodega is a type of store.  I had no idea.  Beer at the Phoenix cost $15, and another dinner (is it only called "fourth meal" when it's at McDonalds?) of grilled cheese, omlette and potatoes from Moonstruck Diner topped off the night at $27.40.

The $150k mid-career fundraiser seemed to have a better handle on expenses than the other two guys.  His total for the week was $529.27.  Still a lot by most standards, but less than the $639.06 spent by the junior professional who makes a third of his income.  And only $75 more than the grad student who makes about a seventh as much.  The i-banker spent over three grand in a week, only $1200 reimbursed.  Her downfall is shopping.  Nearly daily trips to Ann Taylor or Nieman Marcus.

It's kind of nutty to see a week in the life of the budget of a 41 year old trader, stay at home wife and two kids with a seven figure household income.  In one week, they managed to spend over four thousand dollars.  Granted $1700 was to their contractor for some work they are having done to their four bedroom upper westside apartment.  Another $650 was for charity ball tickets.  The mind boggling one, $650 was their share of the check for dinner at Da Umberto.  That is some dinner.

How about you?  Do you keep a food diary?  What would we be surprised about if you displayed it for all the world to see?