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  • Writer's pictureRebecca Herbst

A $20,000 mistake we won't make again

Joe and I messed up. We overspent in 2022. By a lot.


How did this happen? Well, it took a moment for us to figure out.


Joe and I meet monthly to discuss our finances. Because we are early retirees, we need to be extra careful about our finances so we don't run out of money before we die! Each month we discuss a whole bunch of things including (1) how much we need to sell from our regular brokerage accounts to cover our expenses (2) the dividends we expect to receive (3) credit cards we need to pay off, and (4) review our donations we make the effective charities. Currently, we continue to donate stock directly on a regular basis to GiveDirectly.


At the end of the year, we have a more detailed meeting where we finalize our expenses for the year and set a plan for the next one.


On December 31st, we had a rude awakening.We spent over $20,000 more than we planned. This. Was. Not. Good.


My first reaction was immense frustration. How did this happen? Who's fault was this? Mine or Joe's? Or perhaps it's the market's? Groceries cost a fortune these days! Then, it was embarrassment. I don't have a grip on my own finances, and I teach people about it for gods sake. How could I possibly have made this mistake?


After an hour of huffing and puffing, we started having a real conversation that was sticky and uncomfortable. But we got to the root of our overspending. Here's what we found:


(1) We were so very strict in the past that we tried to loosen up a little.


After years of budgeting and living frugally, we wanted to lean a little more into experiences. So we started going out to eat a little bit more, having a few more drinks than the usual, driving more, and doing more experiential things like renting e-bikes when we traveled. We hoped that our years of budgeting habits would stick. And I genuinely believe most of the good habits did. But spending habits can still be slippery. I'm still all for the experience of renting an e-bike and exploring Tuscany (worth it!), but perhaps we let some other things slip like driving to the ski mountain most days when we could have taken the bus just as easily. So deep down, I still believe it was the right choice to loosen up a little and explore some more relaxed spending habits, but we just need to continue to play around with how to do this. At the end of the day, this type of spend ran us an extra $1,500 - $3,000 for the year (it's hard to put a specific number on it cause our life has changed so much).


So if luxuriating in a few things wasn't our main problem...then what was?


(2) We tried to do it all.


We tried to do too much in one year. We had a wedding, travelled for 2 months in Europe, embarked on complex home renovation projects, furnished our empty house, and I personally spent thousands of dollars getting out-of-pocket Myofascial Release Therapy for a chronic injury I have. It's not that we can't do all these things, it's just that maybe we can't do it all at once. Therapy was critical for me, so perhaps delaying home renovations could have waited until I didn't need to see the MFR therapist at the rate I was last year. Or perhaps traveling for 2 months and getting married in the same year wasn't ideal.


The funny thing is, we did all these things on a budget! Our wedding was right on budget, our Europe trip was supremely supplemented by Joe's credit card churning efforts, and our home was furnished with Facebook Marketplace finds. So on the surface, it looked like we were being frugal, but underneath we simply had spread ourselves too thin. And I think a lot of people fall into this same trap. You can buy all the discount items you want, but they still add up.


(3) We didn't adopt the right system for tracking our expenses.


Coming together as a couple can be exciting, but bringing together your finances can be tough. Joe and I are both very much so on the same page morally when it comes to personal finance, but operationally, we had totally different systems that we hadn't really brought together. We started sharing credit cards but we never combined the systems in which we track our expenses. I used both Personal Capital for tracking my investments and Mint for tracking my expenses, and Joe continued to use his separate Mint account to track expenses. This put us in a tough spot to properly track our spending throughout the year. We simple lost awareness of our spend. And we didn't formally check our total spend until the end of the year. In hindsight, this feels like a total rookie mistake, but we were so focused on combining our investment portfolio we never focused on combining our expenditures. (Outside of this mishap, I will say we have done a kick-a** job of combining our investment portfolio and managing our taxes...just not the spending piece).


These three mistakes, combined with a slow down in the stock market as well as increased inflation, we definitely felt the blow.


But with all that said, we are ok.


One year of mistakes is not a lifetime of mistakes. And we have learned a lot, and we can bet our last dollar we won't let this mistake happen again. I've never made the same finance mistake twice, and frankly the things that have stuck the most with me are mistakes I've made


Like the time I over-contributed to my HSA...haven't done that again. Or the time Joe contributed the maximum IRA amount to both his Traditional IRA and Roth IRA, essentially doubling the contributions he is allowed to make. He certainly never did that again!


Mistakes are ok. They are learning experiences. And on this crazy path beyond early retirement, this isn't the first and only mistake we are going to make. I view spend as a pendulum, swinging to the frugal side then swinging back to the luxury side. It will take some time to find that right balance, and that balance might change as our life continues to change. We never owned a fixer upper before this past year... of course it was going to take some trial and error to figure out our expenses. I'm sure we'll face big changes again down the line.


So mistakes were made. But now we have a plan.


Joe and I still maintain our independent Mint accounts, BUT now we have a combined mint account and we linked up all of our information there -- including shared credit cards and checking accounts as well as our individual investment accounts so we can get a full picture in one place.


Now once a week we sit down and look at all our expenses one by one and categorize them in a way that we both agree upon. This does a few things for us:

  • Increases awareness: Simply by looking at our spend on a more frequent basis we become more aware of our spending habits. I feel this already!

  • Builds mutual partnership: We are creating an agreed upon and mutual understanding for how we categorize expenses. For example, I wanted to pull out home furnishings from home renovations as I see these as very different types of spend, and Joe wanted to capture how much I spent on healthcare so we could see how this number might change if we were to have children. We simply couldn't do this very well before with our separate systems.

  • Catch mistakes: We can catch any errors easily -- say a restaurant overcharged us or we haven't seen a refund payment for something we returned

Our tips for combining expenses in Mint


(1) Make a shared email address to set up the Mint Account. That way you can still have your own account as a well as a shared one. We just made up a gmail account.


(2) Set up formal time once a week to review your expenses together. This will keep the practice consistent and ensure that you and your partner are on the same page about finances. This includes what you spend your money on, how often you spend on things, and your methods for tracking that spending. It should take you no more than 5 minutes to do this.


(3) Come up with shared "language" for how you define and categorize expenses. Mint will attempt to categorize these expenses for you, but you and your partner should be active in reviewing each category and description. For example, Mint wanted to categorize any extra ski tickets we purchased under Sporting Goods, but we felt this was more entertainment (a luxury purchase to ski another mountain outside of our home one Snowbasin). Furthermore, you and your partner might have different thoughts about how to categorize expenses. Work through this together. One of you might think a gym membership is part of your health spend (necessary) and one of you may view this as really a luxury and thus bucket it under Personal Care.


Whatever you decide should be right for you both. You can make up your own categories or add subcategories. For example, we felt "utilities" was too broad of a subcategory" so we created "electric" and "gas" so we can track those separately.

Source: Mint


(4) Make use of tags if you want to give an added layer to categorizing your expenses.

We use the trends section in Mint to get quick snapshots of our spending. We created the tags "Joe", "Rebecca", and "Family" so we can quickly dissect spending by person. Each time we have an expense we tag it as such.

Source: Mint


Final thoughts

Coming together as a couple to share finances is a whole new world. Frankly speaking, I don't see enough resources on this...especially in the FIRE community. You may feel friction as you work together to build a new template for exploring your finances. But now, even though we are not always on the same page, we have a framework to discuss the contents of the same book...and we're both the better for it.


Do you have a thoughtful way you work through spending with your partner? I'd love to hear your ideas. Reach out!


Boost your Wallet. Wellbeing. World.

Rebecca


 

Disclaimer: The information contained in the Yield & Spread website, course materials and all other related content is provided for informational and educational purposes only. It is not intended to substitute for obtaining accounting, tax, or financial advice, and may not be suitable for every individual. Yield & Spread is not a registered investment, legal or tax advisor or a broker/dealer.


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