Digging deeper for the junk food failure

For years I've been tracking my spending. It started in my first year of university over a decade ago when I wondered how I could make so much money and still have none left at the end of the week. Back in the day it was a simple notebook where I wrote down everything I spent, and totalled it up at the end of the week. Over the years it has grown bigger, more complex, and thanks to Google Sheets, easier to use. and yet somehow I still can't keep control of the 'miscellaneous' spending category.

Pen and Paper

In early university I wanted to buy an investment property, so I knew I needed to properly track my money in and out. At the beginning, all I did was write down what I spent in a notebook, and tally it up at the end of the week. Then I started recording my income at end of the week, directly next to my expenses. Then I started writing down $50 a week for 'bills' and $50 a week for 'savings'. Each time I had a bill I would deduct it from the saved amount. Then I found that making big luxury purchases was hard to fit into the budget, so I started making a list at the end of each week of things I wanted, and putting $5-$10 aside for them each week.

It was a good starter system, but I couldn't really see what I was spending on over the long term. Was I a booze hound? Did I blow all my money on video games? Should I stop buying books? (never stop buying books...)

Technology revolution

A couple of years ago I graduated to Google Sheets. Now I had 12 months of my expenses in my pocket at all times. Recording my spending was easy with my phone. I never had to worry about my pen running out of ink, my book running out of pages, or explaining to everyone what I was doing.

My spreadsheet has morphed and changed over the years, to a point where I now have 1 tab for each month, with columns for each spending category. Another tab collates all that spending into one easy to see snapshot. Other tabs track money being diverted into spending, and my income - which allows me to pull out spending and saving percentages at the drop of a hat.

This visibility of my money habits has dropped my spending from $46,000 in the 2015/16 financial year, to $42,000 in the 2017/18 financial year. While not a dramatic amount, watching my spending going down, and my lifestyle staying steady (or going up?) despite inflation has been a warm fuzzy feeling of success.

Yet somehow, in all of this I've been completely unable to get a hold on my 'miscellaneous' spending category.

Digging deep for expenses

For about a year I've been ending every month by kicking myself and saying 'stop spending so much on miscellaneous crap! It's your early retirement you're wasting!'. Turns out this isn't the most effective method. A lot of things sneak into this miscellaneous category. Some I can control, some I can't. Things like care packages for my derby team mates when they break limbs, and (very occasional) lunch meetings with my co-workers are things that I agreed to when I signed up for these communities. Some things I know are wasteful (hello Red Wine!) but I love and so I choose to continue spending mindfully. And some things are just plain stupid habits, like $7 coffees every time I'm at the airport...

After utterly failing to control this spending, I did a one year review, and here's what I found:

Books - $99.91, $7.93 a month

I am absolutely okay with this! I re-read books all the time, and since I was a small child I've had my nose glued to the pages. I could get more out of this time / money by reading investing books, personal development and all that other nonsense, but I love the escapism of reading about dragons and magic. (Right now I strongly recommend The Waking Fire: Book One of Draconis Memoria )

Video Games - $46.54, $3.70 a month

This is great. Once upon a time I had a bad habit of buying Steam games that I never played because they were on special. It's nice to see I've properly kicked this habit. All the games I've bought recently have twice as much playtime as dollars spent, which is a great Dollar To Fun ratio.

Alcohol - $382.56, $30.38 a month

This is one where I know I could spend less but I don't want to. The majority of my spending is on Red Wine, and I am super sneaky about it. I buy bulk, mixed packs from places like Virgin Wines, and Qantas. I always wait for a sale, and always get things at significantly reduced prices, generally with bonus frequent flyer points.

I do have long term plans to brew my own beers and ciders, but I'm not sure what the savings will be. It's something I plan to do for fun, rather than financial gain.

Clothes - $52.00, $4.13 a month

I have a confession to make - I hate buying clothes. Nothing fits properly and nothing suits my style. Why are bras so expensive? Why does underwear come in 7 different cuts and what is the different between 'boy leg' and 'full brief''? Why is it so hard to find a comfortable pair of jeans that aren't blue or $100?

The end result of my clothes shopping hatred is a super low bill, clothes that come pre-worn from the thrift shop, and underwear that is a decade old....

Medical - $226.60, $18.00 a month

This is excluding my health insurance, which is $91.61 a month for hospital and extras. $18 a month this year has covered contact lenses, 2 trips to the GP, multiple trips to the physio, and a trip to the dentist. I actually think I should spend more here and take better care of myself.

Comfort food - $785.15, $62.35 per month

What, what, What!!! What madness is this!! I've written before about the Latte Equation and the stupidity of paying $5 for takeaway coffee when you can make your own for barely 50cents (using the expensive milk). I've gone on and on about the virtues of baking your own treats and making your own snacks. And here I am spending almost $60 a month on comfort food, how is this happening!

First of all, December happens. In December all your friends want to go out for dinner. All your coworkers want to go out for lunch. And I want to buy Christmas treats. All of this is expensive. In December alone last year I spent $215 on comfort food.

I'm not too mad about December. I love my family and friends, and we're all pretty quiet throughout the year, so having a month of events is okay by me. What is not okay by me is keeping up this crazy spend throughout the year. I found $50 worth of coffees, $100 worth of pizzas, and over $100 worth of entries just labelled 'Junk Food'.

Alone, each of these entries isn't too offensive. But when over $60 a month is disappearing into this chasm of cheap, lazy snacks, something has to change.

Everything else - $2,059.08, $174.95 a month

Inevitably, when sorting out the miscellaneous column, there will be things that don't deserve their own category. Items left in this everything else category include crafting supplies, that time I paid for parking at the hospital, concert tickets, and odds and ends like replacement charging cables, some rammekins and a pair of scissors. While there is a lot of uncategorised spending here, this is a number I'm happy to live with for now.

Where to from here?

In case my rant and the title of this post didn't give it away, I'm less than thrilled with spending $60 a month on comfort foods - especially when I'm more than capable of baking better tasting things myself. 

I'm a very firm believer that what gets measured gets done, as long as the measuring is accurate. To bring the comfort food spending back to a happy level, I've created a new column in my budget, and allotted $50 a month to snacks, junk food, takeaway and other deliciousness. I'm 'funding' that column with $10 out of my groceries budget, and $40 out of my miscellaneous budget.

I'm under no illusions that this will be properly managed in December. While I believe in controlling my spending, I don't believe in cutting out my friends to do so. When I get invited to Christmas outings, I'm absolutely going to go. Then when January rolls around and everyone is burned out from celebrating and feasting, I'll tackle this in earnest.

The Latte Equation

A favourite of frugality and finance bloggers is the Latte Equation. You can't throw a stone without hitting it, whether it's people saying to ignore the Latte Equation and focus on the big savings, or people talking about whether that $4 a day savings is the basis of a good financial habit, everyone has an opinion. Here's some of my favourite ways to calculate the Latte Equation.

The basic theory

A latte is roughly $4 a day, depending on where you shop. This is a short term happiness boost that is a massive financial drain and represents frivolous spending that could be wisely redirected. That's the absolute basic theory.

Paying down debt

Imagine you spent that $4 a day on your mortgage instead of on a latte. Assuming you only buy coffee on work days, $4 a day, 5 days a week then you are spending $20 a week on the Latte Equation. If you instead throw that $20 at a $300k, 30 year mortgage with a 4.5% interest rate, you can knock 3 years off the repayments. Even more impressive, you save $30,000 on repayments.

Even better (or worse), imagine you have $2,500 in credit card debt. Making minimum repayments this would take twenty-two years to pay off, and cost you $7,600!!! But throw the $20 a week from the Latte Equation at this debt and it will only take you 3 years and $3,243. 

Coffee? Or massive debt reduction?

Investing for the future

In a similar vein, perhaps you have no debt. Or perhaps you're comfortable carrying that debt and you'd rather invest and watch your money grow. Mathematically you're better off investing in the share market for a 7% return (historical average) than paying down a 4% mortgage.

If you choose to invest, your $4 latte could instead be $21,000 in ten years.

Staying sane!

It wouldn't be fair to talk about coffee without talking about the special place it holds in our hearts, and lives, and taste buds, and our ability to deal with people before 9am. Coffee is delicious, warm and my favourite piece of first-world decadence. It is the sweet nectar of life, and without it some of us wouldn't be employed at all, if you catch my drift.

Scientifically, you are actually addicted to coffee! Congratulations! Coffee increases the speed of signals travelling through your brain, giving you that increased pep. Unfortunately our bodies don't like being pushed out of alignment like that and they compensate by creating more neural blockers to slow those messages. At first it works nicely, you drink coffee, get some pep, then the coffee wears off. But your body builds a resistance by creating those neural blocker so you need more and more coffee for the same pep. Then if you try and cut back, you find that those neural blockers are still in place and you feel slow and sluggish. Your body will remove them to bring back its equilibrium, but you'll feel pretty meh during the process.

When asked to give up their daily coffee most people recoil in horror because coffee is life. As a coffee drinker myself I can't argue with that, but I can offer alternatives...

Reduce, replace, remove?

The easiest calculation in the Latte Equation is always simply removing the offending item (coffee) and doing something with the money saved. Of course this ignores the human element, which is why I offer you the alternatives of Reducing and Replacing.

Reduction is simple enough in theory, if not in practice. If you're buying two coffees a day ($40 a week, $53,000 and 5.6 years off your mortgage!) start with dropping down to one a day. Maybe trick yourself by drinking a cup of decaf if you're desperate enough. You could also swap a cup of coffee for a cup of tea, which costs significantly less but only contains 1/4 the amount of caffeine. Bonus points if your office supplies free tea supplies.

Replacing your delicious barista brewed coffee with instant coffee, tea or *shudder* decaf will save you about $15 a week, but it doesn't hit the pleasure centers of the brain the same way. Let's be honest there is a massive difference between instant 'coffee' and a proper espresso. But it turns out making a decent coffee at home is really not that hard.You can buy a decent coffee machine for around $200, and then you can make a latte at home for less than a dollar. Within three months you'll be ahead and can keep enjoying delicious cheap lattes for years. The only downside is you'll probably drink more coffee!

Protip - buy a thermos so you can take coffee in to work, out to the park, on a picnic. Anywhere!

Small wins are just distractions from the big things in life

At the end of all this though, remember we're talking $4 a day, $20 a week. There are plenty of people who will argue that focusing all your mental energies on these small wins is a waste. If I spend an hour a day lamenting my lack of coffee, that's an hour a day you're not spending working for a pay rise, building up a side hustle, learning about investments and money management, calling your bank for a rate reduction, shopping around for better utility pricing etc. etc.

A 50 cent an hour pay rise will more than cover the costs of coffee. Calling the bank and getting .1% knocked off a $300,000 mortgage reduces your payments by $6 a week. Pet-sitting pays upwards of $15 a day to snuggle fluffy puppies. Purchasing another rental should be able to create a 5% return with less than an hour a week ongoing efforts. If all your energies are focused on reducing a $4 a day expense, you might be missing the big ticket items.

And of course, the Latte Equation can be applied to other things in life. Gym memberships can be swapped for going outside saving you $18 a week. You can stop visiting the vending machine and prep your own snacks, putting $15 a week back in your pocket. Friday night beers can be reduced to two instead of three for a $5-10 saving. Getting off the bus and riding a bike can save you almost $40 a week. The world is your (expensive) oyster and the Latte Equation can be applied everywhere!

The Latte Equation

A favourite of frugality and finance bloggers is the Latte Equation. You can't throw a stone without hitting it, whether it's people saying to ignore the Latte Equation and focus on the big savings, or people talking about whether that $4 a day savings is the basis of a good financial habit, everyone has an opinion. Here's some of my favourite ways to calculate the Latte Equation.