Americans are spending roughly $48 a week on … who knows what? They certainly can’t remember, according to a new survey by Visa.
The credit card company, of course, is pushing its debit card as the answer for folks who have trouble tracking their expenses. But the survey raises bigger questions. Is it worth tracking every penny you spend? Should you allow your budget a "miscellaneous" category? Just how big and random should you let it get? And, what the heck are you spending that $48 on?
The answers to all of these questions vary with the individual. It depends on your own financial situation: If you’re buried in debt, then yes, you probably should track every penny. If you have a general idea of where your miscellaneous spending goes — shampoo and postage stamps that you don’t bother to track, for example — then maybe "miscellaneous" is good enough for you. But, if you are losing track of almost $200 a month and your life isn’t great in every way, it might be time to turn your attention to the dreaded "miscellaneous" category with a view to how you can fix it.
Here are some thoughts that might be helpful.
- There’s a difference between wasting money and simply not tracking it. Perhaps your weekly slush fund includes your commuting costs, the prescriptions you picked up on the way home from work, and your dry cleaning. That isn’t necessarily money wasted. And tracking it to the penny may not help you save any of it; you’ll still need your meds and clean clothes and transportation to work.
- Keeping records, at least for a while, will help. Visa suggests you put everything on a debit card, so that you can go back and look at reports to see how much you spent at the drug store, the video store and the neighborhood bakery. You can also become fastidious about writing down every penny you spend, or using an online budgeting system to monitor your spending by category. At www.wesabe.com, an online budgeting site, you can create your own "tags" that let you see how you spend your money. Site users report, for example, that they spend an average of $80.97 a month on "fun"; $25.66 on "frivolity"; $41.96 on alcohol; $16.82 on chocolate and $36.50 on "crap." The more specific you make those categories, the more useful they will be to you. The trick is to come up with a system that is specific enough to give you information, but simple enough that you’ll keep it up for a while.
- Having a "frivolity" budget isn’t such a bad thing. "I’m not a big proponent of cutting out the coffee every day just to save for retirement," says Marc Hedlund, one of the founders of Wesabe. "If you own your house and your retirement fund is funded and you’re not carrying debt and you want to go out and eat every night, that’s great. What matters the most is where you personally are spending your money and what you want out of your money."
Yes. So that miscellaneous category should be giving you your money’s worth. If you’re spending $25 a month on cocoa but staying awake at night worrying about your credit card bill, you might be happier if you made your own cocoa and put that money towards paying down the debt. Once you’ve tracked where your "miscellaneous" money goes, decide which items are worth it and which ones aren’t. Aim to trim the ones that aren’t improving your life.
- Set a goal. Why do you want to cut your frivolous spending? Maybe it’s so you can just redirect it. Instead of a morning pastry, you’d rather have an after-work drink? Or a new pair of shoes every other week? Or maybe you really want to buy a house, be debt free, retire by the time you’re 50 or help your kid to graduate college without loans. Once you know why you want to trim your spending, you know just how sharp a knife to take to it.
- Trim by category. Maybe you could do with cheaper brands of shampoo if you stay with the good conditioner. Instead of buying magazines at the newsstand, subscribe to the ones you buy most often. That whole latte thing? You have choices: Brew your own, get smaller cups, try less posh but equally good coffee shops.
- Consider cash. It won’t work for everyone, but some people do manage to limit the money they fritter away by only allowing themselves to spend cash. Put $30 in your pocket on Monday and promise yourself you won’t go to the ATM until next Monday. Maybe you’ll forget where you spent it. But you’ll be limiting the losses, and you’ll still be $18 a week ahead of the folks in the Visa survey. Take that $18 a week, put it in a retirement fund earning 8 percent interest, and it will grow to $117,180 in 30 years. Imagine the frivolity that can buy.