Have you every asked yourself, “Where did all my money go?”
I still remember the first time I received my end of year W2 tax form, which lists your total income and tax withholdings for the year, after starting my real job. Right there at the top was the gross income – $35,000. BIG MONEY! Especially for somebody who was used to earning part time income at his restaurant job through college.
As I looked at the number, I couldn’t help but wonder, “Where did all this money go?” I knew that I had lots of financial commitments to make, including rent, groceries, loan payments, etc. However, I also knew that those expenses added up (and split with my wife) were not that large.
It was at that point, in combination of wanting to get out of debt, that I decided I was going to commit to saving more of the money I earned. The first step was to create a budget and see where all the money was going.
Top 5 Places Your Money is Going
- Housing – The largest line item in most people’s spending is housing. This can be rent or a mortgage if you own your home. Housing is typically a large payment for anybody, but it also tends to be a place that people over-extend themselves on. Making smart decisions with your housing choice will have a large impact on your ability to keep your money.
- Cars – Our cars are the largest depreciating asset that we own. This means they are the most expensive thing we buy that goes down in value. To make matters worse, about half of Americans also have a loan out for their new car, with an average monthly payment of $472/month. Add in gas, insurance, and maintenance… That’s a lot of money for getting from point A to B.
- Taxes – Depending on your income and where you live, taxes too can take a large bite out of your income. The largest taxes are typically income taxes, social program taxes, and property taxes. Unfortunately, avoiding taxes can mean jail time. So instead, your best option is to take advantage of tax savings through special tax incentive programs.
- Eating Out – I enjoy going to a restaurant, hanging out with friends, and eating a delicious meal. But as the cost per meal to eat out is typically about 2 to 3 times higher than cooking at home, it’s an easy way to overspend your money. To control our spending, we budget a set amount each month for eating out, and try to limit it to special occasions.
- Miscellaneous – And then there is everything else. An electronic here. New furniture there. Stuff that comes into your life via ways of “I think I need that” and a few clicks on the Amazon or Target app. If you are not tracking/budgeting your purchases, they can quickly add up to a significant portion of your spending.
2 Bonus Areas Your Money Is Going
- Student Loans – With over 70% of college graduates leaving school with student loans, it’s a significant factor in many people’s financial situation. This debt can be a stressful dark cloud hanging over your life. My best advice is to make a plan to pay it down as fast as possible. It took my wife and I about 2.5 years after graduation to finally knock out our debt, but it was well worth it.
- Childcare – Anybody with children can tell you that they are NOT a financial investment. When they are young, childcare costs can suck money out of your budget. If one parent staying home is not an option, the best thing you can do is shop around to find a childcare provider that is professional and fits your budget.
3. Animals. Animals are not an investment, either. I am a Veterinarian, so know more than most how expensive an animal can be. I had six at one point, down to one now, and don’t plan on getting any more. Food, petsitters and the other family doctor visits account for most of it. Most of the expense of owning an animal occurs at the end of their lives I’ve noted. Most pets don’t “just die”, rather they go through one or two expensive medical events and then one really big expensive crisis right at the end. Like human animals, but with no medicare to foot the bill. Even as a vet I usually end up at a veterinary specialist, looking for all the answers, because that’s what I was trained to do. The reality is, they are still animals, and if they made it to ten or twelve or fifteen they’ve lived WAY longer than their wild ancestors were ever designed or expected to live. In the future vet bills will continue to rise and rise. In the past most vets came from rural, frugal farming and ranching backgrounds, and instinctively knew clients pocketbooks weren’t black holes. Now most of us come from upper middle class suburban backgrounds. We sometimes forget that not everyone got to go to the best schools and the best colleges and the best vet schools to fulfill their lifelong dream of being the other family doctor. Additionally a lot of us now answer to soulless corporate masters who think and live only in spreadsheets. Grand take home point: Animal ownership, like children, will always be optional.
We’ve had horses, dogs, cats, birds, fish, hamsters… I agree, they can be expensive. I’m in the same boat that there is only so much money that makes sense to spend on an animal, especially in the later years of their life.