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Commandments of a Cheapskate 6

Do you know the price of milk?
Tracking one’s spending is not meant to be an on-going administrative burden. Picture: Moneyweb

There is a scene in the fifth season of the political drama The West Wing where US president Jed Bartlet meets with his core staff to discuss the slowdown in the economy.

This follows after press secretary CJ Cregg had to sidestep journalists’ questions about the economy heading for recession.

“Sir,” she tells the president, “I’m worried that at some point avoidance starts to look like maybe we just haven’t noticed. We run the risk of appearing out of touch, like one of those presidents who doesn’t know the price of milk.

“Sir, do you know the price of milk?”

“Not precisely,” Bartlet admits.

“Neither do I. Do any of us?” Cregg asks.

Silence dawns on the room.

“Okay, let’s get on coming up with a language plan for talking more realistically about the economy,” the president says.

The subtext is clear. Here are some of the smartest people in the world’s largest economy, setting policy and making decisions impacting millions of people, but they don’t know the price of milk. (At least in real-life the US president seems to be well acquainted with the local milk people.)

But what has that got to do with the price of eggs, you ask? This is a personal finance column after all?

Besides the fact that investors aren’t exactly falling over their feet to subscribe to my Inge bunds, government accounts are not that different from a household budget. If you spend more than you earn, and use debt to finance the difference, a “language plan” might fool your neighbour, but it won’t bluff the ratings agencies (i.e. your wife). Managing your finances in a sensible way starts with knowing exactly what the actual numbers look like: your income, what you really pay for goods and services and your debt situation. Of course, vegan readers in particular need to know the price of eggs and milk, since this would be future savings in their book, albeit at the present cost of gastronomic happiness.

The McKinsey Maxim – what you can measure you can manage – is often cited in management circles to emphasise the importance of having quantifiable goals and tracking progress along the way to measure success.

While the mantra has some limitations (apparently there was a typo on a memo to a state-owned enterprise, and it was mistakenly changed to “what you can’t measure you can damage”) it is a valuable principle, particularly when it comes to financial planning.

Unfortunately, a “measured” approach to finances is not something that comes naturally to most people. Carefully logging all spending to my mind is not only the money equivalent of a kale chips diet, it also creates the possibility that your BMI – Bargain Measurement Index – will be out of whack. While I have had a spreadsheet budget for as long as I can remember, I must confess that I have only once tried to track my spending cent for cent. It lasted a whopping two days before admin allergies set in. 

But tracking one’s spending is not meant to be an on-going administrative burden – it is merely an effort to come to terms with how you spend your money and to identify areas for improvement. It is also helpful in identifying any kale chip addictions before there is lasting damage.

During a recent visit to South Africa, US financial planner and Sketch Guy columnist Carl Richards said the reason retirement numbers were so bad in many parts of the world, is because the savings numbers are so bad. He argued that it is no good scaring people into believing that they can’t retire, if they don’t have money to save. (What is slightly concerning is that after writing several Cheapskate columns, the latest credit data suggest that my attempts at entertaining people into sobriety have produced even worse results….)

But the journey starts with some basic mindfulness around spending.

Richards recommends that you write down what you spend in a spiral notebook or on an index card for just 30 days as a tool to create awareness, without any judgment or shame about the results. Following this process, you can identify areas for improvement, figure out how to pay down debt, and once the debt burden lessens, redirect payments towards saving.

A friend tells me that he started tracking his expenses using the app Expensify, after realising that money was “disappearing” from his bank account. (No, he is not married!) He soon had a reasonable amount of “additional” money available every month, just because of the awareness the exercise created. If you want to save money on the stuff you buy regularly, consciousness around pricing also helps a lot. I have bought discounted items on more than one occasion recently only to find the items mistakenly charged at full price at checkout.

The idea with tracked spending is not to fuel an obsession around every cent that leaves your wallet or to become so tight-fisted that you use your friends’ tips to subsidise your restaurant bill (a former date can attest that this approach doesn’t lead to lasting relationship bliss), but to familiarise yourself with the hard facts of your finances and to take active steps to eliminate unnecessary or wasteful spending, reduce debt, and start saving and investing towards your goals. No language policy required.

In a later scene in the same episode of The West Wing, the president asks his personal aide, Charlie Young, to go research the price of a gallon of milk.

“$2.69 cents. $2.89 in Georgetown and $2.54 with a coupon from the paper,” Young answers without hesitation.

“Will you make sure everybody knows that tomorrow?”

  • Would love to know how you track your spending – please post a comment.

Read more of Commandments of a Cheapskate columns: 

A salary-earner’s pursuit of financial health

Rethink your approach to car buying

The big decision: What to do with your fortune

How to flee from financial FOMO

An expensive lesson in mobile downgrading

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Loved your article! Great way to start a cheapskate week/month!

I find 22seven, developed with the backing of Old-Mutual, an invaluable tool. No admin required as it tracks and categorises expenditure directly from your bank accounts. It also provides a forecast against budget plus trends on each basket item. I advise all my friends to get it.

Ah yes… time for a little Oscar Wilde first thing on a Monday – a man who knows the price of everything and the value of nothing. Yeah, I am a cynic. Eg. today’s teenagers know the price of the latest iPhone down to the nearest cent, and will happily pay R10 000 for it, but then want ‘free’ education, free this, free that without a clue as to the real value of anything.

McKinsey et al are totally useless at ‘measuring and managing’ the ‘value’ of anything.
That is why I subscribe to the Miseian version – the idea that the value of a good is not determined by any inherent property of the good, nor by the amount of labor required to produce the good, but instead value is determined by the importance an acting individual places on a good for the achievement of their desired ends. So, if it does not add value to my life it remains on the shelf/unbought. Even if it is being given away free.

As for the price of milk, I have no idea. But I do know/track that cheese/meat/wine/nuts are expensive and look out for bargins in that dept.

LOL good point, that is why i drink good Irish whiskey instead of the cheap stuff-
more enjoyable and i think my liver is happier

Great article again. I pay for literally almost everything by credit card (and actually use it as a charge card, paying the full account due every month) because, unlike cash payments, the money cannot just “disappear”. You can trace where you spent your money just by looking at the statement online whenever you want to. And, if you manage it wisely, you get to keep and the interest (time value) of your own money until it is time to pay the monthly card account.

I run 2 budgetary systems one is a simple spreadsheet with tabs for each month, this gives me an ideal of what I have spent to date and given the fixed expenses monthly am I likely to overshoot the budget in any given future month when I plug in future extraordinary expenses (medical aid, Tax, car repairs) and then look at where to cut back to meet these costs
Another program I run is Quicken (which was developed by a Joburg based SA company but they sold it off to the Americans and they won’t produce a SA Rand derivative). This is a brilliant program as your can specify different card accounts, current/investment accounts share portfolios mutual funds bonds car loans – the ultimate is that it gives you your overall wealth, and is just fantastic – albeit that I am running on a 2005 version, only because the denominated currency is SA Rand

We track our expenses on Excel, twice a month – comparing that to our budget, on a month to month basis.

But our budget is not based on “what can we spend”.

It’s rather based on “how much can we save”.

Tracking expenses means nothing when it doesn’t change your spending habits.

Pay for everything on credit card (which is paid in full at month end). Avoid cash like the plague as it’s too easy to loose track of where you paid for what in cash. Use the credit card statement to track spending according to budget on excel. Savings, including emergency savings, is part of the budget and goes off by debit order to a high interest baring account notice account.

I have a budget in Google Sheets that I use to set the limits for each of my spending categories. I then use Wallet on Android to track my expenses (with the limits for each category set to the value determined in the Google Sheet). Some of the budgets are yearly (like gifts and clothes), while others are monthly like groceries and eating out. I also exclusively use my credit card – but only for the 1-2% cash reward. I pay it off in full at the end of the month.

End of comments.

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