Calculating Expesnses, Savings Rate, and More

[barkerl2]

Hi All,

Just getting started here, so forgive me if I've missed something. I've been burning through MMM articles like crazy over the past couple weeks and am really motivated to get things moving in the right direction. To be transparent, I don't think I know much about the financial world in general, but I'm eager to learn. My wife and I have a two month old son, about 165k on our mortgage, no additional debt, and 70k in annual income, so I think we are starting off in a fairly good place. I get the feeling that we're spending more of our monthly income than we would guess, but I'm having trouble tracking everything down.

My major question: Is there anywhere on this forum that talks about the first baby steps in this whole process? How to calculate expenses accurately, how to understand where all of your money is going, etc? Is there a spreadsheet available that could help with this? I'm a bit overwhelmed with how many different financial "tools" are out there and a bit mistrusting of them as well.

Thanks for any help you can give! I'm proud to be a young, fledgling Mustachian!

[Grizzly Dad]

A few easy first steps

1. Sign up for a free personal capital account - this is a great way to start tracking everything, including expenses. This is really the only 'tool' you need. Mint is also pretty good, but not as good at tracking investments.

2. Consolidate down to one high cash back CC if possible. Just a good idea for the high cash back, but it also helps you track spending if everything is all in one place. MAKE SURE YOU PAY THIS OFF EVERY MONTH.

3. Once you have this covered calculating expenses is pretty trivial. Just add up what's on that card at the end of every month. That's your total expenses. The only exception to this is that I generally don't include principal payments on debt or mortgages in my calculations of expenses so I subtract those out.

4. From there it's just figuring out what you actually have left over and trying to maximize it. There are a few basic steps to take from there simultaneously

5. Start hacking away at unnecessary expenses. I find it easiest to just start at the highest value bucket and work down. How can you save on housing, food, insurance, etc. There are great ways to manage everything if you're flexible.

6. Max out as many tax-advantaged savings options as you can.

There's a lot more from there, but those are the basics!

[MDM]

Quicken is another tool that's designed for, and pretty good at, tracking spending, collecting your investments in one place, etc.  We've used it for >20 years.  Roll-your-own Excel is another possibility, but something from Personal Capital/YNAB/Quicken/Mint/etc. might get you started faster and better.

Beyond the fine points of "which tool?" you might use, Grizzly Dad's synopsis is pretty good.

See also the 'Investment Order' tab in the case study spreadsheet, and How To Write a "Case Study", whether you actually post the case study or just use the information for self-analysis.

Good luck!

[Metric Mouse]

Tally your receipts and bills at the end of each month. That should give you an easy way to calculate expenses, and would cover anything not put on the accounts linked by Mint etc.