How Much Do You Spend Each Year — Experts Say Your Estimate Might Be Way Off
Written by
Dawn Allcot
Edited by
Amen Oyiboke
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Tax time often brings surprises for many Americans. You might be surprised by how much you earned and wonder where it went. Having a guesstimate of your spending will never give you the full picture of your full budget.
“When we onboard a new client, they’re almost always surprised by how much they’re spending,” said Kevin Reed, chief revenue officer of Aquilance, a financial administration firm for ultra-high-net-worth individuals and families. “Estimates can be wildly different than reality after we do the bookkeeping and show them where every dollar is going.”
If you analyze your spending by looking at all your spending statements, you’ll probably be shocked by the categories that cost you the most money. Experts recommend tracking your expenses and using budgeting methods to estimate your spending accurately.
Room To Adjust Travel and Real Estate Expenses
While experts often cite subscription services as one area with excess, hidden spending, Reed said ultra-high-net-worth people often have larger concerns.
“As wealth increases, your spending isn’t just about how much you’re spending on groceries and utilities. It starts to include multiple homes, travel, charitable giving … We’re providing that granular detail to understand where every dollar goes,” Reed explained.
He said that many of his clients are surprised by how much different vacation homes cost to maintain compared to the value each home delivers.
On the other hand, they might find they spent less on travel than they budgeted for due to time constraints.
“Clients set a budget for how much they want to travel in a given year and then come in under budget. They’re so busy working, they’re not traveling as much as they planned,” Reed said.
How To Spend in Alignment With Your Values
When clients want to travel more but don’t prioritize those trips, it sparks the realization that they may not be living in alignment with their values. Reed said clients often have this epiphany when it comes to charitable giving as well.
“When you have clarity and can see every dollar that you spend, you may realize you’re not donating as much to specific causes you value,” Reed said. “Does your spending match the way you view the world?”
He said that clients may conclude that they should optimize their lives to spend more on things they care about and trim back in other ways. “It’s not always about cutting back,” Reed said. “It’s about spending more strategically.”
Budgeting for Everyone
No matter how much or how little money you make, a budget is crucial to meet your financial goals and create the life you want. “You need accurate and recent data,” Reed said. “Otherwise, you’re building a plan based on assumptions.”
You can start by putting together a budget with detailed categories. Then, review bank records and credit card statements for the past year to see if you’ve forgotten any categories.
“You’ll almost always catch transactions that were not planned for,” Reed said. “Then you can expand your categories to cover those things.”
People may find it useful to enlist the help of a financial advisor, who can make recommendations based on your income, expenses, and, most importantly, your values.
Finally, review your budget frequently to adjust for lifestyle changes and to ensure you’re staying on track.
“If you’re naturally a spender, look at your budget at least quarterly,” Reed said. “And if you feel like you’re not meeting your financial goals, review it more frequently.”
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