The difference between theory and practice – Your budget vs your actual spending

If you’re interested in FIRE then you likely have a budget or at least know that it’s a good idea to have one.  Maybe you use a spreadsheet, maybe you have an app or use the Moneysmart budget calculator, whatever works for you is fine.  Sure it’s not a necessity, but it likely makes life easier.  The trouble is that once we’ve made that budget, we’re not checking up on whether we’re sticking to it or not.

What we often find is that when we did up the budget we had a whole bunch of great ideas on cutting costs, we promised ourselves we’d limit how much we spent on clothes or eating out etc, we only looked at the expenses that immediately came to mind, and then we came up with the most optimistic scenarios we could think of. 

Which is better than nothing I suppose, but it’s not how it will actually work in the real world.  As the great Yogi Berra once said, “In theory there is no difference between theory and practice.  In practice, there is.”  So what do I do instead?

To make my budgeting more accurate I base our budget on what we actually spend instead of what I think we spend.  To track your spending as much as possible you need to be using debit or credit cards rather than cash, obviously don’t use credit cards if you’re not paying it off in full at the end of each month though. 

To see what we actually spend I simply download into a spreadsheet all the transactions from my bank for the last year and sort them into the same categories as my existing budget.  Ideally you already have a category in your budget for all the spending that you did, if not then it’s probably a good idea to create one.  After you’ve done all that, it’s time to compare your budget to your actual spending!

Looking at my family’s spending for 2018, our overall actual spending was pretty much exactly the same as our budget!  So well done us! 

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It was an unusual year in that we finished building a house and had to buy a bunch of furniture etc.  Because this is all one off stuff it isn’t in our annual budget (although it was in our house budget, because of course I had a house budget!) and I’m excluding it from the discussions below as we hopefully will not need to buy any more stuff for a very long time.  If I never build another house or see the inside of a furniture store again I will be a happy man! 

Unfortuantely our overall actual spending and budgeted spending being much the same hides the fact that we had a lot more spending in some areas and a lot less spending in others than anticipated. 

So the good news (kind of anyway) is that we spent a lot less than was in the budget on entertainment such as concerts, shows, sporting events etc.  Which is nice from a budgeting point of view, but given that is stuff that we actually enjoy I’d prefer that we actually spent what we budgeted on this.  We had a baby this year which drastically reduced the amount of free time that we had hence less concerts and sporting events etc, hopefully next year is better on this front.

The other area that we didn’t spend as much as budgeted on was house maintenance.  Because it’s a brand new house there was really very little maintenance that we had to do.  If anything when I was categorising spending for this year I probably put a decent amount of stuff from Bunnings etc into the maintenance category when really it was a one off purchase or something that I won’t need to buy again for a number of years. 

I’m pretty hopeful that my power drill will last a very long time.  Similarly my shovels, rakes and implements of destruction should not need replacing anytime soon.  However inevitably as our house gets older it will need maintenance from time to time and therefore I want to have a reasonable amount budgeted for this so that it doesn’t come as a shock to the system.  This will also hopefully cover replacing furniture etc over time.

The middling news is that we were on track or within a hundred dollars or so on most categories.  This is to be expected given that our budget is based on what we have spent previously, so it’s not as though we were just plucking figures out of the air when we came up with our budget.  Lots of these are also fixed amounts, such as internet, phones, health and life insurance etc.  So I can just plug a figure into my spreadsheet and that’s what it will actually be, so of course it matches up.

The bad news however is that we spent a fair bit more than we thought we would on two other categories, these being Food and Groceries, plus utility bills.  Both of these were about 20% higher than they had been previously. 

At least some of the extra food and groceries bill is no doubt due to the fact that we had another child in early 2019 there are 4 of us now rather than 3. 

Although a baby doesn’t necessarily eat or drink a huge amount (she has mummy milk so no extra cost for formula) she does go through an awful lot of nappies.  And even though we use the Aldi ones (which are excellent in our experience) they still cost a fair amount, to the extent that this could easily be a third or more of the extra 20% that we spent in this category.  Also, as our first child gets older he gets hungrier which also adds to the food bill.

Our utility bill being higher is a bit of a surprise.  My wife shops around on this and is extremely conscientious about turning off any electrical device that isn’t being used.  She has also trained our eldest child so that he also tells me off for not turning off lights if I walk out of a room!  So far this summer we’ve only used our air conditioner once and our house was built to be pretty energy efficient so we didn’t have to use the heater much in winter.  So I’m not sure why this bill is a fair bit higher than anticipated, but the reality is that it is.

So what do I do with all this information now that I’ve looked at it?  Well the first step is to talk about it with my wife and see if there is anything that we can do to get our costs down. 

We’re already pretty frugal with our food and grocery bills so I’m not sure that there is much room for improvement here.  Dave at Strong Money Australia has done this excellent post on how to save money on your food and grocery shopping here most of which we already do and you can see my comments in his article on the other stuff that we do as well.  So saving money in this area is likely out, if anything the bill will probably go up as our two kids start eating more.

Likewise our higher than expected utility bill may just be the new normal.  Prices continue to go up so it shouldn’t come as much of a surprise that our bills are higher.  We’re already on the cheapest rate and my wife checks the comparison website every 6 months or so to ensure that we are getting the best deal available.

So with that in mind, what do we do?  Well it’s simple, we change our budget so that it reflects these higher costs.  There’s not much point kidding ourselves that these are one offs, it’s pretty likely that what we spent is what we’re likely to continue to spend in which case our budget needs to change. 

This obviously has some effect on what we will be able to save and invest which isn’t ideal, but I’m a big fan of being realistic about these things.  If we were desperate to save a higher amount we could cut some of the discretionary spending on areas like entertainment and eating out but those are things which we get a lot of enjoyment out of (when we actually do them anyway!) and I’d rather have a slightly lower savings rate than a less enjoyment rate. 

So next year we’re probably going to be spending slightly more and saving slightly less than I would have anticipated. It is what it is. We’re still saving a very large percentage of our income each year and whilst this change isn’t ideal it’s better to accept reality than to lie to yourself.

Do you have a budget and do you track your actual spending?  If you enjoyed this post and would like to read more like it then please subscribe!

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13 Responses to The difference between theory and practice – Your budget vs your actual spending

  1. Good reminder at the start of the year! Great job keeping costs the same on last year.

    And thanks for the mention, much appreciated.

    2018 was the first year we tracked every dollar and I’m posting the results tomorrow! Once a week I scan online banking and categorise the expenses and that works quite well. I tried once a month but it felt too overwhelming when it came around.

    Maybe your power tools etc actually save you money in the long run because you’re outsourcing less home maintenance?

    And on the nappies, it’s easy for me to say not having kids, but have you considered cloth nappies? Less pleasant, but great for the environment and possibly a huge saving.

    • Aussie HIFIRE says:

      Thanks mate and no worries at all on the mention, it’s a great post.

      Certainly the power tools saved us a fair bit of money in kitting out the house, we bought blinds online rather than getting them fitted and installed locally and it saved us several thousand dollars. The measuring tape and power drill cost me well under $150. Methinks we came out well ahead!

      I’m hoping that kid 2 will be out of nappies sometime pretty soon, and given I have no interest in washing cloth nappies myself and even less interest in suggesting it to my wife I don’t think we’re going to be heading down that route!

  2. SJ says:

    Ive done a similar thing over the past few yards – each 6-12 months just downloaded all transactions electronically and group together. I found it was remarkable consistent of the whole year bearing in mind no substantial life changes.

    It was totally enlightening the first time round. I couldn’t believe how much I spent at Bunnings! But definitely the ROI in Bunnings spending must be high. 🙂 As an aside WES did pretty well last year too.

    Being naturally thrifty with spending I have also been pragmatic about budgeting. Save where you can and be satisfied as long as savings rate and investment goals are achieved. I am not discounting that small savings can add up but no point tearing yourself up about it. I like the Mari Kondo approach to clutter and personal items and use it when consider purchases – will this purchase spark joy.

    Thanks again for another pragmatic post! The general tone of a reasonable approach with reasonable goals and sound underlying foundations will always keep you in good stead.

    • Aussie HIFIRE says:

      Good news that you’re keeping your spending pretty consistent SJ, well done! And yes it can be a huge shock the first time you look at how much you spend in certain categories. For us it was grocery shopping, we though it was about $100-125 per week a year or two ago but it’s actually more like $175-200 now. That’s kinda to be expected though given a growing boy and new baby.

      I’d like to be more minimalist or at least get rid of some of the clutter, something to work on!

  3. Miss Balance says:

    I love reading about how other people capture and report on spending so thank you for sharing. If you ever post up actual figures or percentages I’d also love to see them (in a non creepy way!). I’ll be posting up next week where my money went in 2018 broken down into percentage based categories.

    Probably not the ideal thing to say here but I tend not to have a budget (eep!). Instead I try to spend as little money as possible and ask myself ‘do I really need this’ before I buy anything.

    I do however track every cent I spend and can easily see the amounts going up each month so this helps when I ask myself the above question and I’ve already spend $200 eating out this month…

    This approach won’t work for everyone but for me it has allowed me to save 58.92% this year and my spending total amount was actually pretty on par with last year which is amazing considering I had to pay moving costs, new furniture and appliance and also prepaid for a holiday for 2019.

    Keep up the good work 🙂

    • Haha don’t be ashamed of that approach Miss B, we don’t have a ‘budget’ either…the self questioning approach for everything is a very good strategy I think.

      • Aussie HIFIRE says:

        Yeah they’re no one right way to do it, if different methods work for other people then so be it. Given our budget is annual and I only check the numbers once a year it’s more of a reflection of what we’re spending than a limit we have to stick to.

    • Aussie HIFIRE says:

      Hey whatever approach works for you Miss Balance, with that savings rate even if you don’t have a formal budget who cares? And your approach of tracking every cent and knowing what you’re spending in certain categories kinda sounds like a less formal budet anyway.

  4. I don’t have a budget as such, but I track every dollar I spend.
    I’m living with 2 adult sons at the moment. Last year we spent 12K on food.
    So yes… as your children grow they will DEFINITELY eat more!

    • Aussie HIFIRE says:

      Haha yeah hopefully the food budget doesn’t blow out too much in the next couple of years but from what I’ve heard it will definitely go up a lot more down the track!

  5. Thanks for the link to Dave’s article. I had read it before, but we recently discovered we spent an enormous amount on groceries for 2018, so I definitely needed the reminder!

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