How exactly do I understand my spending habits?

When you ask “how much $ do I need to start investing,” we ask back “how much $$ do you HAVE to invest, aka how much can you afford to not touch for the next 5+ years?”

So first up, let’s stage your moves and walk through how to keep a pulse on your day-to-day before starting to invest in your future self.

Q: How exactly do I understand my spending habits?

We gave you the 50-30-20 breakdown as a way to eval whether you have dollars to invest, but only you know whether you’re there, or whether you’re more like 70-30-0 (in which case, no, you shouldn’t be investing). Having a picture of a month-in-the-life of the typical-you helps you make your budget spending plan, and find ways to tweak things to help reach #GOALS.

Q: What should I be thinking about?

1. Look at your next bank statement. Focus on the account summary for now (usually at the TOP of your statement). It might look something like this:

Why JUST bank statements?
We assume you pay your credit card bill with a transfer from your bank/checking account, so your bank statement should show the full picture of your spend. (A refresher on debit vs credit here.) Stay tuned next week for a lowdown on how to read your credit card statement like a pro! (pro = an average responsible human adult)

Withdrawals and other subtractions = your major spend.
All the ways you transfer money out of your account, such as: $1000 Venmo to roommates for rent, $900 to pay off credit card bill, $100 auto bill pay to Verizon. This essentially covers your NEEDS (like gas, groceries), and WANTS (like Sephora, Chipotle, and flight to see a friend).

FEES!
ALWAYS keep eyes peeled for sneaky bank fees. Anytime you see a subtraction with the words “XYZ Fee”, ask the bank to reverse it. We broke down for you all the fees to watch out for (and WTH they are) here.

2. Now you know. In the example above, total spending for the month is $2,400 ($100 check + $2300 of withdrawals). If you’re human, your spending isn’t the same every month. To get a better understanding of the typical you, do this for 3 months.

3. Take stock. You spend what you spend to live a life-worth-living. But you can’t make big future moves until you know your actual spending reality. Then, you can better assess whether, today, you have 20% to be comfortably available (remember 50-30-20) for long-term savings aka investing. In our example above you sure do, because you earned $3,000 (deposits) and spent $2400 (withdraw + checks) meaning that’s a SOLID 20% of earnings ($600) left to toe-dip into investing. But if the answer is “not yet” — you now have a realistic idea of where you’re at. 💪