Quantified Spending: a Blueprint to Make Data-Driven Financial Decisions
Two years after graduation, Amaan saw how much money he saved up. He realized he needed to keep better track of his money especially after moving to the SF Bay Area. In this video, he talks about how he did it. He also shares the tools he used and what he learned.
Mint | You Need a Budget
Quantified Spending a Blueprint to Make Data-Driven Financial Decisions
Hi My name’s Amaan. I want to give a quick talk on how I impact my spending. So a little bit about me, I am not an accountant by trade or anything like that, but when I was young my parents during dinner time at night when we’re all home and sitting as a family, we would generally end up talking about business and money simply because my dad was a small business owner in the traditional brick and mortar sense and he had stores, and he talked numbers. And it was always interesting to me and I thought I’d hear it but never have to use it because I liked doing stuff with computers and I went to school for computer science.
But I ended up getting a job at Amazon and I was moving to the Bay area and I was doing some math right around the two year mark around graduation, and I saw how much money I had saved up and it kind of shocked me, because I always thought things were going good. I don’t spend that much and it turns out if you don’t keep an eye on it and it goes unchecked it’s kind of eye-opening.
So I realized I am moving to another city and I want to start fresh. When I do this I want to make sure I track my expenses especially because I knew the cost of living was going to go up. So what did I do?
Most people have heard of Mint and for those who have not, it automatically pulls your data out of the Bank of America and most of the popular banks that you have and it’ll give you a nice view of what’s happened historically, which is super useful if you never do anything different.
For me since I was moving to another city I knew things were going to be different. I wanted to do better at forecasting what was about to happen and things that were you know expenses I was going to see in the future.
So I ended up looking around and my first version was a little post-it that you know I just kind of just did a little math, and tried to figure out what money I needed to have in the account. It turns out that doesn’t satisfy anyone, even if you’re a 25 year old single guy expenses get more complicated.
So I looked around the landscape a little bit for stuff that was meant for people that are not accountants. There’s obviously accountants have a suite of tools for business cases, but for personal accountants this little tool is super geared towards an amateur who doesn’t know accounting. It’s called You Need A Budget. They go by Y-Nap and have a little mobile app and a desktop app.
I used that for a bit and I’ll talk about how. There was this application Gnupad, which is basically just an open source version of some the more popular commercial software, but it is kind of technical. So I used that a little bit but I didn’t appreciate all the features, so I went back to that. Then I realized getting data from there into Excel and getting my historical data into Excel allowed me to do a lot more. So I took the tools that I knew , put it into a little database and do a little analysis. And this doesn’t have to look fancy, but it’s basically a way of me going through my expenses and coming up with a way of trying to look at it in a more aggregate manner of how much I’m spending every month.
And while I was doing this I realized as much as I knew about accounting I still need to go back and revisit the basics and just get an insight. So I did some research, and this is kind of how I picture it. So if you’re a computer scientist you’re familiar with this diagram; it’s a directive graph.
Each one of these little nodes is an account, and if you’re an accountant you classify them as an asset or a liability. And money moving through them is each connection is a transaction. If you’re a business owner, you get a customer paying you. If you’re a person like me you have one employer who is putting money in your bank account and you are getting that.
These aren’t my numbers, these are just a blog I kind of stumbled on and it turned out to be a very informative way of viewing your finances which is money comes in this fashion where you have different accounts. You have your employer who pays you or your customers who pay you or if you have some savings, you take money out of those savings to take care of your expenses they go towards that. And it just flows this way and if you think it about it over a long term you start seeing patterns; you always pay your rent, you always pay this. And if you go back and classify these types of transactions, people will look at them and always go with you know variable cost and fixed cost.
I kind of ended up on that, but I didn’t actually know I was doing that. the way I ended up doing it was each one of these transactions I would see how frequently they would occur and look at the variance. And if you think about it, variable cost is going to have a high variance. So I would say okay, this chunk of transaction that I do they vary a lot. They go you know in different patterns versus my rent or my taxes. They’re pretty steady because I don’t have that much difference once a month so I want to focus on that.
So one of the concrete things I got out of this was I started looking at where I thought was the biggest surprises which was money I spent on eating out and just going out, and just in generally to feed one person was surprisingly large. I looked at what it was and I did no cooking; I never had to do it. When I was in college I just got by , by eating out all the time without keeping track, and I realized I could do better if I just took some time to learn how to cook, because most meals I don’t need to be eating out every meal and I could prepare for myself.
So I did some of the learnings and I know a couple of different dishes and it was fun, because every month I could see how much less I was spending on eating out. And once you start seeing that it’s kind of addictive. You start seeing a growth and people call it the hockey stick, and once you see it in your finances, you’re like man, I need to see this keeping on you know increasing and it’s very motivating.
So what I kind of do now is a little bit of getting data from Mint, getting data from this little application that i track in and it goes into my database, which puts out an Excel spreadsheet. Once I have it in there I can do all kinds of number crunching. And it is kind of cool and I always look at it and learn something different. There’s always interesting patterns that I didn’t know existed. There’s you know opportunities to link up my caffeine spending to my Fitbit tracking or whatever.
So it kind of opens up the door a lot to different things, and it’s kind of nice because you can actually go and see it once a month and you know more about yourself than anyone. And if you see it, this is when I moved. Before that, the two years out of college I was kind of like doing okay, you know I had a little bonus there and bump there, but nothing that concretely justified that I was saving or doing anything to take care of myself in the future.
And once I started doing this, this little you know growth pattern was very enticing. And now it’s about a year and a half into it and the numbers kind of make sense to me. It’s not really important, but once you see the directional trend it is eye-opening, and after seeing this it made me realize that if you’re Laron James, who make $20 million a year, this kind of bar tab is not a big deal.
So when I wake up and I look at mine, and it’s not that much, but when I wake up there’s no more walk of shame in the morning. You’re not looking at your bank account and saying, what was this that I spent last night? What was I thinking? Because I know this is how much that I can afford to allow myself to spend and still reach my goals, and that is great for me.
Consequently if I have to do taxes at the end of the year, they’re super easy. I have all my transactions, I have everything you know that they can possibly ask for a record and it is not stressful at all.
Doing forecasting is super easy, I know each one of these categories, and I like how she mentioned that she would take different, I thought that was very cool because Mint doesn’t let you switch these categories.
And like I drink a lot of coffee outside and I want to test that separately. Maybe that’s not important to someone, but that one was kind of interesting to me. I spend money on purchasing software and books and you know, different things that aren’t the cookie-cutter budget categories that you see, but I can pull it out. And having this kind of free-format and knowing what the variance of this category is versus this category and where’s there’s a chance for optimization. This one here is my every day, I can spend this much, this category has a monthly and this I have an annual. And that’s kind of liberating because I know that over a year and a half this is my pattern and I put this in. and I think it’s (questions).