It's the end of January, and many people are recovering from their New-Year-Resolution feats of activity. One of the most popular - getting finances in order. You've asked for systems-meet-emotion stories so here's one. Shared by permission, names changed, of course.
Jenna is a friend and client of mine. The responsible adult that she is, Jenna decided to, you guessed it, get her finances in order - review and sum up 2017 and make grown up money decisions for 2018.
They connected all their bank and credit card accounts, set up budget categories, and settled down with a cup of chamomile tea to, drumroll please, analyze the stats.
If you aren’t familiar with Mint, this is a place to say Mint is pretty smart. If it sees a credit card transaction from Gulf or Shell, it’ll automatically categorize it as “gas”. If it sees a payment to Stop and Shop or Market Basket, it’ll put the $187 dollars you spent there in the “Groceries” category. And so on.
Now picture our heroes look at the numbers and realize they are barely making it even. In fact, they've spent slightly more than they made in 2017.
They both make decent money, and up until this point never thought of themselves as big spenders. They are people living well within their means, they even have a saving account! What’s more, the biggest spending categories are Groceries and Credit Card bills.
Holy @#$%, what’s happening here?
Brian, Jenna’s husband, panics and starts blaming his freelancing career. He should be making more money, he should’ve never left corporate! This is why we don’t earn enough to support our, not-at-all luxurious lifestyle. Jenna protests - he hated it in corporate!.. But she secretly doubts her own words, and it’s not lost on Brian.
Horrified by the $1300 monthly grocery bills, Jenna looks accusingly at Brian who’s responsible for grocery shopping. He retorts with an unkind question about the credit card debt.
Who are these two ridiculous people, Brian thinks, that were planning to have a baby this year? How can they raise a child if they can barely support themselves?! Apparently they are far less competent at adulting than they previously thought.
At this point Jenna is crying quietly in the bedroom and Brian is pacing up and down their small living room, desperately wishing he hadn’t quit smoking 2 months ago. At night they go to bed without a word to each other - the shock, the guilt, the tension are too great.
Next afternoon Jenna calls Brian from work. She has checked their savings account, and you know what? They somehow managed to save 20% of their income last year. How can this be if Mint claims they’ve spent it all? Something’s not right.
Brian decides to dig deeper and look at their spending - what is it there, in the credit card bills? How come the groceries cost such a ridiculous amount? It’s not like they are buying caviar every week.
So he looks. Then he calls Jenna, tells her that he loves her, and that they are both idiots. They should have looked closer before fighting over money.
Turns out, Mint counted the credit card transaction TWICE. Yes, twice. A soon as he fixes it, poof! A nice 5-figure number is added to their positive balance.
It's really easy to do too - the credit card bills have to be flagged as TRANSFER.
Groceries? Oh yeah, it’s not $1300 a month. Jenna has a little side gig with one of those food supplement companies. While Mint correctly put her profits in Income category, the investment, aka the supplements she buys, are marked as groceries. Oops.
Fixed that - hallelujah, grocery bills look sane again.
I can’t know it for sure, but it’s possible Brian and Jenna have started working on a baby that very evening.
And they're using Mint to this day. Once tuned correctly, it works really well for them.
Moral of the story and practical advice, as promised:
1. Systems often make us confront a painful reality. Reality about the way we spend money, the time we (don’t) have for doing the stuff we want, the areas of “mess” in our lives. It can be a highly emotional, sometimes unpleasant experience. Being aware of this ahead of time can spare you significant pain.
Being warned = being armed.
2. In light of the fact in the previous paragraph you need GOOD, reliable systems.
Systems that reflects TRUE reality, rather than a twisted version - positively or negatively.
3. Mint is awesome, but pay attention to the correct tuning. You can’t blindly trust it to put your transaction in the right category from the get-go. It’s especially important for credit card bills, because this is a really common mistake. But it’s true for categories in general.
When you’re just starting, it’s a good idea to review ALL your transactions over the last few months, and make sure they’re categorized correctly. Otherwise you may end up with a fake $1300 grocery bill.
So... how are your finances doing today?