Ep 586 | Understanding the Power of the Expense Audit

Podcast Intro: You’re listening to ChooseFI. The blueprint for financial independence lives here. If you’re looking to unlock the secrets to financial independence and early retirement, you’re in the right place. Stay tuned and join a community of like-minded people who are getting off the Instagram and taking control of their lives in the pursuit of financial independence. ChooseFI, your home for financial independence online.

00:00:00
Jonathan: Hello, everyone. Excited to pick back up our discussion, to resume our discussion. Is it pretentious to assume that you listened to last week’s episode before listening to this week’s episode? Maybe, but I will assume. So with that, most people try to earn their way to financial independence. Have you ever considered auditing your way? Today, we’re gonna talk about the expense audit, the power of the expense audit. We’re gonna talk about a four-step framework, money leaks, turning savings into FI acceleration, and why it matters. Why start here? And with that, welcome to ChooseFI, your home for financial independence online.

00:00:37
Brad: Hey, Jonathan, I am doing quite well. Yeah, so my old CPA hat came on for a second there when you said the word audit. I got some tingles; it was cool. I’m excited about that. My hair’s standing up, man, what’s gonna happen here? Goosebumps are here; good things are coming. If you’re an accountant, that’s like flight or fight syndrome. Nothing just wakes you up more than the word audit.

00:01:12
Brad: Indeed, indeed. That was pretty cool. I actually got some fun news this morning. I haven’t even told you this. I’ve had a long-standing thing about going back to Japan. This has actually become almost like a running meme on the show the last couple of years because I’ve talked about going to visit Japan and it’s always, oh, I’m gonna do this next year, and then it never happens. I made it a goal, as I told you a couple weeks ago, to get back to Japan this year. It was definitely gonna happen, and I actually just found out this morning that I got concert tickets. So Aaron and I put in for a lottery for Eddie Vedder, who’s the lead singer of Pearl Jam. He has a four-night acoustic show in Japan, of all places, this year. It’s the only place he’s playing solo shows. We put in for a lottery, and we got selected this morning for April 17th. So we are going two months from now. Maybe sometime this year, it’s like Japan imminently. Exactly, so I’m going. We have concert tickets for Kyoto on April 17th, and now we have to furiously plan a trip around it. You and I have to record some episodes a little bit early.

00:02:21
Jonathan: Fabulous, okay, well, let’s get started. I mean, the content is here waiting for us. I’m excited to dive into it. Tell me, I guess, is there anything worth mentioning here in the scheme of travel? If someone’s doing a trip to Japan, just through the lens of travel rewards, is there a strategy or a tactic or something to be aware of in terms of doing these types of trips in a more optimized way?

00:02:39
Brad: Yeah, so we’re very much getting into it. This is mere hours after we found out we won the lottery. But we are getting started. I know there are a bunch of Hyatt hotels in both Kyoto and Tokyo that are fantastic, among other places. So we’re gonna start there. We’re gonna do a lot of travel throughout, some hikes and such through Japan. So we’re not gonna stay a ton in big cities, but definitely planning on using Hyatt points. I get those from my Chase Ultimate Rewards points. I’m gonna transfer a bunch of Hyatt points, which is nice. A good friend of mine, Christine Wheely, who you know, has been on the show once, and we met her in Bali recently. She has a bunch of Hyatt guest of honor certificates, so we’re gonna borrow that from her and get a nice suite, so that won’t be too shabby.

00:03:23
Jonathan: That’s nice. Now, are Hyatt certificates transferable?

00:03:26
Brad: So if you are someone who is top-tier Hyatt status, you can transfer these special guest of honor certificates to other people, which is really cool. So yeah, that’s a nice little present we’re gonna get from her. But as far as flights go, we’re still running the numbers because flights are not that expensive, actually, round trip to Japan. Now, frankly, I don’t know in April, we’re still doing the research on this. But I need to figure out what makes the most sense because if it’s gonna be 80,000 points round trip, but the flight only costs $1,000 or $1,200, well, that’s under 1.5 cents per point. In which case, that would make very little sense to do. So you could still use points and book through something like the Chase Travel Portal or Capital One Travel Portal, et cetera. So I’m contemplating that. I know Chris Hutchins, our friend who has the podcast All The Hacks, I texted him a couple weeks ago about Japan. He mentioned that Japan Airlines has a lot of really great business class flights. So I think you can transfer Capital One miles. So I’m also contemplating that. So Aaron and I each have a bunch of Capital One miles. So that might have, if I can find business class, it’s somewhere in the vicinity of a 14-hour flight. So that would be a whole lot better than economy, obviously. So like I said, very early in the research on this, but it’s promising.

00:04:44
Jonathan: Okay, well, we won’t spend the whole episode today on travel rewards. For those listening, though, what are you just talking about? Or maybe you have some insight, you have one card and you’ve done something with it, etc., but you’re like, I wonder what people are talking about when they’re just talking about free trips out there, whatever. As a great kind of orientation or on-ramp to travel rewards, our episode nine is older now, but in terms of the framework for thinking about this whole thing and progressing through it, there’s the key concepts. It’s probably one of our most downloaded and popular episodes. Go check out choosefi.com slash 009 for a gateway to travel rewards. And then all of our information on the various cards you can find at choosefi.com slash cards.

00:05:23
Brad: Today, however, we’re gonna be looking at the expense audit. And basically what we’re saying is this isn’t a budget, but every dollar needs to claw its way and justify its way through your fingers for a month. Like it’s not gonna sneak through. You’re going to identify the leaks. You’re going to identify, and honestly, even without judgment, this is not the same thing as a budget. We are actually not at this stage. And I say we, your goal when you consider doing something like this at this point is not actually to make a change right now. It’s just to be able to say for maybe the first time in a window of time, or for some people in a window of forever, how much does my life actually cost?

00:06:07
Jonathan: Right, I’ll give that back to you for just a second here, but it’s amazing how even if over points in time you have been intentional and aware of where your money’s going, it’s easy to drift on this one and usually to your detriment.

00:06:19
Brad: Yeah, I totally agree. I think this is absolutely critical. I think it’s something that ideally you should do once a year, even if you’ve been on the path to FI for a long time, maybe even frankly, especially if you’ve been on the path to FI for a long time, because like Jonathan said, it is very easy to slip into old habits and even just add an extra subscription here or there, or just lose track of something. I think all of us can fall prey to that. And it doesn’t mean we’ve done anything calamitously wrong, but if you’re not tracking, it’s really hard to know where you are and where you’re going.

00:07:01
Brad: And actually, a month or two ago, I reached out via my newsletter asking if people would be interested in coming on to talk about their budgets, Jonathan. And a guy named Josh wrote back, and actually this fits in perfectly here. He said, I worked through a similar exercise during our FI journey and thought we had learned from our past mistakes and quote, avoided money leaks. I like that phrase, money leaks. He said, it’s like clearing out the junk drawer. It’s not a one and done exercise, which means it’s entropy, right? Like things have a way of just falling into disorder. That’s just, that’s the way life works. And again, it doesn’t mean we should beat ourselves up about it. It’s just, you understand this is the way life works. Over a year or two or five, you’re going to almost naturally build up some expenses. And I mean, Jonathan, how many tools have you signed up for? And you might not use 100% of them right now. And even you, somebody like that could just do a quick audit of, hey, I’ve got a lot of these things. Am I using them all today? Maybe when I signed up for this, this is the latest and greatest. That’s just a silly example, but obviously subscriptions, right? Like think about all the streaming services. Are you really using those all today? How many free trials did you get an offer for? The free trials, man, man, that’s juice. We’ll come back to that later. That’s what you’ve known. Every single person heard that and just now felt like something was sitting on their shoulder like, ooh, I should probably look.

00:08:11
Jonathan: Yeah, I know. That’s how these things happen. Lifestyle creep. It’s lifestyle creep for a reason. It doesn’t happen overnight. It’s a process. And it’s usually maybe like an, you know, Brad, what’s that quote? It’s a, is it the Gregory quote? What is it?

00:08:29
Brad: Hard choices, easy life. Easy choices, hard life. Helping. Jersey Gregoric.

00:08:34
Jonathan: I just wanted to say Gregoric. All right, there it is. I think that’s how you pronounce the last name, but that’s how it’s spelled. No, I’m not even questioning it. He wrote a book called The Happy Body. He was on Tim Ferriss’ podcast a number of times. He’s fantastic. My only knowledge of him is through you being very impressed, but I remember the quote.

00:03:23
Jonathan: That’s nice. Now, are Hyatt certificates transferable?

00:08:29
Brad: Hard choices, easy life. Easy choices, hard life. Helping. Jersey Gregoric.

00:08:55
Brad: It stayed with me even now. And this is a great example of this. It is, it happens slowly. It happens through free trials, things you are gonna try out. And then because we all have the convenience of just having all of our bills on autopilot, which is a good thing. You should all be doing autopilot bills, but in the absence of an audit, and now even more so, it seems that we’re at this stage of the game where you don’t even have the benefit of when your card expires; suddenly this expense just dies off and you don’t have to make a decision because now they’re asking you for it. Now somehow it magically auto-updates as well. So it is more critical than ever that you review the line items periodically that are hitting your bank account, your financial transactions. And then we have to decide what does that mean over a longer period of time? I’m not particularly a fan personally, this is not a judgment on anyone else. I just find that I can’t sustain the mental energy to watch every transaction over the course of a year. But I recognize the extreme value of watching everything for periods of time and then being able to create predictable projections just to kind of balance out where I actually am.

00:10:04
Brad: And so that’s kind of the spirit of what we want to do right now. But I think, Jonathan, we should probably spend just a couple minutes. Why does this matter through the lens of reaching financial independence? Why are we starting here? This is almost boring. I want to talk about the glamorous stuff, you know, all the secrets, all that. But now we’re just saying, where’s your money going?

00:10:24
Jonathan: Yeah, oh, I love the word secrets as if they existed here in FI. That’s the great part. This is at its essence. It’s simple, right? It’s how can we expand the gap between what we earn and what we spend? Because the more you can expand that gap in either way, frankly, but I think really the low hanging fruit is on the expense side. Then the more you can invest each month and the quicker you can reach financial independence and reclaim decades of your life. I mean, Jonathan, it’s obvious, right? Like when you actually examine it like that, it’s, I just need to keep expanding that gap. And frankly, like I said a minute ago, when you’re letting your expenses run wild and that just happens to all of us. Even if we’re like Josh, even if we’re like somebody like me who considers ourselves frugal by nature, it happens. It happens where you spend a little more than you anticipate. And, and I think it is really clarifying. I love that word because to me, this is a granular examination of what does my life look like? And frankly, you don’t see it until you actually dive into the numbers, Jonathan. And like we’ve said repeatedly on the show, little things matter. They just matter. So for every hundred dollars per month, you can cut from your budget, it reduces your FI number by $30,000. So anybody who tells you little things don’t matter, simply doesn’t know what they’re talking about. You’re also investing that money. And over 20 years, that $100 a month turns into $60,000. So that $100 per month is a $90,000 swing in your financial life. Over what time horizon are we using that number? So over a 10 year period, over a 20 year period of time, if we can find a hundred dollars a month, that is a $90,000 swing in our direction, a $90,000 swing. This is not inconsequential. It’s not something just to move on from. You need to be aware of where your income, where your earning potential, where your economic resources are going. And then once you’re aware of them, we can move to a second step where we put them on some sort of value matrix. And we’ll come to that in a second here, but let’s stay here a little bit longer. You have this equation. We talked about it over the last couple episodes and whether maybe you’re doing, maybe you just came out of a financial independence 101. Maybe your local group inside of like the ChooseFI community is going to be doing one and you’re trying to figure out, you know, what, what is the process? What does a FI 101 look like? It should look a lot like what we’ve been going through over the last couple episodes.

00:13:04
Brad: We need to talk about this concept of financial independence, your why of financial independence, how to calculate a number. And what you heard was when we say, how do you calculate your financial independence number? It comes down to how much does your life cost? Do you know? Do you know how much your life costs?

00:13:17
Jonathan: Yeah, well, I think I, you know, I know what I make.

00:13:21
Brad: All right. Well, that’s great if you spend right up to what you make or more. But the point here is for us to have a gap, a space between what we make during our earning years and our income. So what does our life cost, you know, I don’t know. It’s kind of complicated.

00:13:31
Jonathan: Yeah, I know. I know. We need to get it down on paper or digitally or whatever so that we can then identify that, look at that and then quickly spit out a financial independence number that would cover those expenses this month. While at the same time being mindful that some expenses are time bound. This month may not be a regular month. X, Y, Z could actually drop off half of what you’re paying for. You may not, you know, you understand if you have not looked, if you don’t know, if you’ve just made easy choices and things have snuck up on you, you might be paying a price tag and locking yourself into a path that at the end of it, you’re not going to enjoy or appreciate. And a FI number is not tethered to the life you actually want to live or have. So if we can, if we can say, all right, we know what financial independence is. We get why it’s important. We know how to calculate our FI number. But the problem is the only real variable we need to know how much our life cost is a giant gaping question mark. We need to get that answer.

00:14:33
Brad: So today we’re getting into this to go through what it is that we’re going to capture. And many of you, some of you that just live on spreadsheets and say, you can claw my spreadsheet from my dead bleeding fingers. That’s how close that great. You’re good. Right. But many of you recognize, yeah, I’ve been on autopilot on this. This is a weak spot. And many of you listeners that are 10 years in might say, man, I remember when I used to do that, I used to watch it really closely, but it’s been a hot minute and I’ve had three kids and I’m in three different houses and I’m two cars and whatever later, and it doesn’t match that historical artifact that you called, you know, a spreadsheet tracker many years ago. Man, Brad, that was, was that a soapbox for you?

00:15:11
Jonathan: It’s a soapbox, but it’s an important one. And frankly, it resonated with me because I’m that person also. I used to track meticulously and I used to track everything. And in the last handful of years, I’ve really not been as great with that. I made a half-hearted effort, but frankly, I just, one thing I’ve done, which I think is important to really talk about on this granular level, which obviously we’ll spend the episode doing, but I just, in my mind, I know how you love my sheets that are ridiculous and impossible to read, but I learned how to like code and program so I could like decipher them and make them palatable for the rest of humanity. You’re welcome. But yeah, I track everything that comes into and out of my bank account because really my checking account is where everything happens. But realistically, most of my spending is on credit cards. Just by tracking, hey, I made a payment to Chase or Capital One this month for X number of dollars doesn’t really help because if that payment, let’s say, is $1,622 to Chase, well, that is made up of a lot of component parts of what were all those actual expenditures. If I’m doing an expense audit, I really need to dive into those. I sheepishly was like, oh man, Jonathan, I’ve got to do better on this. And I think it’s not so easy to say, oh yeah, I track this, I have all these numbers. But if it doesn’t give me real insight, I’m just wasting my time, frankly.

00:16:37
Jonathan: Yeah. All right. So to everyone, as we go through this, I’m just going to put a little stamp or timestamp here. So Brad and I are committing to doing this expense audit. We’re doing it personally. We will be going forward, we will be doing it on an annual basis, probably around this time of year, although there’s no guarantees about this sort of thing. When you’re hearing this episode, you’re listening to this live, we are doing it. If you’ve been feeling like you want to do it, yeah, do it. Do it with us. There’s options here. Do whatever you want. Use your own system. That’s fine. Option two, Brad created his old spreadsheet. Please don’t use my spreadsheet. It’s not too bad, actually. So I will include that. It’s a link to a Google Drive that you can copy. And then the third option is, this is the path that I’ll be using, and this is what I’ve kind of created for the community as well. Inside of the community app right now, I’m opening up. It’s a money challenge and you can kind of use a more beautiful, fun, easy to interact with version of the spreadsheet that also allows you to aggregate things like per person cost, et cetera, and then potentially have the ability to track them over time. So for those of you that are liking this, I am doing this progression, this stepping stone and doing it with ChooseFI or with the ChooseFI community. You can do that. That’s what I will be using as well. You can just go to choosefi.com slash login and you’ll see this option, this actions that you can take banner at the top of your dashboard and you can do it that way.

00:18:01
Brad: Now if you do it that way, here’s the theoretical benefit. If you do that challenge with us, we’re going to have a large group of people that are going to be doing this. And so I think there’s probably 20 or 30 of you already that have done this, but I didn’t announce anything. We’re announcing it today. I suspect it’ll be many hundreds of you. And what we’ll actually be able to do is start to think about things like per person cost of living, per person cost of living in various areas. And we’ll be able to use that aggregate data and to kind of think about and talk about how much should I be spending? What is a reasonable amount to spend? And does it matter that I’m four people, but two of them are two year olds or whatever? You know, what’s a reasonable amount to spend for this particular area? These are the sorts of insights that I think all of us would enjoy. And I’m going to kind of add to that as well.

00:19:35
Jonathan: Brad, do you have a thought on that?

00:19:38
Brad: I do actually. So I think another thing that’ll be really valuable aside from doing it as an accountability kind of group thing is for us to be able to aggregate this data and get a sense of what do people’s lives cost? I know I’ve had conversations with friends where they’re like, Hey, one thing I’d really like to see in the podcast is what are people in our community spending on X or Y, right? And cable and or not cable in the same age, but internet and phone and food, right? Like is a family of three generally spending $700 a month or are they spending $1,400 a month? And I think that’s something that the community is really yearning for.

00:19:58
Jonathan: And for us to be able to have hundreds or thousands of people doing this on their own, and then you and I behind the scenes being able to aggregate it. Of course, this is anonymous, nobody’s, there’s no names coming out, Jonathan and I are doing this to benefit the community here. And I think that’s going to be really valuable for all of us. That’s another follow-up episode, Jonathan, we can do is just, Hey, here’s the aggregate of what are people roughly spending on car insurance every month? And obviously, of course, it’s gonna be different whether you live in Florida, or you live in Idaho.

00:19:47
Brad: But even just to have a sense, I think that’s gonna be really valuable.

00:19:51
Brad: Yeah, especially I think over time, and then year after year to be able to think about this is one thing with the static spreadsheets is you had one that was really good for one year. And there are the pros that have the very good ones for 10 years in a row, but the vast majority of people change it each year. You know, some version of it, they whip up some sort of new one that they are doing. And it’s very hard to look at patterns. So if you wanted to capture something like your personal inflation rate, that’s something that would really be nice to have as opposed to whatever the index comes down each year. But what was your personal, here’s what we spent on food in 2012. What are we spending that you have five or six years of that data? Now you’re onto something that’s really beneficial for you to be able to track in a standardized way.

00:20:33
Jonathan: Yeah, and I’m looking, since we’re talking about food specifically, I’m looking at one of these emails that Casey wrote in when I asked for volunteers to go through their budget. And Casey said, we’ve been tracking, keeping meticulous records of spending budgets since 2021. We’ve seen our grocery spending nearly double without any appreciable change in what we buy, family size or similar. I think many families are in the same situation, unfortunately. And yeah, I think your own personal inflation rate is interesting. I think category by category would be interesting too. I suspect there are some where costs have gone down and there are some like food where it’s risen dramatically. I think that’ll be fascinating, both to see yourself, but then for us to see as a community as well.

00:21:13
Brad: One thing I’d like for our show to be able to do in the future is to start doing a little bit more about inside the numbers, right? So let’s actually take a look at the patterns that we’re experiencing and how we handle that. What does it mean that our interest rates have gone up on our home and our housing costs have gone? What does all of this mean? Is there a pattern that we can determine and then we can actually get some benefit from just being aware of and seeing, even if it’s only anchoring our expectations accordingly.

00:21:39
Jonathan: But yeah, I just wanna make you aware of this, however you wanna do it. I think it’s a great season, a great practice. And we’ll also just extend this out as something just to your local groups. If you are thinking about maybe doing some sort of financial independence 101 and you want some structure or support, this is potentially something, the money awareness challenge tools that I’m talking about right here, we’re piling inside of this kind of money awareness challenge, but also it’s potentially something that we could make available for local groups that wanna do multi-week financial independence 101s and run those and have a way to better work through those talking points with the group. We could potentially start to move in a future where we do that.

00:22:14
Brad: Now, having said all of that, that’s just all of you, a little parking, a little note here for you to take action. And now, assuming that you’re still with us and haven’t changed the channel, we’re going to now talk about the how. How do I actually do this? We give a spreadsheet, some sort of digital SaaS software that can organize it for you, handwritten on a note card, whatever it is.

00:22:34
Jonathan: But Brad, to your point, if you’re farther on this journey, your financial life has potentially gotten a little bit more complex. And so doing something like being aware of the line items, first of all, there’s this aspect of thinking through what are those line items that I should be thinking about for a budget? And we’ll go through those. And then where am I going to be able to find them? And then third, how am I going to be able to attribute or deal with some of these tricky ones? So I thought maybe we could go through everything in that order.

00:23:04
Brad: Let’s work through the general line items that people, the categories and the line items that people should be considering, and then we’ll just work from there.

00:23:11
Jonathan: Yeah, I think that makes sense. And now, naturally, everyone’s audit is going to look different. But of course, there are broad general categories that are going to be pretty applicable for everybody.

00:23:22
Brad: Now, naturally, Jonathan, you have pets, I don’t have pets. But of course, that is a line item that, okay, you can quickly see that on an audit template and say, okay, I have pets or I don’t have pets, something like that, right? Or I have rent, you have a mortgage. Of course, it’s gonna be a little bit different at the margins, but in general, you’re going to have housing. And that includes a whole bunch of things, right? Rent or mortgage, property taxes, insurance, any kind of HOA fees or things like that, maintenance or repairs, etc. You could even, depending on how you want to categorize it, I probably, personally, would put my utility bills in there and even down to if I had internet or cable or streaming, I’d probably lump that all in housing, personally.

00:24:06
Jonathan: I don’t know, how do you think about that?

00:24:08
Brad: Yeah, I mean, you’re gonna have to account for it somewhere and so you just, whatever makes sense to your brain. I would probably keep housing pretty relatively thin. In my mind, just housing is gonna be mortgage and rent or rent, and then it’s gonna be property taxes and it’s gonna be home insurance and then it’s gonna be any sort of HOA fees. And then if I had clear, delineated things that were home maintenance-y type things, like maybe you do a lawn service or something like that, got the pooper scoopers coming to get the stuff out of your yard from those beloved pets, whatever it might be, or ongoing repair-y type maintenance things, projects of that sort, I’m gonna group it there, but if that’s enough as a segment of the pie for me to then move over and try to put utilities separate.

00:25:00
Jonathan: I’m aware that you’re like, well, heating and electricity and all these types of things, I’m probably gonna keep them personally just in a nice utility category.

00:25:04
Brad: I think that makes sense. And I think it’s also important to know that your audit is your audit.

00:25:08
Jonathan: Brad, we’re trying to avoid using the word budget. We don’t want to trigger people.

00:25:11
Brad: Your audit, your audit, right? The expense audit, yes, for accounts everywhere. Your expense audit is your expense audit.

00:25:15
Jonathan: We’ll go with that. So, right, I think utilities is good there. But another one, for instance, with yours being yours is transportation, right? So could you, with a straight face, say that flights for your trips would literally, by definition, be transportation?

00:25:28
Brad: Yeah, of course, but I probably, personally, would put that in a travel category. But would I get mad at somebody if they buy the book, put that in transportation? No, of course not. You gotta have to figure out what makes sense for you. But yeah, I mean, transportation is the next obvious category. So, of course, car payments, any type of gas, car insurance, repairs, etc. I think, again, it depends on if you’re taking tons of Ubers and Lyfts on travel, I’d probably lump that in travel. If you take Uber and Lyfts as part of your regular day-to-day life, which is not unreasonable for people living in cities.

00:26:07
Jonathan: Or frankly, I’m even contemplating, we’re contemplating going down to one car and maybe taking a couple Ubers or Lyfts here or there in the rare instance where two of us need a car at the same time. So, that I probably would lump in transportation.

00:26:23
Brad: So, we’re just trying to give a flavor here of how you think through these kind of things.

00:26:26
Jonathan: I think one thing that’s probably interesting or useful to think about as you try to anchor yourself in general, and I’m gonna try and standardize this on my own, but I think it’s useful for people to think about, is your per person cost, for instance. We’re all gonna have different cost of housing, right? And that’s gonna be dramatically impacted by cost of living in various parts of the country.

00:26:45
Brad: But on top of that, a family of seven is going to have dramatically different housing costs than a family of one, family of two, and the little ones versus the big ones. So, with that in mind, I’m incorporating into mine a little algorithm to account for people in the household. So, when you say things like car payment slash payments, but we don’t need to get into listing all the individuals, just how much you spend on a car, but it might be helpful to have it some way in your spreadsheet, some way of just making a note for this year, how many people does this food bill cover? How many people are represented by this housing cost? How many people are represented by this car?

00:27:34
Jonathan: And thinking about per person cost is just something that, it’s a data point that might be helpful for you later when you’re trying to compare your food budget to maybe someone else’s food budget.

00:27:39
Brad: Certainly, I agree, like when we think about the college, Robert Farrington, the college investor, he notably, I remember him when he came on the podcast saying he just doesn’t even have a car. He’s just doing Uber and Lyft.

00:27:46
Jonathan: So, Uber and Lyft is his transportation cost. And that’s a very interesting model.

00:27:52
Brad: And I’d be curious if we saw this pattern where someone that has, quote unquote, exorbitant Uber Lyft spending has very minimal car payment, how it actually maps out.

00:28:04
Jonathan: You get your great car that you’ve had for five years. What is the way? Should I lease a car? Should I have a payment on a brand new car because it’s gonna last forever and I don’t have maintenance costs? No, I’m gonna buy an old car and I’m not gonna have a payment, but oh man, the maintenance on this thing.

00:28:20
Brad: Versus there’s this, all of these things are working against each other, and it will break an individual human’s mind, but you can start to look for patterns through all of this that actually can give you some pretty good insights.

00:28:24
Jonathan: And yeah, probably unsurprisingly, you’re gonna find out that the five-year-old Honda Civic is generally gonna be a good choice, right? These patterns will emerge, but it’d be cool to kind of actually see that actually happen.

00:28:31
Brad: And then when you get to food and groceries, Brad, yes, there’s your food, there’s your groceries. Okay, but then there’s also your dining out. That’s probably gonna be added in there. You might want to separate it though, because you’re going from $2, $3, $4 per person to meal to suddenly over here, you have your Friday, Saturday night, you’re at 12 bucks a meal.

00:28:57
Brad: …or 20 bucks a meal. And then also, is there something else where dining out is separate from night outs or something along those lines? And this is a completely different thing. Dining out is Chick-fil-A and Chipotle. You know what, I don’t know. Right, but I think this is one of the problems people have when it comes to these types of expense audits; it’s easy to get lost in the complexity, because like you’re saying, some things can naturally be in other categories.

00:29:25
Brad: Or I think about when I make a purchase on Amazon, it might be boxes of tissues and then jars of peanut butter or something like that. So like, where do I put that? Do I put it in the house? Do I put it in the food? And it’s like, okay, let’s take a breath and let’s not get bogged down in complexity and let the perfect be the enemy of the good, right? Make you stop this. So like for me, I probably would put a lot of my Amazon purchases just in my food and in my groceries, because realistically, a lot of those things are going to be in there.

00:30:16
Jonathan: And there’s a line item for different home items? Because we don’t think about that also, right? Like a lot of what people think of as- Is toilet paper and paper towels, is that groceries or is that something that goes on top of groceries? Where does that go? It’s a reasonable question and it’s not an insignificant amount of money. So I think that’s something that people often don’t lump in anywhere. And I think that’s a big miss. So clearly that needs to get line-itemed in some way, shape, or form.

00:30:44
Brad: But again, if it’s going to take you hours to figure out, I have my Wegmans bill. I’m not going to sit there and carve out like, this was laundry detergent and this was tissues. I’m just going to put it as groceries. So I think it’s important to try to be directionally accurate, but also not get bogged down in complexity and intellectually honest. That is not the same thing as perfect. This is the art of projection, right? Not the art of war; it’s the art of projection.

00:31:13
Jonathan: And in this context, I think you’ve already said it, don’t let the perfect be the enemy of the done or the good or the tracked. We need to just get something that is representative. It doesn’t need to be perfect in every single way. But the reason I highlighted that nuance is because you can lie to yourself that, oh, I don’t spend anything on my grocery bill. It’s super low. Well, no, did you do a cow share and you had all of your meat twice a year? And then, you know, you just didn’t spend any of that.

00:31:42
Brad: Like, you can’t forget that. And do you go out to eat twice a week in lieu of your weight? Well, that is part of your… however you want to do it, you need to be aware of these maybe things that you figured out. And it’s not even to say any of those are gonna stop. You know, it’s just to say, don’t forget that because it didn’t show up in the same pattern as everything else. You can wiggle and fudge around how many categories you need and how much additional nuance you need, you know?

00:32:07
Jonathan: And ultimately, the thing that we want to get towards is, is this a representative month? And so with that in mind, when you’re doing an audit of your expenses, you need to be aware that not everything’s gonna show up every month based on how you do things. You do that subscribe and save.

00:32:28
Brad: Alright, so in that case, another feature that I’m adding into my expense audit, which you’ll have to account for in your own spreadsheet, or you can use, you know, what I’m setting up, is I want to have the ability to do an annual override. Right? So if I don’t think I’m gonna be able to target the amount of spending this month, but I need to be able to have some sort of lump sum to throw in a category to say, over the year, it’s probably this. And then move on, I’m gonna have the ability to go do more options, annual override, and then have it then derive or compute the monthly amount, and then just move on with my day and have all that kind of taken care of.

00:33:09
Jonathan: You need to come up with some version of that because you will lie to yourself if you just say, well, I’m gonna do all the expenses this month and anything that didn’t land this month, and that’s not the point. The point was not for you to get the number as low as possible. The point was for you to find out how much a representative averaged out month of your life cost using the tool of the fact that a lot of expenses do land every month so we can front load a lot of that work and a lot of that energy.

00:33:37
Brad: Yeah, life is lumpy, as we’ve said many, many times here, and there are expenses that will hit only once or twice a year. Yeah, to exclude those because really, we’re trying to do an audit of your what does my life cost in an entire calendar year? And you need to get as close to that as you possibly can. And if that means it’s gonna take you an extra 30 minutes or an hour to figure this out, well, you’re gonna have a lot better data.

00:34:03
Jonathan: So I think it’s really important. The next couple of items would be health and medical. Health insurance premiums, you can put there, medication, even supplements, things like that, medical devices or glasses, et cetera. But this is a really important one to slow down on, Brad, because some of these now, for the first time, they’re not actually hitting your monthly cost. They’re a payroll deduction item in some particular cases. So it does have a cost, but before your income comes home, you don’t really see it. Should you make any sort of accounting for that?

00:34:40
Brad: Should you only include health insurance costs that you have to pay out of pocket after the fact? There is a little bit of nuance here when you’re talking about, are there things that I pay for through work? Should I be considering that as part of my expense audit? I would say yes. Maybe that’s the accountant in me, but I would say yes.

00:34:57
Jonathan: So you are spending that money. If it’s coming out of your, it’s like arguing, I’m not paying taxes because it’s coming out of my payroll every period. No, you are; I promise. It’s just that it’s getting allocated before it sees you, it sees your bank account.

00:35:13
Brad: So I think clearly, in that case, if you’re paying health insurance premiums through your payroll deductions, that’s gotta count. If you shuttle money into an FSA or an HSA that you’re actually utilizing, not if you’re doing it like an HSA for tax purposes and it’s gonna grow and compound for 50 years, separate issue. But if you’re putting it into something akin to an FSA where you’re spending that money in this given calendar year, those are medical expenses. You have to include that.

00:35:39
Jonathan: Wow, man, yeah, this is great. Alright, so actually, you said something there and I’m not totally surprised, but at the same point, I think people were like, wait, wait, rewind that. What did you just say? One thing I am not doing, and you can do whatever you want, but one thing I am not doing is the point of this is not actually my financial independence plan.

00:36:03
Brad: I am not looking at my income, gross income, whatever. But, Jonathan, you have made an interesting thing and I think we should get in here. It sounded like you were saying you would include taxes that you pay on your income as part of your expense audit. Can you clarify that? Was that actually what you were saying?

00:36:26
Brad: Well, it wasn’t necessarily, but I probably would track my tax liability just because I’d like to have a sense of it. I think, frankly, as we’ve discussed so many times, Jonathan, I think when it comes to financial independence, when my income is zero, I think I can manage my tax liability down to almost nothing.

00:36:43
Jonathan: I don’t want people to make the mistake of, hey, I’m tracking my tax liability in 2026 and I’m going to assume that that’s going to be my tax liability when I reach five and I have no income. I don’t think that’s the case at all. But I think, frankly, it would be really nice because you know, we’ve talked about this so many times, how many people get confused when it comes to taxes?

00:37:04
Brad: They have no idea what they’re paying. A lot of people, frankly, think they’re paying dramatically more than they’re actually paying, but regardless, it’s neither here nor there. Just having a sense of what does your life cost, I think gives you clarity. And I think that is very, very important because you’re on a 10 to 15 year path to FI and you know your gross income. That’s just an obvious number. They tell you that when they hire you, right?

00:37:34
Jonathan: But if you don’t have any true sense of what your tax liability actually is, I’m not talking about your withholding. I’m talking about your liability. That’s the expense, both payroll taxes, your federal tax liability, your state liability, et cetera. These are numbers you should know. So I think, does it provide us insight, Jonathan, today for what’s my FI number? No, it doesn’t. But I think it’s important to know.

00:37:55
Jonathan: Yeah, I think I’m going to devil’s advocate on this one and go in a slightly different direction. We’re talking out loud here. Brad and I did prep for this, but we didn’t necessarily agree that we’re gonna agree on every talking point. So this is just a point of going in different directions and we’ll see what sticks after we’ve both had time to digest and think about it. Maybe after the episode comes out and we hear your feedback.

00:38:24
Brad: I would make the case that yes, absolutely, we need to account for taxes, but not here for a couple of reasons. One, we don’t actually know how much we’re gonna spend in taxes because this is a projection if you’re just starting. And our decisions that we’re going to make on the back end of this are going to directly influence. So it’s really more of a point of when we get to the end of the year, we want to go back and update our work here and maybe compare what we projected we would spend versus what we actually spend on the back end of having a financial independence plan.

00:38:47
Jonathan: We want to record an audit of what we wanted to do versus what we actually did. And at that point in time, we want to record how much we paid in taxes, but that’s not a projection. That’s a note on a log, you know, in the spirit of gamification and tracking our progress.

00:39:06
Brad: Right, right, right. So that, yeah, in account and speak, you’d be truing up a number on your projection to true it up to what the actual is.

00:38:15
Brad: Things that we do, like let’s say putting money into a 401k or a traditional IRA or an HSA, lowers our taxable income in the current year. And as you so aptly said, we will not, let’s say for 2026, know what your tax liability is for your 2026 income until you file your tax return most likely by April 15th, 2027. So at that point, yeah, if you were making wholesale changes, if you were dramatically adding to these pre-tax buckets, then yeah, you would expect.

00:38:48
Brad: So for someone new to FI, it would be easy for me to just say, hey, most likely you’re getting ready to file your 2025 tax return. If it’s not filed already, it’s going to be filed in the next 60 days. Just go to your 1040 page two, find your tax liability and write that down. But if you’re new to FI, there is a real high likelihood in 2026, you’re going to make big changes that are going to lower your tax liability because you’re probably putting dramatically more money into these tax-deferred vehicles, like I just mentioned.

00:39:16
Brad: Jonathan, I think that’s a brilliant point. I think what would be really clarifying again is on April 15th, 2027, to say, oh, look at what my 2025 liability was, which I projected for 2026 and look at my actual, look at what a difference this made when I made these changes. Well, that’s the magic of what’s happening right now with what we’re talking about, Brad, is that now as you and I have the opportunity to discuss things, we then go build it, right?

00:39:36
Brad: And so what we want is this should all be easy. Like we’re at this 2026, this should be not as difficult as it was in 2012 when we had to look at the spreadsheet heroes that could master Excel and Google Sheets. Now, wouldn’t it be cool if we could just have small building blocks, we take the small step. And right now it’s a little difficult, but it’s not that difficult, extremely difficult just to work through the nuance of what we’re talking about.

00:40:06
Brad: Do this part, do the next thing, and the next thing. That’s all we’re going to do. And if you do this thing, and you’re doing it with us, and you’re participating in the show, or you’re doing it through a FI 101, but even if you’re on your own, but if you do it, and you have that data, and it’s good, it’s good data, then when we come to the next part, which you can already see it’s going to happen, then we can build on that.

00:40:34
Brad: And then when you’re doing it year over year, now you have a log. Now you have a record. Now you have the historical data to show you definitively your tax rate over time, and to start to point out the patterns that are going to become more obvious as we all get better at this together. So Brad, I think this is the heart of it, though. That could be confusing. And what we’re saying is we’re not doing yet an entire financial plan. We’re doing this piece that everything will build on.

00:40:59
Brad: And there’s a couple of other aspects that you mentioned there that are super important. Things like, and I think you nailed it, if it’s an FSA that you use every year, use it or lose it, all right, cool, expense. If it’s an HSA, and this is my big one, your savings, your investments, your HSA contributions that are being done to investment should not, they are not expenses. In my mind, they should not be included on this.

00:41:18
Brad: We are trying to find out what our life costs. If you are saving this for your future, it’s by definition on the other side of the ledger. It’s not part of this equation. We want to keep this scoped on what it is our life actually cost. Yes, wholeheartedly agreed. If you’re doing an expense audit, savings do not, they simply do not count as expenses.

00:41:41
Brad: If you’re someone who wants to track every penny and spend 30 hours doing this, and you want to go from your gross income to where did every dollar go? Well, that’s a totally separate exercise. That’s not what we’re talking about here. That’s not going to really appeal to everybody. But I mean, Jonathan, that’ll appeal to 5% or 10% of our community who just loves the spreadsheets. I get that. But yeah, that’s outside the scope of an expense audit, because really, we’re just trying to prove ultimately at the end of the day, what does your life cost?

00:42:09
Brad: And then you can look at your income and really simply just subtract the items, right? My gross income minus what does my life cost equals my savings in essence, and that should be pretty darn close. Now, if you have things like tax prep services, that’s an expense. If you have things like charitable giving, that’s an expense.

00:42:26
Brad: Now, there’s a whole separate conversation on how you’re going to handle that and what it’s going to mean in terms of a financial independence plan, which we won’t get into right now. But certainly, that should absolutely be included. Charitable giving should be included on your expense audit. If you have things like local property tax, that sort of thing, if you have property tax, that’s an expense. You understand, this is the nuance. That is something that you are going to have to pay every single year.

00:42:54
Brad: The little notes I was making are around your federal income tax and maybe by extension, your state income tax. But your property taxes and probably to some lesser degree, depending on how your state does it, your local, there’s some fudge here, right? Depending on how your taxes are accrued, that should probably be considered.

00:43:14
Brad: The category that will also trip people up, but I think it’s important, is now we need to go into debt. Debt is an expense. Debt should absolutely be factored into your expense audit. But using a standardized category for it, we all need to be intellectually honest and say that most debt, if not all debt, is a time-bound expense. You could also make the case of mortgages as well.

00:43:38
Brad: Maybe you would even separate out mortgage versus rent for that reason, or maybe you just keep it together and later you clarify whether it’s a mortgage or it’s rent. I gotta think through that one a little bit here. But time-bound expenses should be noted, especially as we move from a static FI number to more of an effective need number. We just want to make a note of that and we’ll come back in a future conversation and we’ll talk about what we can do with that.

00:44:09
Brad: But we do want to know, what is our payment on our debt?

00:44:16
Jonathan: Obviously, you are someone who famously paid off a whole boatload of student loan debt, $168,000. I would be interested in your opinion on this because, as you said, to you it’s self-evident to include that amount in your expense. I would definitely argue that we need to account for this somehow.

00:44:34
Jonathan: But there’s an interesting nuance in that, okay, let’s just look at credit cards. Let’s just say you opened a credit card on January 1st, 2026. This is the only credit card you’ve ever had. You logged every charge as your expense. Let’s say you made $2,000 worth of charges in the month of January. I would personally put that down as $2,000 worth of expenses in the month of January.

00:45:02
Jonathan: Now, if I don’t pay it all off, right, if I don’t pay my bill on time and in full every month, well, then I get charged with interest expense. So in that case, I would actually just add the interest expense as my additional expense because otherwise you’d be double counting it.

00:45:21
Jonathan: So that’s an interesting… This is why we’re doing the nuance. All right, so everything you said is obviously correct in its own way. It doesn’t mean that we all would have done it correct or we would have known how to handle it. But that is by miles the trickiest thing to navigate in terms of thinking it through. I have struggled with that understanding that double counting.

00:45:45
Jonathan: YNAB struggles with that understanding. Monarch, all of the budgeting tools struggle with the double counting issue that you’re speaking about right now. And so for our purposes on an expense audit, when I said debt out loud, I wasn’t even thinking about that. I was thinking about student loan debt. I was thinking about mortgage debt. I was thinking about the boat payment, the furniture that’s been financed, whatever it is, the car payments, these sorts of things.

00:46:07
Jonathan: But then if I’m being intellectually honest, also outstanding credit card debt. So I think now we got to hit a fork in the road where we talk about this and we’re speaking now to two completely different people. First off, if you, and you should be, table stakes here, we’re talking table stakes moments, highlight this, write this down. If you are capable at this stage in the game of paying off your credit cards on time and in full every month, full stop, you should just be doing that.

00:46:30
Jonathan: And then everything else I’m going to say doesn’t really matter. That’s what you should be doing. And so in that context, we can keep credit cards almost irrelevant. We just look at the credit cards just for the purposes of finding out our expenses to find out how much we cost. What Brad is talking about rightly so is when the lines get blurred because you almost paid it off this month and then you almost paid it off next month, or you had some small amount.

00:47:04
Jonathan: So here’s now let’s differentiate in these two categories. First, can you pay it off? Okay. All right. Next, can you pay it off pretty quickly? You know, so we’re talking about let’s move away from these bad habits. This is going to be one of your massive action steps. We’re not going to keep paying interest because we just thought it was optional and we didn’t think about,

00:47:20
Jonathan: no, no, we need to get to the point where it’s on time and in full every single month done as quickly as possible. But now we’re over here in, I got $10,000, I got $15,000, I got $30,000 of credit card debt.

00:47:30
Jonathan: Like, you know, you’re coming in and maybe you’re halfway through a Dave Ramsey program or something like that. Or you were trying to just do better with your money and you found us at the same time and you’re, how do I, I gotta deal with that. In that context, this comes down to decision fatigue. I, in my mind, this is don’t let the enemy be the perfect of good.

00:47:46
Jonathan: I would almost just say, no, you have a debt problem. Stop using that credit card, move over to something new that you can pay off on time and then full. And let’s figure out a way to handle this debt in a way. Again, look at the debt plan. This is a debt plan. We should not be conflating monthly expenses with a debt problem.

00:48:03
Jonathan: You have a debt problem. Keep it over here. Find a way to stop using it and go over there. You’ve lost the ability to use credit cards because for six months, you’ve not thought that this is a hair on fire moment. So that’s kind of how I would do about it. This is something we have to fix now. Yeah. And we’re going to deal with debt here and expenses over there.

00:48:13
Brad: I like that. I like separating. And yes, of course, it’s very important. We say repeatedly, do not use a credit card unless you can pay it on time and in full every single month. Thankfully, the FI community were people who are striving to have significant assets. We’re getting to the point where a couple thousand dollar credit card bill or whatever it is, X number of dollars you put on your credit card every month, it’s paid off on time and in full very easily.

00:48:37
Brad: This is not an issue. Now that said, Jonathan, as you so aptly said, there are a lot of people coming to our community who are coming in with debt. I agree. I look at that differently. So that is like to me, that is like one number. That is an expense that similar to a car payment.

00:48:54
Brad: Okay, that let’s say you have a $30,000 car payment and it is $500 a month for five years. Yeah, I would put the debt payment of the $500 per month. That would be the expense that I would put down. You know, again, the accountant in me could say something silly, which would be so ridiculous like, oh, well, some of that is a residual value. That’s not how the world works, right?

00:49:15
Brad: Just like student loan debt. Well, it’s itemizable. Have you factored that into your equation, Mr. Tough guy? Got it all figured out. So yeah, clearly for car loan, I would put that all as expense. For student loans, I would put it all as expense. If you’re coming in with credit card debt prior to finding FI and you have this amount and you have a plan to pay it off and you’re paying a certain amount every month, or even if it’s variable and that amount gets paid down eventually to get you to zero, I would put that monthly payment as my expense every month. I think that’s reasonable. I wouldn’t split it out at that point. All that stuff you bought on there was complete junk anyway, frankly, and it’s not worth anything. So every dollar you pay towards that is expense. So yeah, let’s not get bogged down in detail. For most cases, every dollar you pay down on debt, you’re just putting as your expense here.

00:50:01
Brad: Now, we could make an argument about a mortgage payment because some of that amount is paying down principal. I think people of good faith can argue about that. I probably would almost count my principal amount as savings, but the easiest way is to just say, hey look, this is what my life costs. My mortgage every month is $1,600. The easiest way is to just say, all right look, $1,600 a month goes on my expense audit as my expense.

00:50:27
Brad: So Brad’s giving you a way to handle this if you’re doing this just on your own to handle these mental models and these decisions that you need to make. I, with what I’ve built, I’m gonna try to just standardize it. So you don’t need to think about necessarily what category to put it in with the time, with the large exception of the credit card debt where some of its expenses, solve that. But to the degree that you’re able, I’m not gonna try to tell you exactly what perfect looks like outside of what we’ve already done. But what I would say is, even based on this conversation, originally I had mortgage and rent as just one line item. I’m going to separate out mortgage from rent.

00:51:02
Brad: If you do mortgage, I’m going to carry that forward along with car payments, and then along with any sort of other debts that you may list. Because in a future chat that Brad and I have, we’re going to then talk about managing debt. We’re gonna talk about how these payments, et cetera. So you don’t have to actually get it completely perfect right now. I would say with the mortgage in particular, to Brad’s point, I would include your principal and interest if you have a mortgage. Don’t include your property taxes and your home insurance. Like let’s say you do escrow and you just have a payment, spend a little bit longer to get that extra amount allocated out of there.

00:51:40
Brad: Why? Because even after your mortgage is gone, you’re gonna have property taxes and insurance. Your mortgage doesn’t go to zero, you know, at least in terms of housing costs. No, you just eliminate the principal and the interest. So we’ll separate that out. And then also for the other types of debt, what we’ll do when we build on this, as we start thinking about debt management, we’re gonna carry all these other categories forward and then we’re going to get additional information like interest rates and balances and principal and payoff timelines. And then we’ll be able to run various things like scenario analysis. And then we’ll be able to come back after the fact and say, all right, over a timeline, what does that do for my expenses?

00:52:20
Brad: Right, I love that. And that’s all the fun stuff. But really at its essence, what we’re doing here today, I know you and I are having fun getting a little bit bogged down because that’s the interesting part about this is there is some nuance to it, right? I’m trying to anticipate the questions that would come in via email. That someone said, but you didn’t mention XYZ. Yes, I did. Yes, I did. Did you listen to addendum 470, hashtag A? It was clearly said there.

00:52:41
Brad: Yeah, but you’re talking 40 words a minute. Well, you had me on three X. Oh man, I would be frightened to listen to you in three X. But yeah, the nice thing is don’t get bogged down. Just make this happen. And that’s the important part. Because you’ll get better at it, right? Even if you do this badly next year, you’re gonna be way more in tune with your finances and you’ll know whether or not that was a real projection. You can do it again or you can update it as you get more information.

00:53:07
Jonathan: Definitely, I love it. So okay, we talked through debt. Obviously, there are different insurance policies that you have. I think we probably put medical and car insurance in their own separate categories. But maybe you could lump it all in insurance if you wanted. But you have life insurance, disability, long-term care, umbrella insurance is something I have. And then we get down to children. Childcare, education, different sports, et cetera. Pets are another thing we mentioned earlier. There’s plenty of line items for your pets if you have them. What about gifts? What about birthday? Hey, my son has tons of friends. Great, how are those birthday parties working out for you?

00:53:41
Jonathan: Yeah, I mean that’s gotta count too. I mean that stuff adds up. Or I think we give little presents to each of the kids’ teachers at holiday time or whatever. Or Teacher Appreciation Day. That stuff does add up. And yeah, it’s important just to have a sense of really what does my life cost? Because also, we’re trying to project eventually for FI. So the X number of dollars that we spend on teacher presents or kids’ birthday presents, that’s not gonna be there in 10 years. That’s a season of life thing.

00:54:12
Brad: All right, so Brad, that kind of goes through the line items. Now, you have a spreadsheet that you worked on and you shared with people before. And then we have the various tools that we talked about here. And individuals might have said we’ve missed stuff. Absolutely, there’s things that we didn’t cover. But what we’re trying to do is just paint a picture for you of where to look for creep because it’s actually going to happen.

00:54:35
Brad: So real quick, expectations for this episode, Jonathan. Someone wants to take action on this. They’re going to do it with us. Or maybe years from now, they’re doing it after the fact. What should they do?

00:54:41
Jonathan: Yeah, well for me, it’s click on one of those links that we put in the show notes and get started. So I think what I personally would do, so from my own expense audit, which obviously, Jonathan, we said we’re going to do this, everything in my life runs through my checking account and everything in my life runs through my credit cards. So the vast majority, just about everything, will be captured if I just look at a few months of those two items, essentially credit cards and checking account.

00:55:10
Jonathan: Well, you brought up a great point. You’re not just limiting your scope to the statement from this single month and anything that hits from February 1 to, because someone might say, hey, I wanted to do this month-long challenge, but it’s already the 15th. No, I mean, let’s not get bogged down in, oh man, I missed it by a couple of days. That’s not what we’re talking about. You need to take action for you, not because Jonathan and I decided to come up with a challenge. We’d love for you to be part of it, but you need to take action to make your life better. Let’s be entirely clear. So don’t get bogged down in that.

00:55:37
Jonathan: But yeah, do I think one month is representative enough for me? I don’t. And especially in this day and age where you can download account activities so easily. I go into my Chase or Capital One credit cards. You can really easily download account activity. You go to All Transactions, and then you can get a CSV file or an Excel file. It’s not like you need to sit there and meticulously type down every single expense. You just download the thing, and then you just sort it. And like I said, I’m gonna do that in my bank account as well. I’m gonna download account activity and just kind of sort everything.

00:56:06
Jonathan: And then just the time that I’m gonna be spending is just then moving those things into different categories. I think, honestly, Jonathan, I think this is gonna be a pretty fun and easy exercise, but every person needs to know where did they run their life through? I think for most people, it’s gonna be checking account and credit cards, but who knows, maybe some people, it would be silly to say, oh, I’m not gonna consider how much cash I spend if you’re someone who spends actual dollar bills. I frankly don’t spend a dollar bill in a six-month period, so that’s irrelevant for me.

00:56:45
Jonathan: If you use checks or debit cards, all of that should wash out in your checking account, but just be reasonable for where do you actually spend money and track it. And I think, for me, at the minimum, I’m looking at two months, but I’m probably gonna really eyeball three to four months, I think.

00:57:04
Brad: Okay, yeah, and that sounds reasonable to me. I think one thing is just make a list of the things that are variable versus the things that are fixed, right? If you pay a set amount for something, then great, use that. But if it’s a variable one, you’re gonna wanna do some sort of averages when you’re doing something for projection.

00:57:19
Brad: Take a look at every subscription, every recurring service. Be mindful of those things that you have that are subscribe and save, and they hit once every six months or once every eight months. Do you really need any more air filters? You don’t change them to begin with. Go change them. Do you really need to restock? All right, speaking of myself there.

00:57:38
Jonathan: And then, however you’re gonna do the tools, that’s completely fine. But now that we have that, and we’ll come back to this, we’ll pick this up, but I’m gonna spend a few minutes here. We wanna actually take a look. We wanna categorize, yes, by category, but then there’s two different ways that we want to categorize things. One is required versus one to have. And keep in mind that that’s not an entire category in terms of the entire category is required or the entire category is one to have. It actually can apply to each individual line item, as in I have to have this amount of money every month for food, or it’s just not gonna work, versus life’s a little bit better when we have this amount, right? That’s the sort of thing. Just wanna pay attention to that as a detail. You can decide which one you actually use there, but you want to, you’re not necessarily just trying to say this is the minimum we can spend on food, but this is maybe what we want to have.

00:58:39
Brad: And this is a different way of looking at things, and you can apply the model that fits, especially as you get out of the core categories, what you’re spending on your housing, what you’re spending on your cars, what you’re spending on your food, housing, food, transportation. Now you’re getting down to these lower tier things. Some of these crept in. This is where we really want to, Brad, you used that phrase, the valueless, frugal, cheap, valueless. Well, when you’re looking at these lower tier items that take up all of the remaining space on your expenses, we want to start thinking about things like how much value do I get out of this? If nobody was watching my life whatsoever, would they even know that I was paying for this or getting any value from it? Would my life change one iota if it went away? And here’s the cool thing, especially with a lot of these, you can just test it. It’s very easy to cancel. Well, maybe it’s not as easy to cancel as it is to sign up, but it’s very easy just to drop them and see what you missed, right?

00:59:34
Brad: I mean, this is the same. We want to do these tiny little tests of, all right, I was on eight streaming services because free trials, and now I’m down to one. I still don’t watch it, right? Do you remember when you had 600 TV channels on and nothing on, still nothing on? You gotta use this value matrix to take a look at where your economic output is going.

01:00:02
Jonathan: Yeah, I think it’s important. And yeah, like you said, there’s almost no decision that you make in terms of canceling for a time that is irrevocable, that you just simply can’t go back. So why not err on the side of, okay, I’m going to cut until I can get to a point where I’m starting from ground zero and then I build back into my life the things that add value. And I think streaming services, it almost sounds like a cliche at this point, but it’s a perfect example because I think many of us have legitimately three to five of these things at any given time. And realistically, you’re not watching three to five streaming services in a given month. Most of us binge something and that’s usually on one particular service. So is it unreasonable to cancel the other four for that month, just use that one, and then move to, okay, I’m done with Netflix for this month. I’m going to open up Hulu and watch whatever.

01:01:02
Brad: I think that’s a very intentional decision. Obviously, that’s a little bit outside the scope of this expense audit per se, but I think, what’s so beautiful about this is there’s an interplay with all of this. This is FI, right? Like there’s an interplay with how much I’m saving. It would be silly to not include, okay, if you cut expenses, it’s going to change how much you can save. It’s going to change how much your FI number is. And there’s an interplay with everything. We’re talking about a very simple exercise here with this expense audit, but I think at the end of the day, what’s going to happen is it’s going to change your behavior and I think that, to me, is the clarifying beauty of this is, all right, what do I value? I’m going to spend significantly on that and then I’m going to cut everything else really significantly. That’s how I like to live my life.

01:01:41
Jonathan: Yeah, except for us and our family, streaming services. I mean, we have Netflix. We have Disney and ESPN and Hulu because, I guess, for two months out of the year during Wimbledon and the Australia Open. Well, that’s it. I mean, that’s it, right? For us, I don’t need streaming year round and you don’t need eight other services. So if you only need to have streaming for one or two months because there’s a couple of events you want, you just sign up for it and let it go. It’s fine.

01:02:06
Brad: A lot of times, not with Disney, I can tell you this right now. A lot of times when you go to cancel something, immediately the thing is, hey, we’ll give you the next three months for $2.99. If you do that, remember, you’re back on another hidden trial sneaker cycle. So just be aware of those. But the value matrix, if you think of four quadrants, I think this is useful, right? So first we go through, we create that monster list. Then we identify and just pull off the top so we don’t need to think about it really anymore. These are just required things. We don’t need to spend any more brain power on here. Let’s take the rest and let’s throw them on a value matrix.

01:03:05
Jonathan: And here are the various quadrants to look at. Top left, high joy. Top right, low joy. Bottom left, essential, bottom right, eliminate. Now imagine you could just take all of those and everything had to fit into one of those four quadrants. If you’re doing a spreadsheet or a paper, you’re at a disadvantage. Just cut it up, make a copy, cut it up. And it’s going to go in one of those, right? This is going to be something that brings a lot of joy to your life. Do not lose that. If you do something for your kids and it’s an ongoing expense and it’s a high joy thing, conversely, if you’re taking them kicking and screaming to something because you’re trying to make the grandparents happy about something else every single time, decide whether it’s high joy or low joy.

01:03:41
Brad: Decide if there’s a return on the hassle that’s involved with it. Should you be paying money for something that at the same time is wearing you down and adding stress to your life? You need a way to categorize these because not everything’s going to come with us to this next chapter in our life. But we do not want to cut things that are bringing a lot of joy. We’re not just doing a budget to do a budget stake. We’re designing a life that we’re excited about living.

01:04:04
Jonathan: We’re just cutting ruthlessly, in my words, the things that we don’t drive enough value from to keep going. Yeah, and I think that’s important, right? So the path to FI is not about deprivation. It’s not about being a miser. There’s nothing negative to me about financial independence. I know in the past we’ve seen caricatures of people in the FI community. We’ve had these terrible stories in the Washington Post about brown bananas and other nonsense, but that’s not how we really live. As you’re saying, we’re searching for joy. We’re searching for value. We’re searching for wonderful lives and we’re trying to build them from a place of financial stability.

01:04:47
Brad: And in that financial stability, you have to understand there are finite resources. If you were making $2 million a year, you wouldn’t be listening to this podcast, right?

01:04:57
Jonathan: Ah, ah!

01:04:58
Brad: Well, if you have not reached that yet, you’ve got a real problem, let’s be honest. But most people have to make decisions based on scarcity and based on, okay, there are finite resources. This is the essence of every decision in life. There are finite resources. You have to make decisions, okay? And very simply, you can’t spend every dollar you make because you are going to be poor for the rest of your life. So you have to make a change.

01:05:17
Brad: If you’re coming in here saving 0% of your income, you need to make changes, all right? I’m not gonna sugarcoat this for you. You need to make changes. And I think finite resources helps clarify, what do I value? Jonathan, do I value my freedom? Do I value FI? Do I value that more than buying new throw pillows or things to put up on the wall? You bet your ass I do. It’s not even a question. So for me, the clarifying question is what am I looking to get out of this? What’s my North Star? Is it freedom? Is it time to spend with people I love doing things that I want to do? That’s worth more than any material good to me.

01:06:09
Jonathan: So I’m gonna make those decisions and that’s why I save money, frankly. I think it’s important. Man, we could do multiple episodes on this, obviously. I’m tempted, I’m looking at the clock right now. I know we’re running out of time on multiple levels. And so let’s just see, with how we wanna go about this, I think everyone is kind of on board. They get the fact that the conversation is now more so than ever really continuous, right?

01:06:33
Brad: When we pick back up, we’re picking up where we left off. We’re incrementally going through the playbook, the table of contents of the financial independence community, we’re inspecting it in our own personal lives and we’re doing our best to convey it in a way where you can apply it to your own life wherever you are at, starting out or maybe well on your journey and derive value from it, enjoy the process.

01:07:00
Jonathan: And so this feels like a natural segue for us. You know, when we come back next week, Brad has an awesome conversation teed up with Andy Hill for Marriage, Kids and Money. And then we will be picking up the following week, this conversation, and we’re gonna be going through, okay, maybe you have some numbers.

01:07:16
Brad: And actually, let me just point out, that’s given a bunch of you a chance to make moves on this. And if you have taken that week and done a significant amount of action, if you have joined the challenge, if you have gleaned some insights, we would love to carry whatever insights you’ve gleaned from your chance to start working on this into that episode. It is intended to be fully interactive.

01:07:36
Jonathan: So go to chooseFI.com/login, participate how you want to participate, do the money challenge, do the money audit, and then let us know what you’re finding along the way. We’re gonna incorporate that. But I would say one of the, in terms of things that we have to do as we progress through this roadmap, we’re going to keep looking for those leaks that are gonna come up as people talk about what they find, so we can optimize this, standardize this. We’re gonna be talking about how to reallocate.

01:07:58
Brad: So what’s the point? What do we wanna do with this? What didn’t make the cut? What was low joy that didn’t make the cut? And were there any hidden expense traps that we should be aware of that all of us can actually think about? We can also think about, all right, well, we had things that were essential and we had things that we need to eliminate. We had things that were high joy and we had things that were low joy. But then we had this gray space where kind of required, kind of needed, but we know it’s not optimized or we suspect it’s not optimized.

01:08:33
Jonathan: So let’s spend some time there thinking about how to optimize those. And that’s a great place for crowdsourcing, right?

01:07:58
Brad: Whether you’re talking about cell phone bills, internet plans, fees, insurance overcoverage, convenience creep, car costs, whatever it might be. Transportation and housing are huge levers, but they’re also harder to change immediately. But lattes, while they’re easy to dismiss, find $100 a month, that’s a $90,000 swing. I wonder how many of those we can aggregate together. The aggregation of marginal gains is huge here. And then as we build on that episode, we’re gonna springboard our way into actually looking at, okay, we got all this. What do we gotta do? What do we gotta do about the debt? And then for those of us that aren’t as worried about debt, what do we gotta do next? So we’re gonna really keep moving with this.

01:08:43
Brad: And for those of you that have been with us for a few weeks, you’re gonna be able to identify out loud, all right, discovery, okay, awareness, okay. I’m working on control right now, right? Last week we talked about, this is a framework for saying I’m in control. Well, this is the move. You understand this is the first massive move. All of the decisions that you will make that will definitively say you’re in control are gonna be predicated on this audit that you’re doing right now. You’re making moves. I hope this episode was enjoyable for you guys. We’re thrilled that you’re here.

01:09:13
Brad: Take action this week, whatever it looks like for you. If you wanna join us in the community, if you wanna discuss this episode, again, you can go to chooseFI.com/login. The fire is spreading, my friends. We’ll see you next time as we continue to go down the road less traveled.

[FINAL TIMESTAMP] Podcast Extro: You’ve been listening to ChooseFI Podcast, where we help middle-class America build wealth one life hack at a time.

What's Hot

Thrivent Mid Cap Stock Fund Q4 2025 Commentary (TMSIX)

Midcaps offer attractive opportunities amid volatility: Gautam Duggad

North Korea opens a housing district for families of its soldiers killed in Russia-Ukraine war : NPR

Renewables account for 75% of India’s power capacity addition in FY26 | Industry News

Earn up to $41 per Hour

How to Buy Rental #2, #3, or #4 When You’re Out of Funds (Rookie Reply)

How to (Legally) Pay the Least Amount in Taxes as a Real Estate Investor

The Tim Ferriss Show Transcripts: Jordan Jonas, Champion of Alone — The Art of Survival, Lessons from Nomadic Tribes, Hardship as the Path to Peace, How to Handle Rogue Wolverines, and Why Not to Photograph Attacking Bears (#853)

Grand Rapids Could Become a Boomtown as Investment Money Pours In

Top 10 AI Stocks for 2026: Seeking Alpha Quant Picks & Analysis

FM Nirmala Sitharaman picks Kanjeevaram silk as she steps out to present Union Budget 2026

Warren Buffett’s Boring Stock Picks — and Why They Win

Trump ‘Amplified’ Several Investing Themes – ETF CEO Picks 3 Sectors Benefitting The Most – Roundhill Generative AI & Technology ETF (ARCA:CHAT), Roundhill Humanoid Robotics ETF (BATS:HUMN)

Thrivent Mid Cap Stock Fund Q4 2025 Commentary (TMSIX)

Midcaps offer attractive opportunities amid volatility: Gautam Duggad

North Korea opens a housing district for families of its soldiers killed in Russia-Ukraine war : NPR

Brian Armstrong Reveals Retail Users ‘Buying The Dip’ In Bitcoin, Ethereum: Coinbase CEO Says, ‘They Have Diamond Hands’ – Grayscale Bitcoin Mini Trust (BTC) (ARCA:BTC)

Popular Categories

Trending News

Useful Links

Subscribe to Updates