As a financial coach, I hear questions from my clients on a wide range of topics. But this one question is the most common.
I’ve been a financial coach (money coach) for well over a decade now, and worked with people from all over the world. I’ve worked with young adults just starting out in the workforce, to people navigating change in retirement. I’ve worked with individuals and couples, monogamous and polyamorous, and and people of all genders and identities.
I started out with the belief that managing anxiety—not just learning—is one of the biggest keys to financial success. And I’ve seen this borne out over and over again. When people feel empowered, they can make big changes.
As I love to say, whoever said that knowing is half the battle was about 90% wrong.
The ways that this battle between progress and resistance has played out in my clients has varied widely. But usually, by the time someone gets to me, they’re ready to make a change, they just don’t know how.
Clients come to me with all kinds of questions, about managing their money, to planning for the future, to dealing with past challenges, as well as how to reduce conflict in their relationships.
But there is one question that, more than any other, has come up in conversations and sessions with clients, both prospective and actual.
The question
“Where does my money go?”
That question shows up in my “office” (virtually of course, as I don’t have a real office) more than any other question.
It’s a seemingly simple one, but betrays a wealth of complexity under the surface.
On one hand, it is an easy question to answer. Most of us don’t use cash or checks these days; we use a debit or credit card. Because of this, there is a clear and verifiable record of every single transaction you’ve made, easily available by logging into your bank account or credit card company.
If you want to know where your money is going, that answer is right there for the viewing.
A different question
But what I think people are really asking is not the what (which is easily findable) but the why. As in: “Why is my money going where it’s going?”
And that is a more interesting question, because it brings up aspects of personal agency and control.
Basically, people don’t feel like they are in control of their spending.
Of course, everyone is in complete control of their spending, but it often doesn’t feel like it. There’s this disconnect between our actions—which, in each case, is necessarily consensual—and the collective result of our actions, which feel unfamiliar.
And isn’t that interesting? You can go back and look at every single transaction, and say “I did that for a reason”, but when you sum it all up, you can still ask yourself, “why did I do all this?”
One answer
The simple, if a little glib, answer, is that people aren’t mindful of their spending. They do it, but they do it without any broader plan in mind.
We often take each individual transaction in the moment without thinking of the larger context around that spending.
Everything has an opportunity cost. If I spend $10 on something, then I can’t spend that same $10 on anything else.
All of our financial lives are in a tension between living for today and planning for tomorrow. So our opportunity cost is sometimes against big life goals, retirement, future planning, and the like.
That’s too much to keep in your head though. You shouldn’t have to worry that each $10 spent is $10 away from your retirement!
The first practical step
So what is the solution here? In basically every case, I recommend that people track their spending as they go.
You can break up your spending into different categories. Groceries, gas, pets, fun, etc.
Write down what you spend as you spend it, and tally it under one of the above categories. As you do this, you can look at the tally, and you’ll start to see patterns, tendencies, and awareness of your habits. You’re getting your question answered.
The next step afterward
But I find that while most clients ask where their money is going, learning the answer isn’t the most important step. That comes next, when they ask themselves:
“Is this in line with my values and goals?”
That’s where powerful, impactful change happens. When you see what you spend, and it doesn’t feel in line with what is important to you, you can then have more clarity in what changes you want to make.
Spending money is great, and I don’t think you should spend less just for the sake of it. But are you putting the right amount of money away in savings? Do you have a plan to pay down your debt, or save for retirement? If not, then you’re making a great case for reallocating your spending to those other targets, at least in part.
And that’s where the true work begins.
Bottom line
Most of my clients come to me not really understanding what happens to the money that they are spending. And that’s a great place to start, as it’s an entry point into doing the important work of understanding not just where your money goes, but deciding—intentionally—to make it go where you want it to go.
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