589 | How to Gain Insights from Your Expense Audit Using a Value Matrix

22:21Jonathan Mendonsa:Yeah. All right. Because right. You might recalibrate what your fine number actually is. 55 ,000 might not be their baseline anymore. And that's fine, obviously. But as you said, you need to inspect it. You need to understand, you need to have a grasp on what does my life cost. You simply cannot pursue FI and have a FI number without what does my life cost. And that is going to change. It's going to change both to the up and the down in whatever year it may be, but it is going to fluctuate and it's important to have a grasp on this. Right. And back to that 22 year old, right. That's like, well, what if I'm willing to work one or two years.

22:54The reality is it's not the things you value that are probably driving everything into the ground. It's the spending leaks that accrued over time because you just put everything in the hole. I'm willing to work a little bit longer for it. So I'm not going to expect it. It is very difficult, verging on impossible to out earn all your financial problems to just, I'll just make more. That does not work. And that's demonstrably provable just by looking at the economics of society. Like there's very few people that are just out earning all of their financial issues.

23:28Jonathan Mendonsa:Point in case. All right, speaking of leaks, we got this feedback from Mishmash saying, I am a YNABer, so I have my data all set. I just completed my year in review and was astonished by my groceries, the bulk food and the household spending. We decreased our dining out by 50 % over two years ago, so I know we can do it. I'm hoping to shave$200 off these three categories. So let me say, if you're using a tool like YNAB or maybe Monarch Money, maybe there's some other ones, but one of these tools that are going to be hooked into your credit card transactions and your bank accounts, it's going to be a lot faster and easier, assuming that you've stayed on top of it, to be able to identify leaks quicker.

24:11The whole question mark, the question mark about what it is, that's really what we want to get to the heart of here. So, you know, in this case, a YNAB or put every dollar to work, that's going to give you a pretty significant advantage in this task.

24:25Jonathan Mendonsa:Yeah, without a doubt. I mean, the data collection is already done, right? So they're way, way, way ahead of the game. But sometimes you are astonished by what you see and you just don't realize it. I think also, frankly, the meal side of things, these categories, so groceries specifically, I think that is both the easiest way to potentially unknowingly have these leaks, but also interestingly, in my eyes, at least one of the easiest ways to potentially cut from your budget without losing any value in your life. I think it's just intentionality, Jonathan. I think that to me is the key when it comes to your groceries is it comes back to the basics.

25:06Jonathan Mendonsa:It comes back to meal planning, thinking ahead, buying in bulk, and really preparing meals in bulk. I think that's one of the best ways to not just needlessly, it's like a zero waste mentality. I know somebody spoke on this at the economy conference last year, and it was fascinating to me. It's just really applies some strategy to when you cook. So if you're buying something that calls for half of something, well, okay, the obvious thing is to make double that, right? So you don't waste half of whatever that item is you bought or plan a couple of meals around the ingredients that you bought that week.

25:43Jonathan Mendonsa:I know you have a sly smile on your face, Jonathan, because I know you live and breathe this or you used to waste. No, I don't. But I mean, I do at times. This is like one of those things. Everybody, we're on waves, right? And there have been times, but it does inspire me and I get excited about it. And I also know our community, various aspects of our community are probably so good at this. So, man, I love the talking point and the opportunity to spend a little bit of time here. Yeah, there's really something here. And again, I think at its essence, we can talk about like all the specific things that we do.

26:10Jonathan Mendonsa:I think for me, it's just about planning. That's really at its heart. It's intentionality and planning. But really, like the one action step I would say is when you cook, cook for two or three meals, which if let's say you have two adults, just hypothetically. that's two person meals. That's how I like to talk about it. So make enough for at least four or six person meals. And that way, okay, I cook one time and I just have to reheat and I've got two more dinners. It's, it's really fantastic. And Jonathan, almost invariably, that's going to save you a lot of time, which is not worth nothing, obviously.

26:45Jonathan Mendonsa:And it's going to save a decent bit of money. So to me, that's just the quick hit takeaway. You know, as I, uh, I've kind I've taken on this role of mapping out like a content calendar for when it, when you and I get together, what we want to do. And I've been looking at all the topics that we've covered over the last 10 years. And I'm trying to think it through, all right, if I were starting over benefit of hindsight, which by the way, I am and doing this all over again, what would be the order that I'd want to hit the topics? And so, you know, even feeding that into like some sort of five one-on-one, et cetera, how would what we talk about here map to what's I'd want something to be, have an opportunity to interact with later.

27:19And meal planning or the statement that you just said around the food and the budget. First of all, why is it hard? Well, it's hard because you have to make a decision every single time. It's like eating healthy or losing weight or getting fit or whatever else. There is no set and forget for this. Every single day you wake up, you have to make a decision to be intentional. Even if you have a plan, you have to make a decision to follow the plan. And if you don't have a plan, then you're planning to fail. So with that in mind, Brad nailed it. This is probably disproportionately the biggest black hole that spinning leaks that people have.

28:02And at the same point, the biggest opportunity for massive wins. And so I don't want to derail the whole episode to do that. But I'm already saying as soon as I heard this, I realized we're not going to be able to do it justice. We have to do it justice. So I'm going to change my whole content planning guideline and we're going to put another challenge or feedback collection for the community. I want you to tell us preferably with voicemail and notes, et cetera, but just on the platform and we'll collect feedback for the next month or so. What are your strategies for winning in this area. Brad, I'll just put this to you real quick.

28:39Do you still feel like for you as an individual, regardless of family, but you as an individual, you can still hold on to the$2 per person per meal goal of 2018? I know a lot of people are thinking this.

28:50Jonathan Mendonsa:Oh, that's interesting. That is a challenge. The funny thing is I am practicing what I preach here and really following my expenses. So we have a shared document for how much we spend at grocery stores and such. It gets a little muddled, of course, because sometimes it's not just Wegmans or Costco. You might buy something from Amazon. But I think I can actually quickly do an audit on this and figure out what it is. Share that with us on our meal planning one. Don't do it today because we're going to have a whole episode about it. But if you could feel really locked, it'll be happening within the next 60 days.

29:24And when we get all the community's feedback, you can share the results from what you analyzed on your own personal one. Is that fair?

29:30Jonathan Mendonsa:That is very fair. I think I'm still under$3 per person per meal. I'm pretty, pretty confident. Even, even nine years later with whatever, give us some context, like for what is what's making the list. I'll tell you from your old, your, your and Laura's old, like meal planning recipe thing that you had, we're still seeing a lot of those meals show up on a weekly basis on what we're seeing on, you know, in the evening. I mean, there's a lot of personal life, a lot of chicken taco dish still showing up. There's a lot of things like that that we still love it. So it doesn't mean deprivation, but let me tell you, it does mean intentionality.

30:06Jonathan Mendonsa:You have to have a plan. So as we proceed, we're going to get back and we're going to look at this expense audit. Some of you are probably now, you had it on your to-do list, life got in the way, and now you're like, okay, yep, I need to do this. I see the value. And so I thought this would be a good opportunity. we did get some feedback from some members suggesting how they would fine tune their own tracking of expenses. And since these are based on individuals in the community that have been doing this for periods of time and have found a way to build a pattern into their life, it's probably worth just saying out loud or highlighting individual approaches to what needs to be tracked and how to effectively get the most value for the least amount of work.

30:47We're not trying to spend two weeks working on this. It hopefully should just be a couple hour exercise, you know, once a year and you can more or less move on. Now that couple hours might be spread out over a couple of days as some more information comes in. But generally this is not something that you're going to be spending massive amount of time

31:03Jonathan Mendonsa:on. So I got this feedback, Brad, that I will share. And this is from a user, another controls engineer. And his suggestion was the number of categories is pretty overwhelming for sorting expenses. When I set up my categories initially, I tried to keep things more broad to keep from spending too much time labeling all my expenses. And I think this might turn away people due to the time investment. And so I think really it's this idea of getting the insight in the data versus getting the simplification. And I don't think we're going to nail it perfectly until we've had the chance to get this sort of feedback and iterate it over a couple of years.

31:42So I'll be curious what individuals are doing and whether they agree or disagree. Do we want that level of detail or not in your own personal life or even using the community app version of this? And also here, and this is a really a point, Brad, I'd be curious about your take on this. He said, along with that thought about the categories, it would be nice to be able to enter a cost for the upper level expense instead of adding all the lower level expenses together. For instance, put a lump sum in for transportation instead of needing to break it into gas insurance repairs. I'm not entirely sure.

32:14I mean, I think, yes, the option, nice, but the detail might be useful for you as you look over time at some of these individual things. That's really hard to go back, but it's really maybe relatively easy to capture it as an audit once a year. What are your thoughts on that, Brad?

32:30Jonathan Mendonsa:Yeah, it's tough. I can see it both ways. So I think at its essence, you have to do what you're actually going to complete, right? Like if you're not going to complete it, If you're going to stare at the screen and run away, okay, well, that's not ideal. I'm with you, though. I would love, in this particular case that they broke out here, I would like to see how much I spend on gas. I would like to see how much I spend on insurance and repairs. I think that's easy information to get because gas is just, all right, I look for whatever it is, BP or Exxon on my credit card bill, and I just jot that down.

33:04Jonathan Mendonsa:That's simple. I think for me, there are instances where I suspect breaking it out too much would be annoying, but this is not one of them. So yeah, I'm, I'm of two minds with this. I could see doing it either way. But I think what I want to glean out of this exercise for myself is, all right, how can I add a glance? Because I agree also that I want to do, and this was another comment they mentioned, which we'll get to in a second, that I want to be able to add a glance, look at multiple years. because I don't imagine this is just going to be a one-year exercise. I'm going to do this every single year.

33:39Jonathan Mendonsa:I'd like to have a sense of what I spend in 2026, what I spend in 2027 versus 2022 or 2023 if I had done it at that point. So I think for me, it's what level of data am I looking for that would actually drive some change? Like I don't need to know exactly what my split was on groceries between Costco and Wegmans. That to me, Jonathan, means absolutely zero. I wouldn't waste my time on that. But I think I would like to know how much did I spend on car repairs this year? Yeah. And I agree with you that point. Here's the question that you'd want to ask yourself is if you were wanting to review this data a couple of years later, would it be meaningful to you?

34:20Would there be a decision that you could make from it based on, you know, that level of insight in the case of Costco and Wegmans, you'd have to make a case, but arguably not. I tend to agree with you, Brad, versus like total dollar amount spent would probably be just plenty in that case. Or the differentiation between groceries, regardless of the shop vendor store, and dining out. Like if one number is drastically different than the other, which it probably will

34:47Jonathan Mendonsa:be, you might want to space that out. What I love about this exercise and this thought process is this decision or this decision tree has had to be solved. Individuals have done this regularly in the absence of what we're talking about here, we're just highlighting it as a good practice. Boston Fi says, I thought I would add my categories in case the second use case is helpful. When I started to track my spending, I discovered that I am in fact fairly lazy. Okay. I can appreciate that. I mean, many categories resulted in me never filling out my spreadsheet. I consolidated into categories I figured would be the most informative to track over time.

35:24It now takes me one hour quarterly. That's a good idea. I can see that one hour quarterly to fill out my spreadsheet. So it's a four times a year quick check audit. My categories are housing, which includes rent, mortgage, maintenance, and upgrades. Utilities, heat, electric, phone, and internet. Food, combined grocery and dining out. Transport, anything to do with getting around, rideshare, taxi, public transportation, included loan payments, gas and maintenance when I owned a car. Pet, which is food, insurance, medical, travel, medical. So all the copays, deductibles, and prescriptions. health insurance, asset insurance, so homeowners and autos.

36:02Income tax is a future category that she's using, and you can read the comments there if you want. I'll include this on the episode. Asset, tax, so property, auto, and excise, and then other, which would be a giant thing for shopping, hobbies, subscription, haircuts, et cetera. So here's what I'm really curious about. As you listen to this, we're going to keep iterating what we are doing as well, right? And the way that you end up with something that's intuitive and easy is to actually use it and then find the friction points and then solve for the friction points so it doesn't take as much time.

36:36And then just kind of keep doing it over time so there's the familiarity with how to navigate this. We will get something, you know, you if you're doing it individually or us if we're doing it programmatically using this audit tool, we will get to something that works really, really well and minimizes time burden. But your feedback on this, especially for you power users that have been doing this for a long time, is helpful for all of us.

36:59Jonathan Mendonsa:Yeah. I mean, look, the whole point of this is to take action. That is the whole point of Chooseify in general is to help you take action. And like Boston Fly said, in this case, she spends it looks like one hour a quarter. I think that's a pretty good investment of time. I really do. For some people, it might be less. Some people might be more. but if you're spending four hours a year doing this and getting a handle on what your life costs and not letting all that that money just kind of sink through the floorboards sometimes because of just laziness or inaction or inertia i think that's probably a good use of time but it takes getting up off the couch and doing it and frankly jonathan so i mean we have a couple things so if you go to choose about a com slash login this platform you've been talking about for everybody that's where you can access this that's where you can access everything that jonathan's building of course you can do it on your own you don't need to use our platform you can use a spreadsheet but we're trying to build something really intuitive and also we're going to take anonymous data and look at hey what do not necessarily on this but just in general like jonathan what are people spending i think this is what a lot of us are curious about i talked about this that i i had tried to get some information on on case studies and such i'm like hey what are people in the fight community spending their money on i think that would be really interesting i think it would be instructive for a lot of us of, Hey, look, my average spending on groceries is$1 ,700 this month.

38:22Jonathan Mendonsa:I'm making this up, but like the average five family of four or single person or whatever it may be, they spend$800 a month. Okay. You might, you might find a spending leak that way. That would be really interesting. I think that that is the point of doing this as a community in my interpretation. Like how can we all work together to have a better sense of what does life costs on average. And maybe that might compel you to take some action because you're seeing what your friends, family, and neighbors, if you will, in the FI community are doing. Yeah. And when you mentioned the aggregate data, you know, when I'm doing statistical analysis, and I'm not a statistician, but I can, you know, take a look and use some reasonable, and I look at best practices, that sort of thing.

39:04I was hoping we're going to need at least 20 budgets, right? We're going to use 20 expense audits in order to be able to kind of fine tune any results. We're well past a hundred now. Okay. For everybody, we have a hundred plus, We'll probably have several hundred by the time that we're all wrapped up on this. And I've started to put together some data. It's awesome. You are going to love it. You're absolutely going to be thrilled by it. And I think it's going to really give you some clarity on anchoring. And we'll be able to even do a little bit of partitioning by geographic location and household size, et cetera.

39:31So there is going to be some really good insights. We're going to do that in another episode. But what we want to do right now, the point of this was to remind you and encourage you to do this. I think someone that is in control, in the control phase is, if they're not, they should be, but they are auditing their expenses once a year just to make sure they have a handle on it and they're getting value from what they're spending. Boston FI clearly is well past that point with the quarterly audit. And I would tell you, I would almost guarantee you, those that are doing this are disproportionately going to be closer to financial independence than the peers with similar economic situations that are not, right?

40:11It's just, I would be, if you're going to make a bet, most of us would think about it and say, yeah, that makes sense. Okay. So which cohort would you want to be in, right? So with that in mind now, we're still, we're moving from expense audit and encouraging and reminding why it's important to now the decision matrix, the value matrix, which is going to help us figure out the action steps that we're going to make. So going back to Tom, Tom had 12.5K in question mark spending leaks. It's probably not going to go to zero. We're asking Tom to kind of reach back out to us. Let us know what you conclude.

40:42but I want to provide a framework that we can all, you know, iterate and think through for what are we going to do? So you filled out this expense audit. And now as you look at it, as you scroll down through the categories, first of all, not everything needs to get carried over into the value matrix, into the decision tree. Some things are just, they are what they are. You pay utilities, you pay insurance, you pay whatever, and you know that you're getting, it's already optimized. You're happy with it. We need to just lock that in for the year and move on. But then anything that is maybe not optimized or is potentially a spending leak category, all of those, and it's probably going to be 60 % of the things on our expense audit, those need to then get ported over into a value matrix.

41:29And Brad and I were quibbling, arguing to agree on exactly the semantic and geographic location of the various axes, X, Y axis. All we are sure about is that it is a box with four squares.

41:44Jonathan Mendonsa:We're good. We're good. And the axis on one side should probably be cost. And on the other side, you know, you have an X and a Y axis and that makes four squares inside of a box should be joy. And we could not for the life of us in the five minutes that we carved out to go back and forth, decide which is Y and which is X and which way they point.

42:09it's confusing because thank you fearless leader as you guide us into the unknown

42:14Jonathan Mendonsa:we're very impressive very impressive but regardless right it's it's high joy and low joy that seems like a y-axis is that a y-axis yes i don't know we'll go with yes so right high joy low cost is obviously that's that's the grand slam and then high joy high cost is another interesting one. Then you have, obviously, the other side of it is the low joy side. So low joy, high cost is the worst of all scenarios. And then low joy, low cost is also not ideal, clearly. So two of the four slam dunks, right? High joy, low cost, low joy, high cost. And then you get into the other ones where I think that's where people are going to spend a lot of their time, Jonathan, is this low joy, low cost and high joy, high cost and really dive in from there.

43:06Someone can share their images. You could also share your better version of this V1 of the value matrix. You know, I've been kind of iterating this over time and I was dead set on it until I started talking to Brad and he told me that the one that he drew looked completely different than mine. And I was like, well, how is that even possible? There's obviously only one way to do this. And then I looked and said, oh, that makes sense too. So we're still not sure. But yeah, to Brad's point, However you want to draw. In fact, if you want to share with us what your value matrix looks like, and maybe it's slightly different, right?

43:33But I think what we have to do here is when things are coming in, there is this difference between cut. It just needs to go away, right? It didn't make the cut. It's not going to stay. We don't value it versus trim. And so if it's low joy, low cost, it's probably going to go in the cut pile unless there's some extenuating circumstances. Low joy, low cost. Not a huge ROI, but it doesn't bring us any joy. It doesn't cause just without, you know, but if it's high joy, high cost, it doesn't necessarily mean we leave it alone. We might leave it alone, but we might also look to optimize it. And so that's why I say like, we need to, you know, these categories, we can fine tune them and we can get them all perfect.

44:12But I basically want to point out when you get done with your expense audit results, so Tom and other parties here, when you look back at your category, if you've had fixed expenses for years, they're well-documented, you understand them, just lock them in and move on. We want to take the variable. We want to take the ones that we're not really sure what it is, why they're showing up, whether they should still show up. We want to take all of those things and we want to start figuring out where they go on some version of a value matrix in our community. Please send us your pictures, put your pictures in, you know, put them on the site.

44:45We can absolutely get the absolute perfect one. But certainly as you look at something like food and you see that you have a, I don't know,$2 ,000 a month food budget, or I don't even know, would you use the word budget at that point or?

45:00Jonathan Mendonsa:Indiscriminate spending. Allotment. Black hole,$2 ,000 black hole, whatever it is. Clearly we're not cutting it to zero, but that doesn't mean that we're not doing something with it because we want to get value from the money that we're spending on this category, right? So we need to decide, Did we trim it? What is our target, right? So we have whatever your expense audit is, this is not the place to you write down what it should be, all right? That's the big thing. This is like, this is stepping on the scale after Christmas, after the holiday. This is just the moment of truth, right? But it's projection, but it's still moment of truth.

45:34This is what it is. And then when we go into the value matrix, we should have an opportunity to start to think about what it should be. Should it be zero? Because we're gonna make a choice here. Should we trim it? and what is our target goal for trimming it, right? And those different things, high joy, high cost, high joy, low cost, low joy, low cost. And what was the fourth one, Brad? It's just process of elimination here. Low joy, high cost. Those give us a way to hopefully make the decision a little bit easier. All of those might just be trimming, but certainly if it's high cost, low joy, that is ripe for reclaiming value in other places, right?

46:17So it makes it a little bit easier, but keep in mind, it's not binary and it's not all or nothing. It's just getting rid of all the stuff that's fixed. So you don't need to make decisions on that each time, inspecting the remainder and then having a tool. And I'm going to try to see what it would look like to do that in an interactive way so that you could port over the work that you did in your expense audit. I don't know if I'll have that ready by the time this show goes live, but I'm certainly hoping it's something that I'll be able to develop for us in the next few weeks. I think that makes it more fun and a little bit less laborious.

46:45And it's something you're going to want to do every single year as you move forward.

46:49Jonathan Mendonsa:Yeah, I love that, Jonathan. All right. To me, the call to action is literally that. It's take action. So if you're listening to this, you now have episode 586, you have 589 as a follow up. Get started on your expense audit. We've created an amazing platform for you to do it. Choose a by.com slash login or just do it on your own in a Google sheet or wherever it may be. But the heart is take action and get started on this. You absolutely have to. It's critical. Even for those of us who have been in the FI community for years, this really matters. And we are going to find those spending leaks. And it'll be really, Jonathan, I think it'll be fun for us to see, oh, wow, I found that spending leak of$2 ,700 this year.

47:31Jonathan Mendonsa:And it just vanished. Talk about a win, man. Talk about a win that you could share with the community is what did you find that you took action? And I promise you just by taking the time to say it out loud and share it, you're going to be more committed to the ongoing decision to preserve the value that you've reclaimed. Yep. Agreed. And you can always leave comments on this episode. So just log into your account at choose of a.com slash login again. And right there at the top, there's a little banner that says this episode, the episode title and the episode number, click it and leave a comment.

48:04Jonathan Mendonsa:That's what we want. We want to be able to share this. As you know, this is crowdsourced. We're going to come back to this episode. We're going to talk about these spending leaks. So let us know, even if you're listening to this a month or two months or five months later, leave that comment. And it's there forever for all of us to see, Hey, I found this spending leak and I took action and I plugged that leak. All right. So let's see here. Fire is spreading. If you are excited about this and you'd like to be able to do this in a more interactive way, and maybe you'd even like to do it as part of your local group, make sure you let your local admin know that this might be a good exercise, you know, for a group to do as an activity, talk about this idea of doing a financial independence 101, whether it's just a one week kind of overhaul or whether it's a multi-week thing, whatever it might look like for your group in your area.

48:48I think you could have a lot of fun with it. I think these types of episodes can be good ride along discussions that require action and there will be questions and these sorts of groups can provide the interaction that make that a total lock-in and an awesome experience. Please keep that in mind. Now, Brad and I have done a little bit of the Wild Wild West in the past with episode planning and release schedule. I talked to Brad about how we would do this, you know, going forward and wanted to give you a preview of what's coming up. So Brad and I will be back together in a couple of weeks to follow up on this episode, but there's a couple of really cool episodes planned in the meantime, Brad, can you give our community a preview of what's coming?

49:25Jonathan Mendonsa:Yeah, you bet. Next week, we have a recording of the live event Q and A that we did here, the extraordinary weekend with Alan and Katie Donaghan. That was a blast. We took questions from the audience and it really went deep. I think you're really going to enjoy that episode. And then the following week, we have Bryce and Christy from Millennial Revolution back, Jonathan, after seven years. That was the last time they were on the show. They have a new book called Parent Like a Millionaire. And I really dove deep into specifically what those in the FI community could take away from their experience, from my own experience.

50:01Jonathan Mendonsa:And I love their book because it's kind of like a Trojan horse on getting people outside the fight community into the fight community under the guise of parenting. But there's so much there for the fight community. And I really, really drilled down. So yeah, we have those two coming up. You and I are going to be back. We have a ginger book club episode coming up soon. So we've got a lot of fun stuff. This is going to be exciting. All right, my friends, the fire is spreading. We'll see you next time as we continue to go down the road less traveled.

50:31Thank you.