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What’s Your Daily Spending Rate?

I was sitting at dinner a few weeks back with some friends and we got to talking about money. I had been playing with the idea of a personal daily spending rate and really wanted some insight.

As we waited for our entrees, I not so casually mentioned that everything we do costs money.

“Well… not EVERYTHING costs money.” my friend replied.

“Depending on how you look at it, you’re burning money every second of every day, ” I said.

“That’s absurd!” my friend retorted, clearly not sharing my dollars and cents view on the world. “When I’m sitting at home watching TV, that doesn’t cost me anything!”

“Sure it does,” I said, “you have your cable bill,  your heat, and electricity, just to name a few.”

“Ok, I’ll give you that one. But…” I could see he was going to try and convince me that my way of thinking is ludicrous. “What about if I’m sitting on the ground outside, not doing anything?”

“You still have costs,” I said.

“Like what?!” he snorted “My clothes?!”

“Well,” I said, wondering when our entrees would come, as I began to worry my stomach growls would overtake the conversation.

“There is your clothing. But I’m thinking more of your fixed costs. Those costs that are happening every moment of every day. Whether you use them or not.”

“Like what?” he asked.

Everything… Literally Everything Costs Money

“Well, let’s see, at this moment, you are running appliances in your house, even though we are out. That costs money. Your house has a mortgage, so you are always on the hook for the interest which accumulates everyday. Again… more money. Your car loan, and any other loan, could be looked at the same way. There’s the property taxes, house insurance, car insurance to name a few.”

*Seeing that he was still listening I continued on.*

“All these things you pay once a year, but they are costing you every day. Most people don’t think about it. But you are burning through money at every moment of every day.”

“Oh…” he relented, “I hadn’t looked at it that way. I always looked at it like… today the cable bill gets paid, so today cost me $100 for cable. Tomorrow is the electricity bill, so that amount comes out.  Next Friday is the mortgage etc…”

“So, you have always just looked at it as the day the bill comes out, that’s when it costs you?” I asked.

“Yeah I guess. I never think about those costs the way you do.” he admitted.

“Come with me into my warped financial mind.” I joked. “I have a theory on this…”

The Daily Spending Rate

When you have a new business they have this concept called a “burn rate”. This is the rate that a company burns money on a daily (or monthly) basis. It costs money to run the business every day for things like wages, electricity, keeping the place running, rent and so on.

Lets Take the Burn Rate and Apply it on a Personal Level

Just like a business your life has a daily burn or daily spending rate.  It’s an amount that gets spent on a yearly basis averaged out over 365 days. This includes everything. So if you spent $365 last year on clothes, then your average clothing spending rate is $1.

What is Your Daily Cost of Living?

I look at this number on a family basis, because I’m a father and that’s my privilege. How much money does the “average family” spend on a daily basis. Luckily, we live in the golden age of the internet and there are numbers. Oh yes my friends, we have numbers. Thanks to the Motley Fool there is this awesome Infographic on daily spending in the US.

Here’s how to read this.

Quintile Bottom Pretax Income Threshold Top Pretax Income Threshold Average Pretax Income
Lowest $0 $17,882 $9,658
Second $17,883 $34,957 $26,275
Third $34,958 $57,967 $45,826
Fourth $57,968 $162,719 $74,546
Highest $162,720 Varies $95,336

SOURCE: BUREAU OF LABOR STATISTICS.

Canadian Daily Spending Amount

Taking the Statistics Canada site for 2014 – Here is the average daily spending rate for Canada

Source: Statscan.gc.ca Average household expenditure Canada

What Do I Do With This Information?

The way to  interpret this is this: Every. Dollar. Matters.

We know that.

Deep down inside, we know every dollar we spend is another dollar we have to earn.

Most of us would rather not think about it. But let’s take that daily spending amount and examine it a bit.

Clearly in both examples housing is your most expensive after tax expense. Then its transportation and food. After that you have a bunch of smaller expenses.

Except they aren’t that small.

Because you have to multiply them by 365 to get your yearly total! Spending $3.35 a day on personal grooming doesn’t sound like a lot, but it’s really $1223 a year.

Examine some of your habits

We all have spending habits, good or bad, we all have them (and yes, there are good spending habits).

Going to work, eating, coffee, monthly subscriptions, cable, coffee (it’s worth repeating), cellphone bill it all fits somewhere into the above numbers.

The numbers here are an average, but your personal spending is very real.

Does the Latté Factor Matter?

The latté factor gets a lot of grief. Mostly because people have taken it to be a personal attack on their coffee drinking habits. It’s not about coffee, it’s just a clever name.

Let’s see if that latté factor is really that a big deal.

No matter where you find yourself in the above numbers, your coffee habit fits into your daily spending rate.

Nobody is saying you can’t drink your coffee, it’s just that there is a price that comes along with it (and everything else) and you should be aware of that amount in your daily spending.

Your Choices Affect Your Life

Again, that’s nothing new.

When you realize you spend on average $110 a day and your daily Venti-Salted-Caramel-Mochacino (mmmmm) is costing you $6.60 of that $110. Brothers and sisters, you are using up 6% of your daily spending amount on a single coffee.

And that is totally ok.

Nobody is judging.  Just realize it and ask yourself if it’s worth it.

So does the latte factor matter? Yes… But you could apply it to anything in your life.

One Very Concerning Stat

Looking at this I noticed the U.S. stats were all pretax numbers. What I found disturbed me.

How much are you taking home?

The next thing you want to think about is your take home income. Whatever your pay check amount is, consider what that means relative to your spending. The average pre-tax income in the third tier in the US is $45,826 pre tax, that means you are making $125 a day over the 365 days of the year.

Which means you are taking home less than that amount. Using the first take home pay check calculator I could find, the take home pay for $125 a day would average out to $103 a day. Not factoring in State or City Tax.

Easy Math with a Hard Take Home Lesson

So you have a daily expense rate of $110 and are taking home $103 a day. A monkey with a concussion and a calculator can see that isn’t going to end well. It’s time to get our collective heads out of the sand and take a good look at how we are spending our money.

Your Mission, Should You Chose to Accept it: Find Your Daily Spending Rate

Armed with this new idea of a daily Spending rate. I plan to do the following, and so can you.

What’s Your Daily Spending Rate?

1 – Figure out your actual Daily Spending Rate. If you are using Mint or Personal Capital then you will have your history all ready for you to look at. My advice is this. Use a year’s worth of data, more if it’s available. Average it out to a daily amount.

Where is the Money Going?

2 – Check out where that money is going. As a quick guide you can use the data above, but it’s way better if you know your own spending habits. Again get started with Mint or Personal Capital.

Question Every Expense

3 – Question everything you spend money on.   That’s right QUESTION A.B.S.O.L.U.T.E.L.Y. EVERYTHING!   Think of all the ways you are spending money and ask yourself if it’s worth it. From the long distance plan you haven’t got around to changing  the route you take to work. Leave no money stone unturned when you are questioning your spending. Look at every angle, if you are looking for ways to cut costs check out our post here. Then see what makes sense for you to cut.

When You Shop Compare it to Your Daily Spending Rate

4 – When you are shopping compare the price of item you are buying to the amount you burn everyday. Is it worth it?   Is it worth unplugging your appliances to save a few bucks? Do you really want to eat out, when you could just pack a lunch and save 10% of your daily spending?

When you know how much you spend in a day you can start asking yourself: “Is this what I want my money going towards?”

Friends, this is a wake up call on your spending. The question is will you wake up, or keep dreaming that everything is ok? Let me know what you think of the Daily Spending Rate in the comments below.

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