Where does it all go?


One of my lightbulb moments on The Path to financial independence came from asking myself this question about money:

Where does it all go?

You can ask this at a personal level (where does your own money go?) or at the level of society (where does everyone’s money go?). Both are great questions to ask.

Most people don’t think about the answers and money just leaks out of their life like water from a bucket shot full of holes…or like blood spurting from a neck wound in Game of Thrones.

At a personal level, there have been many times in my life where I wondered: where has it all gone?  In my youth, I had a talent for irresponsible drinking (it’s important to have hobbies).  Many times, I’ve turned out my pockets the morning after the night before and experienced that sense of dismay when you discover that The Beer Pixies have shaken you down and emptied your wallet.

More recently, older and (ahem) wiser, The Escape Artist has been on the other side of the bar.  Last summer, I worked as a barman at a wedding.  This gave me a front row view to see where it goes.

Guests would weave up to the bar, order half a dozen shots of tequila or sambuca or whatever.  Some would then immediately forget their drinks: wandering off in an alcoholic haze and leaving them on the bar.  The waste was shocking.  When it comes to alcohol, people will drop a days wages on a round of drinks without thinking.  And this was not a celebrity wedding, this was Joe and Joetta Normal.

Why do we do this?  Perhaps its because, in the immortal words of Travis Mills: “it’s too good to be young and stupid”.  Even when we’re not really young…or stupid.

It’s also good to ask Where does it all go? in our society as a whole.  Real incomes have increased roughly 4x in the period since the 1950s.  And yet the evidence suggests that happiness in The West has pretty much flatlined since then.

This disconnect indicates that spending does not equal happiness. They ain’t the same thing.  More spending doesn’t lead to happiness (after you have food and shelter taken care of ).  Not that that stops most people.

If you think about what society looked like in the 1950s, it was mostly pretty good in the West. Apparently our parents / grandparents had food, houses, jobs, children, friends etc etc.  Zoom forward to the current day and things look remarkably similar in many ways.

We still have food, houses, jobs, children, friends etc.  So you could be forgiven for wondering where all the extra income has gone?  In some ways life is better now (the internet was painfully slow in the 1950s) but I’m more struck by the similarities than the differences.  For example:

  • In 1950 we spent money on snacks, cars, TVs, cigarettes, booze, sweets, toothpaste, soap and shampoo.
  • In 2017 we spend (more) money on snacks, cars, TVs, cigarettes, booze, sweets, toothpaste, soap and shampoo.

It seems to me that, dazzled by the magic fairy dust of marketing, we’ve mostly chosen to pay more for the same old stuff (remember that you choose what you pay for most things) plus a few new gadgets.

As incomes have gone up, we haven’t always spent that extra money wisely.  We’ve become a bit wasteful and a bit complacent.

We could have directed more of our money into savings and real assets that were not financed by borrowing.  We could have bought more freedom.  We could have bought more peace of mind, more financial security, better mental health and more time in nature.

So one answer to where does it all go? is that a big chunk of it ends up with the shareholders of consumer goods companies.  If you are interested in benefiting from this knowledge, a rational response would be to buy own label toothpaste and shampoo (it’s the same shit) and redirect the savings into buying shares.

The question is not whether there are lots of people who are skint.  Clearly there are.  The real question is: what is most likely to actually help people in a way that is ethical, sustainable and puts them on a good path?

The Escape Artist can see that it’s not a winning commercial strategy for newspapers (who make money selling advertising) to tell their readers to stop their ridiculous spending.

Similarly, its not a winning electoral strategy for politicians to tell voters to stop complaining and instead spend a bit less on binge drinking and MacDonuts and a bit more on Vanguard funds. That would be fatshaming. Or something.

I’ve noticed that, if you’re a government minister on Question Time or working in the media, its safer to stick to earnest but empty platitudes about “Hard Pressed Working Families”.  So it falls to The Escape Artist to dispense some reality-based, actionable financial guidance for The People.

I would like to suggest that everyone would benefit from the ridiculously simple technique of recording where all your money goes for a few months.

Here’s how you do it:

  • You spend from one bank account. If there are 2 of you, you can use a joint account where you both have debit cards.
  • At the end of the month, you download all of the transactions into a spreadsheet.
  • You then rank the items by size (largest first, smallest last) and you see where it all went. Group each item into categories that make sense for you (eg food groceries, heating, recreational drugs etc)
  • You work down the list looking for the big wins and the quick wins. For example, if the largest item in your monthly spending was your mortgage payment then ask yourself: how recently have you re-mortgaged? Are you on the best deal?
  • Then move down to the next item and repeat. If the next biggest item was your power bills, when did you last switch to the lowest cost supplier?
  • You then ask yourself (and your spouse) for each significant item: did I (or we) get happiness / life energy / great memories / knowledge from that spending?  In other words, did you get real value from it?
  • You spend less than your income. Even if you are totally skint, you pay yourself first and take say £1 at the start of the month and put it in a jar marked “Financial Freedom Fund” or something that tickles you and captures your imagination. Next month you double that amount…and double it again the next month…soon it will be real money.
  • Next month you tot up your spending again…congratulating yourself that your this month’s total spending is slightly smaller and you are slightly happier….then rinse and repeat as many times as it takes for your new habits to sink in.
  • In the early days, the act of saving something (anything) is far more important than the amount. You are building a habit that will eventually become your automatic pilot.
  • And finally, if you feel internal resistance at any of these stages, you JUST MAN UP AND DO IT.

Here’s what you DON’T need to do:

  • You don’t need to buy an app or download a piece of software.  The entire purpose is NOT to automate this step. You want to make recording your spending conscious and deliberate. You are trying to make it harder to spend on automatic pilot.
  • You don’t need to carry around a notebook and a pen to record every item plus an observation of your emotional state in your mindfulness journal (although you can if you want to).
  • You don’t need to leave angry comments that The Escape Artist does not understand the plight of Hard Pressed Working Families.
  • You don’t need to stop to check out the kitten photos on Facetweeter.  The Escape Artist mixes compassion and empathy with Tough Love so I’ve included a free kitten picture for you below.

I know what you’re thinking. You’re a successful go-getter and all this sounds a bit dull and a bit like penny penching.

Can’t we get back to talking about effortless passive income, advanced investment strategies and fun achievements?

Well yes we can and yes we will. But you can only know when you are financially independent when you know what your required level of spending is.

You are financially independent when you have >25x your annual required spending invested wisely in real, wealth generating assets.  That’s why its 25x more powerful to reduce recurring spending by £1 than to earn an extra £1.

And, as Shakespeare himself may once have said:

How can thou know thyself, if thou knowest not thy spending?

Image credit: http://www.flickr.com / Daniel Moyle


  1. Playing with Fire · · Reply

    Oh those Beer Pixies, they have no mercy, they’d even steal my taxi money.

    This post reminds me of my very first spending review, it was literally called WTF did that go? I realised with horror that I’d spent more at Amazon than I spent on my mortgage. I’d used paper bank and credit card statements, and went through a second time convinced that I must have made a mistake first time around. Nope, just spent that much.

  2. Great Post!

    I love the idea of listing your transactions each month by amount spent and reviewing if you received value/ have the best option. Although I can’t guarantee I won’t look at more cat photos!

  3. less4success · · Reply

    That 25x multiplier is also what makes monthly subscriptions so insidious. $5/month does sound that bad until you multiply it by 300 (12 x 25).

  4. I couldn’t agree more. I started recording all of my outgoings (in a notebook with a pen – no note of emotional state though) a few years ago and it really makes you realise when you’re frittering money away pointlessly. My saving rate is now much higher.

    1. Playing with Fire · · Reply

      I found sometimes the self-shame of the idea of writing in my notebook would stop me from a purchasing decision even as I was at the till. It also shows how frequently you are buying those ‘occasional’ treats.

  5. A really good post.
    This approach works and over time as the savings compound they make a real difference to your financial independence date.

  6. litigationintel · · Reply

    When we did this it was shocking! It was a real wake to call when we saw that we were spending the same for eating out as we did on the mortgage. We cut back and ‘surprisingly’ we have so much money left at the end of the month. Not to mention become better cooks and gotten healthier.

  7. Did Shakespeare really say that?

    Simple formulae to use for retrospective analysis rather than just prospective tracking which is more tedious.. I think I shall trial this!

    1. Let’s just agree that Shakespeare might have said that…he said a lot of stuff 😉

  8. The Rhino · · Reply

    “I have of late but wherefore I know not lost all my cash” – shakespeare just prior to reading YMOYL

  9. SurreyBoy · · Reply

    Thought provoking post as ever. I think an irony of the FIRE movement is that it is often embraced most by those with a few spare quid each month. Fair enough – its easier to turn a surplus into a hoard and then into a passive income water cannon. But any measures to encourage and empower people from being skint to running that all important surplus are really welcome.

    The EA hit the nail when he touched on those that rage about the plight of hard pressed families – but its better to offer practical advice and risk being accused of condescension , than leave them to a state of existence that is hand to mouth.

    Cheers EA – keep em coming.

  10. Beer Pixies are nearly as bad as Change Monkeys.
    “Change Monkeys” come during the night after a big drinking session and exchange all of your notes for a pocket full of coins. They leave you with the impression you have a buckets of money but alas, it’s £3.70 all in 10p’s

  11. tonyedgecombe · · Reply

    I suspect most of those extra earnings have gone on housing, supply in most of the UK is constrained so prices have risen to eat up any spare disposable income.

  12. Go Finance Yourself · · Reply

    I agree. Spending does not lead to happiness. As you eluded to, companies spend increasingly more on advertising to make us feel that our lives are incomplete without their product. We’re bombarded by ads every day that make us feel not quite good enough. You can either tune those out, or succumb to them and buy the product. I go with the first method and it has definitely led to me being more happy.

  13. Roadrunner · · Reply

    I do something similar and what really shocked me during the first review is how much we spend on food and groceries. You don’t even realize when you spend 20-30 EUR/USD/GBP per occasion, but on a yearly basis it’s just shocking how much we simply eat…

  14. I suppose this is the exactly the sort of thing the new open banking initiative in the UK will shed light on. Having third party businesses and applications be able to access and analyse our spending habits, will go along way to identifying waste and inefficiencies and help kick start a change in the way we manage our money. Some of the mobile first banks already have this in place, but the new standard will open up financial management to the masses.

    I’ll probably do an article on it (over at moneysavinganswers.com ) Once we start to see more apps take advantage the data.

  15. mikedefieslife · · Reply

    In the UK at least, Open Banking will help address some of this. Forcing banks to allow trusted third party applications access to customer data will help customers better analyse and understand where they are spending their money. Not only that but it could make comparison websites more useful by better tailoring results to meet the customers spending needs. It’s early days yet, but I hope to get an article up about it in the near future (on moneysavinganswers.com)

    Of course you can already do a lot of this with some of the new mobile first accounts, but their customer base is minuscule compared to the big four that enjoy some 80 per cent of the UK’s 74 million current accounts. Add the EU’s PDS2 initiative to that, that will completely open up the payment sector, and things are about to get very interesting.

  16. It’s a great song.

  17. […] Escape Artist recommends a variation on my method, which makes a lot of sense. The idea is to manually categorise each spend and then […]

  18. Starting to save regularly, even if you can’t save much to begin with, is really important. When I started off building wealth looked like a mountain to climb, but it’s amazing how quickly things snowball if you form the right habits early on.

  19. […] you can’t do that if you don’t know where all the money goes. So start by looking through your bank and credit card statements and itemise your spending by […]

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