Spending Cycles

For about 30 years, my financial life has revolved around my bank balances, especially my checking account balance.  By that I mean, my spending was limited and controlled by my checking account balance.  When I got paid, the balance went up and my propensity towards spending went up and as my balance went down, nearing zero, my spending slowed and I became very frugal.  It was a cycle that repeated itself within every paycheck cycle for the last 30 years.

Living Paycheck to Paycheck

When you are living paycheck to paycheck, several things happen:

• You are consumed by the balance of your account.  In the old days, you recorded every transaction from your checking account, keeping a running balance in your checkbook ledger.  In modern times, you can see your balance real-time on your bank’s web site, although some types of transactions may take several days to show up.
• When you write checks, you have to worry about the amount being entered incorrectly at the bank or merchant.  So you have to monitor every transaction, because a mistake could put your balance into a deficit.
• In the old days, you would buy tools like Quicken to help balance your checking account.  Today, you might not use Quicken but instead rely on your bank’s web site and visit it often to check your balance.
• You use your savings account as a way to fund the deficits in your checking account.  Therefore, the savings account never seems to accumulate over time.  My savings account probably stayed at $10,000 from the age of 22 to my 50s.

Things are a little better these days because you can see your balances on your bank’s web site.  Most banks even have mobile applications and can send you alerts when your balance falls below a certain amount.  Plus if you use a debit card instead of writing checks, the transaction amount is always accurate and is processed quicker.  But even with that capability, do you still record transactions in your checkbook, a spreadsheet, or other budgeting tool like YNAB?

When You Stop Recording Every Transaction

At some point about 8-10 years ago, I stopped recording every transaction and balancing my checkbook.  I was trying to remember if it was because I started having an adequate balance or because I could see my balance online.  I think it was the latter.  Plus if you write very few checks, there are fewer chances of the transactions amounts being recorded incorrectly.  You then start depending on your bank’s web site.

When You Pay Off Your Mortgage

So let’s skip ahead in time to about 2 years ago, when I paid off my home mortgage.  I bought my new house 22 years ago for $165,000 with a 30 year mortgage and then later switched to a 15 year mortgage after paying 5 years on the 30 year mortgage.  So in 20 years, I paid off the mortgage.  One thing happens immediately when you pay off your mortgage.  You stop worrying about your checking account balance!

When you no longer have to pay $1700 a month on your mortgage, taxes, and insurance every month, you suddenly have money in your account that you haven’t had in well over 20 years.  Or even longer.  I was probably 18 years old when I had that much cash that was not tied to an expense.

No Longer Watching My Bank Balance

It is quite liberating to be free from bank balance watching.  One would think that you would then start spending more.  But that has not happened in my family.  We are still spending about the same amount for our expenses.  We are still frugal in many ways.  And my bank balances are now growing.  I don’t even look at my balances or statements any more.  And I stopped receiving financial statements in the mail.  I can’t tell you how long it took me to shred 20 years of bank statements.  Balance free and paper free.

Unfortunately, now I am thinking about retirement, so I am starting to plan and think about my balances in a different way.  Retirement savings balances.  Those balances consume my thoughts now.

Lesson Learned

So a lesson to be learned for those reading this blog.  The real mistake I made watching my checking account balance was ignoring my retirement savings balances.  I should have saved more 30 years ago.  Even if it was just $50 a week or per paycheck into some sort of retirement fund.

So you really should be watching both your bank balances and your retirement savings balances.  Otherwise you will be like me, being consumed with trying to increase my retirement savings and calculating when I can retire.

What You Can Do

One tool you can use is Personal Capital.  It is a free site which can link to all your accounts to see your balances, network, and transactions.  Note that they will try to contact you by email, phone, or on the site to discuss your financial situation, but you can just ignore those contacts.