Whenever a client approaches a distribution phase (when they will being to draw from investments versus adding to investments), I always start with the simplest goal first (and we can build from there). What do you wish to spend each year to live the life you want to live? This determines the needed withdrawal rate and how able your portfolio is to keep up with that.

For some clients, this question is harder that it looks. A logical starting point to determine what you want to spend once retired is what you’re spending now. This question can trip some people up as they automatically think I’m suggesting a need to group all 1000+ credit card transactions, start using a budgeting app, or comb thru monthly bank statements.

In reality, a high-level approximation of spending with a focus on larger items usually does the trick. This can be obtained with likely only a few information sources such as annual credit card spending reports, a listing of material checks written, total federal and state taxes from tax return, and perhaps some details from W2/pay stubs if you are still working like payroll taxes and health insurance costs.

Once that current spending number is known, it can also be tricky to adjust it as needed to make it attainable moving forward (especially if a decrease in spending is needed). Oftentimes, there is a desire to focus on the wrong items as they are easier to assess and less emotional to adjust.

When discussing this very concept with a client this week, I was reminded of a chapter in Morgan Housel’s recent book (The Art of Spending Money). It’s a great read and one that covers some really interesting ground as it relates to how people differ in the ways they approach spending money.

In one chapter, he talks about what expense items people focus on and argues that the “amount of attention a problem gets is the inverse of its importance.” He points to the classic expense items that gets a lot of airtime – buying coffee away from home each day. A person may focus on how much it costs them to buy a $6 coffee each day for a year and spend time assessing that expense. However, that same person may not give a second thought to sending their child to a college that costs $80,000 a year or won’t take the time to evaluate an upcoming car purchase and decide if a $30,000 variance in price between new and used is reasonable for them.

There’s a lot to learn from this observation. As Morgan says – more time on $30,000 questions and less time on $3 questions. Those are just random figures but the point is valid. When spending money – or when estimating how much money you wish to spend in retirement – start with the big numbers and give them the attention they deserve. Health insurance. Home(s). Car(s). Child assistance (college, subsidizing adults, gifts, etc). Life insurance. Home & Car insurance. These things are a lot harder to evaluate than your daily indulgence – but they will move the meter far more than cutting out coffee ever will.