Are You a Macro or Micro Personal Finance Person?

by David Ning · 10 comments

Let’s borrow a term from economics. Do you tend towards looking at your finances in a macro (big picture) or a micro (bottom up) way?

In other words, do you just worry about the direction of your assets and overall numbers, or do you look at every little expense separately?

Characteristics of “Micro Money”

I’m calling the people who thinks from the bottoms up “Micro Money”, which I believe I am. While I have a budget and look at the final overall number, I tend to think of every expense as a separate entity instead of having a budget for every spending category.

I’m pretty frugal, and my conservative nature helps my financial picture take care of itself. But this can be dangerous. If I don’t keep a tight standard of “appropriate spending”, my expenses can balloon, and lifestyle inflation can easily creep into my life.

Micro Money seems to work best for people who are frugal, disciplined and like saving money rather than spending it. This method isn’t so hot if you can’t control your emotions or if you love buying.

I know the saving money rather than spending part sounds funny, but I actually like accumulating dollars rather than stuff.

Characteristics of “Macro Money”

Macro Money is the way companies handle their finances. Due to many levels of management and countless needs and ways to spend money, it is impossible for one person, or one management team to analyze every expense before it’s approved. That’s why businesses have meetings and decide on a budget, which is then used to determine what type of spending is or isn’t possible for the coming year.

Many individuals follow this method too. They setup categories and then try to put a limit on each for a certain period (usually monthly). They then just spend away until they hit their limits. When successful, the overall result will be positive by definition.

There are two main disadvantages with this though.

  1. Flexibility – While this helps those who aren’t disciplined because it’s much easier to think of a total then to control every expense, this formula breaks down when you need to purchase a big ticket item. What if your car breaks down and you need to buy a new one? I’m pretty sure no one is going to set a monthly schedule of $10,000 on car expenses. Having an exception seems to be the only solution, but what’s the point of rules when there are tons of patches?
  2. Encouragement of Spending Close to the Limit – Setting limits urges us to spend close to maximum. Let’s say you put a limit of $500 on each category a month. If you still haven’t spend a dime on entertainment and it’s already the 18th of the month, it will likely push you to go out to the movies.

But then there are also positives. As mentioned, those who are more emotional with their spending will have much better success with a limit. Setting up the limits when you have a cool head and have all the numbers in front of you is much easier than trying to conserve every time you want to pull out your credit card.

I do a little of this too, like tracking my progress through a budget and a tally of my net worth. However, I don’t set category limits. Instead, I justify every expense and spend accordingly. This means that I will often spend quite a bit on a category in one month and at other times nothing at all.

It works for me, but it may or may not work for you. So, are you Macro Money or Micro Money? I assume everyone does a little bit of both, but which is your predominant side? Bottoms up or top down?

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{ read the comments below or add one }

  • David says:

    Scrooge McDuck (the Disney character Uncle Scrooge) said, “Look after the pennies and the dollars take care of themselves.” He must have known something–he owned three cubic acres of money. I think he was a micro.

  • AJ says:

    Like many here, I’m both.

    When I first started working a very poor paying job just out of college, I used categories and watched every stinking penny with each category. As time went on and the money wasn’t so tight, I’ve become more macro. Also, as most here, I do not have a problem with spending joyfully. If there is a large purchase on the horizon, I save up for it and pay cash (in most cases).

  • CreditShout says:

    I think I am a bit of both. Though I need to look at my day to day expenses, I am more concerned with my overall spending and saving habits. I haven’t thought of either of these terms since 12th grade economics.

  • Kim @ Money and Risk says:

    I am both. I think that to be successful you need to be both.

    Macro allows you to plan and live life to the fullest.

    Micro makes sure that you understand what you are doing on the day to day.

  • Jane says:

    I have tried to mircomanage down to the penny, and it just doesn’t provide enough flexibility to me. I think I’m more of a macro person.

  • Doug Warshauer says:

    I think I lean toward the macro, in that I think the overall budget allows me to see every expense in context. Without counting and categorizing my expenses, there is no way to know whether my spending patterns reflect my actual priorities. The great thing about taking the macro look is that it helps you identify areas where you might be spending more than your realize.

    Of course, once you make the macro plan, each decision needs to be made on a micro level. But those decisions are easier with the big picture in mind.

  • Squirrelers says:

    I think I’m more of a macro person, despite my interest in saving money at the individual transaction level. It’s probably a balance with me, but even with the litte things I tend to annualize opportunity costs. I have tried to mircomanage down to the penny, and it just doesn’t provide enough flexibility to me.

  • Bankruptcy Ben says:

    I’ve been a “micro” for most of my life however I’m recently moved in with my girlfriend and I’m noticing that this approach isn’t working. It’s easy to spend a few extra $ here and there so i’m about to switch my style.

  • Billy says:

    I’m a micro person. Though I never tried, I am pretty sure I would end up spending towards the limits that I set every month.

    Looking at every expense works for me.

  • marci357 says:

    I think there is a compromise between the two – or actually another way to look at the macro.

    I tend to first, pay myself – which would fall more under micro.
    But then I don’t worry about every little thing.
    Instead I have a total-this-is-what-you-could-theoretically-spend… mentality.
    A set amount I cannot go over – which would be macro….
    However, it’s a game to see how much less than that I can spend, and whatever is not spent goes into savings.

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