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Garbage in, Garbage Out: Data, Measurement, and Finances

A common phrase in the world of programming is garbage in, garbage out.  In essence, if you get bad requirements for your software development project, you will produce bad code no matter how good a coder you are.  The same concept can be applied to your personal finance measurement and goal setting.  The poorer the quality of data, the less effective the result.

That Which is Measured, Improves

I can’t help but throw another quote out here before we get too far into this post, “That which is measured, improves”.  Let’s be honest, you can’t improve your financial place in life unless you measure your place on that path compared to where you want to go.  Measuring to goals is the key to understanding what you need to improve and thus taking action.

Something like a budget might allow you to target areas of over-spending.  Income measurements could expose opportunities for additional income.   More broadly net worth measurement might show you where you are on the path to retirement.  The point is you’ll never know where to optimally focus if you don’t measure.

The Observer Effect’s Impact on Results

But the need to measure and understand goes beyond the act of taking action.  The simple act of measuring itself can influence your trajectory.  In science this is known as the observer effect.  The general idea is by observing something the observation alters the outcome.

In a way, many personal finance bloggers are participating in some form of observer effect.  Sure some of them are acting to make improvements based on data.  But many are simply recording their goals on their site and then measuring them over time.  That pure attention is more impactful than any additional actions they could have taken as it holds their continued attention allowing them to remain accountable.

We tend to Measure More to Hold Attention

In a way, I have to admit this is where we sit.  I can’t say I’ve made drastic strategic or tactical changes to our financial path since starting Full Time Finance.  I’ve reached a place where I am happy with our overall efficiency and just looking for maintenance. Still, I can say the pure act of writing down and reporting out to other bloggers my progress has led to a more efficient application of my existing plans.    It shows as our last 3 years of blogging have also been the ones with the best financial results.

Garbage In, Garbage Out: Accuracy Required

So we have established that measurement is a good thing.    But what about my quote from the start of this post, “Garbage In, Garbage Out”?   The simple reality is basic measurement is not always enough.  Accurate measurement is required.   Inaccurate measurements can send you on the wrong path.

Inaccuracy in Definition: Garbage Measurements

Useful measurements must be determined by starting with the question you want to answer. If you don’t start with the question you can come up with inaccurate measurements that do not answer your question. For example, a budget can be great measurement tool. But how do you categorize your budgetary items? It should be based on the areas you are targeting reducing spending.

For example, say you want to target reducing spending by keeping a budget. If you start lumping food in with car payments are you really going to know where to look to reduce your expenses from eating out?  Alright, that’s a bit of an extreme example.   But how about we highlight something more likely.  In a budget does food from the grocery store belong in the same category as food you buy while eating out?  Well, the answer depends on what question you are trying to answer.   Combined for the wrong question, say trying to reduce your overall food bill when you eat out significantly, such a measurement is as good as not measuring at all.

Too Simple a Measurement: More Potential Garbage

Let’s step away from budgets for a moment, since we know I’m not big on them.  This post was really inspired by some experiences running data analysis at work from a few years back.  I’d often be asked to analyze the impact of some executives grandiose change on some metric.      The thing is they’d always want some simple bite-sized measurement that takes two minutes to understand.  But many times what they were measuring could not be distilled down to that sound bite accurately.

Controlling For Variables: Another Important Part of Financial Measurement

Those sound bites actually needed a very complex measurement to remove outside variable impact. So say the executive instituted a new training procedure to help service people work more efficiently. That might result in an improvement all else equal. But imagine at the same time manufacturing released a new version of hardware that took considerable more time to service. Well then not controlling for the new version would lead to the potentially false conclusion that the new process didn’t work.

Relating Variable Control in Measurement to Personal Finance

When not controlling for all variables there may be an improvement or impairment due to some other variable changing that’s hidden in the data.  Take our financial food example.  Imagine you moved from a location with plentiful cheap food in the country somewhere to say New York City.  Your food costs in the country could not be used as a base of comparison once you moved to New York City.    Even if you went on vacation somewhere more expensive one month versus at home might bias your analysis. 

The same can be said for other aspects of personal finance.    Say I am measuring my expenses from year to year.  Then one year you have a bunch of surprise medical expenses.  If you don’t drill into those expenses you could falsely conclude that suddenly you had become worse at discretionary expense controls.    One final example might be from our recent post about analyzing the value of like stocks, the issue of difference in business model can bias your measurement.  And the list goes on…

Granularity Inaccuracies in Measurement

Even the granularity of the measure itself can cause false conclusions. If you were trying to reduce expenses would a reduction of $50 expenditure a month be meaningful? I can tell you for me it would not. A simple reduction month to month of expenses of $50 would be in my noise level. IE. My expenses naturally move by a few hundred dollars a month. Measuring our spending at that granularity might give the impression of an increase or decrease in my overall expenditures, when one may not exist.

Now I give $50 as an example of too granular for my current situation. But in some situations that may be the right granularity. If you have a spending problem with a fairly stable situation, you have to start somewhere. $50 in improvement is better then none, especially if you can build further on it. Again, measure for the situation.

Inaccurate and False Data

But the problems don’t end with granularity.  I noted with the title inaccurate data in general.  Say you keep poor records.  Small Business folks are notorious for having major issues at tax time due to poor record keeping of expenses and income.    How can you even conclude your business is profitable if you don’t know the numbers.  And yet many don’t or they record them in such a way as to be grossly inaccurate.  That inaccuracy can cause all kinds of problems downstream whether it be taxes, selling a business, or even deciding to continue operations. Don’t be that person.

How Accurate Do You Need To Be?

So we have established that determining your question, controlling for variables, and tuning granularity are keys to good measurement in your finances.  But how accurate?  Now, if you’ve read enough of our posts by now, you know I’m building up to the point about moderation.  Frankly, you can measure yourself to death.  Over measurement is just as big a problem as poor measurement.  You can spend all your time measuring and no time doing.  Or worse you can obsess so much about measuring you forget to enjoy yourself.   As such your measurement should be optimal to the problem you are trying to solve.

Over Measurement is a Real Problem

Honestly, I see over measurement all too often in the corporate world.  Someone wants to measure something so they create 1000s of charts and graphs.  But you know what, it’s useless because no one will sit there and read through that many items.  Not someone in the corporate world and certainly not you.  The amount of effort it takes to collect, report, and analyze data is probably inversely proportionate to your ability to use that data.    The key is to measure only the key metrics that are absolutely necessary until you have a specific goal or change in situation in mind.  Then dig down onto that specific goal as accurately as required to provide a useful result.

You’ll note I said as accurate as necessary.  I may have started this post off talking about the impact of inaccurate data, but honestly 100% accuracy is rarely achievable, let alone necessary.    You don’t need things to be perfect, just generally directional for most activities.   Finding that balance is the difference between wasting all your time measuring and missing the major opportunity staring yourself in the face.  

My Financial Measurements

So stepping back to my budgeting, I take a fairly broad brush with my budget.  Why?  Because my goal is to stabilize our spending not reduce it.  As such I’m not looking to drive down categories, but instead, observe if the overall pie changes.  If such a change were to occur then I would start drill down on my data to start taking action.  If a change were to occur from month to month, say perhaps due to a vacation, I would adjust for it.  I would know the overall cost of the vacation and its impact on our finances since I measure this separately when it occurs.

There are some great tools out there that allow fairly easy measurement of financials. Personal Capital and Mint come to mind quickly. We personally just use excel. But no matter how fancy the tool you’ll likely find your need matches only a handful of measurements. Focus on those.

Measurement is a Tool, Not a Goal

Quite honestly when you are talking about personal finance the real issues you want to fix are the ones that stare you in the face.  You could optimize your finances to the cows come home.  Spend every waking moment analyzing your net worth and income.  Become an extreme couponer.  Even create a budget that is up to the moment accurate.  But you know what, if you go to that nth degree you would miss the point.  The goal in life is not money, finances are the tool to support a happy life.      Never forget the measurement is just another tool, just a very important one.


  1. xrayvsn
    xrayvsn March 4, 2019

    Garbage in and garbage out is something I even say in Radiology. Sometimes images are of bad quality (patient body habitus, patient movement, etc) that the background noise masks any true meaning and essentially get a nondiagnostic study.

    People are quite adept at manipulating numbers to make things look better or worse than they really are. That happens a lot in the medical industry too as pharmaceutical companies want to highlight their product while pointing out flaws of their competitors.

    • FullTimeFinance
      FullTimeFinance March 6, 2019

      I didn’t know that about Radiology, but it certainly makes sense. Really anywhere numbers are at play you can manipulate what they say. Lies, Damnable lies, and Statistics.

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