At the end of every year we gather our notebooks and pens—or maybe if Santa was good to us, iPads—and jot down the same set of resolutions. Lose weight, save money, be kinder, take up a new hobby, etc. Or at least I do. Every year the same liturgy, and although I’m a bit hesitant to admit it, the same outcome.
Confession: I have never lost those ten pounds and although not in dire financial straits, I never did put away 50% of my income. I’m still just as impatient as always and that handmade blanket is still in the early stages of being an infant’s scarf.
So this year as I pondered new, exceptionally unattainable goals to set myself up for failure this year, I decided that the entire idea of New Year’s resolutions is a trap. How can you possibly transform your entire self based on a few scribbles on December 31st? Sure, it’s easy to say you’ll become vegan while in a post-turkey coma, but what power does that declaration hold halfway through February when you’re halfway through the drive-thru?
Why don’t we—in an effort to just be a little kinder to ourselves—opt to test-drive those resolutions before making the dreaded yearlong commitment? Isn’t there some sort of cliché like “You can do anything for an hour?” Well, if that’s true, I’d like to think that as mature adults we can do anything for one month.
That’s my resolution. In 2014 I’d like to take on one resolution at a time for a trial-period of one month. Four weeks is long enough to see change, but short enough that any reasonable person can blunder through it. And after one month, if the ordeal is completely terrible and impossible, well, on to the next one!
I’m not a psychologist or lifestyle guru. (The term ‘guru’ by the way, is completely misused nowadays anyway.) I’m just a regular person trying to achieve a better life. And although maybe I’m looking for the easier way out, I’d also like to, maybe just this year, not feel like a complete failure a couple weeks into January.
January Resolution: Take A Financial Inventory
I often like to say I’m terrible at math but I’m great with money. This unsubstantiated claim is a product of my own ego. I am very much not great with money. The weekly drive to my bank is always a moment of intense personal scrutiny. I despise that judgmental printed description of my fiscal health. To be honest, I’d much prefer to idle by in ignorance, thinking that if I work hard I truly deserve those $300 shoes. I earned them.
I’ve been told, however, that at some point in your life you have to come to terms with what you have and more importantly, what you don’t. Unfortunately, I don’t have a trust fund that tops off my checking account every month yet those pesky bills still have to get paid. And if it does come down to electricity or a pair of shoes—deserved or no—the electricity has to win.
Here’s what I’m going to do this month, and what I recommend you do. If nothing else, take an inventory of your personal finances. There is a budgeting term I’ve heard thrown around called “Zero Sum Budgeting.” I first read about it on Get Rich Slowly, a website that describes itself as “Personal Finance that Makes Cents,” you can visit it at getrichslowly.org. Always a lover of puns, the website gripped me immediately. A Zero Sum budget is basically a monthly inventory of your income and expenses. You apply this method by taking whatever is left over of your money and stuffing it into your savings. It is, I believe, the easiest way to budget and save when you have absolutely no money smarts and need to pay your rent on time. I officially declare it as my adopted budgeting method of choice.
For all those who prefer a little hand-holding, here’s the basics of what you do:
Launching a new spreadsheet, enter in all your income for the month at the very top. (You could use paper, too. See above where I mention I’m terrible at math.) Don’t put in imaginary income, or as professionals refer to it, gross income. We’re working with net income here. Whatever you pop into your bank account or store under your mattress or spend on self-help medication known as wine. (Side note: stop doing that so much! I would explain how but that’s for another month. Now quit dawdling and top off this Chardonnay.)
Once you’ve entered your income, make a list of all your fixed expenses. Yes, fixed expenses include your cell phone and cable bill. Even Netflix. If it’s checking out of your income the same way every month, it’s fixed.
Below your itemized fixed income, enter what I like to call your variable fixed expenses. This is what you spend on things you buy every month but the costs aren’t always the same. Think groceries and gas.
Now add that all up (or program your spreadsheet to do it) and reduce it from your net income. If you have money left over, good job! Skip over to the next paragraph. If you don’t, savor that last bit of Chardonnay because you can’t afford it. This is where we get real. You have some serious cutting back to do. This can include reducing your fixed expenses by getting rid of some altogether, or cutting back to more modest plans, or for the love of God lower that thermostat and shut off a light once in a while!
The positive sum that’s left over from your income and expenses is the amount of money you have for both saving and enjoyment, as well as any emergency expenses you encounter throughout the month. Your first inclination would probably be to nix fun stuff altogether in the name of financial harmony and save it all. I would advise against that—you’ll set yourself up for failure. You do need some money to enjoy life. You will eventually want to watch a movie, or buy a drink, or get take out. It’s OK, be kind to yourself. My preferred tactic is to divide the initial sum in half and assign one half for fun and the other half to savings. It may not be what real money professionals recommend but this has caused me to save money when I otherwise wouldn’t have, and I think that constitutes as a success.
Also, the unsung hero of this method is awareness. Once you are aware of where your money is actually going you will be more inclined to not waste all of it. Awareness is often a terrible shock of reality at first, but trust me when I say knowing is always better than not knowing.
So, let’s wrap it up. January’s mission is to take an inventory of your finances. Calculate how much of your income is left over after fixed expenses and save half of that money. If you have an even amount of income to expenses, or a negative amount of income left over, you’re first priority is to get back into the black.
This mission won’t cost you any money and can potentially save your life. You’re welcome. You can thank me after you get over how expensive your Starbucks habit really is.
Are you inspired to take up the sword—erm, challenge—and join me for a better year? Let me know in the comments! A support system is a key to success, right??
Niki
Itty Bitty Living 