The New Year’s Resolution that You Will Actually Keep

Every year we all make resolutions. Resolutions are good, noble, and serve to make us better….but if you’re anything like me, your resolutions end in a guilt-ridden Saturday night ice cream binge on the kitchen floor with a pint of Ben and Jerry’s. So, no judgments.

Once we slip up on our resolution, whether it is a diet or a budget, it is hard to regain that idealistic glow and keep going forward. The rationale is always the same – well, guess that was short lived; might as well forget it.

That line of thought may work for a wardrobe with lots of elastic waistbands (no judgments, ok?), but not so much when we’re talking about financial security. Budgets are like diets. Everyone KNOWS they should have one, but no one really wants to do it. Once the budget is blown with, say a retail therapy shopping spree, it is hard get back on track. But a spending plan, well, that’s different from a budget. A spending plan is a way of life. When you’re serious about dieting, you change your eating habits. Same thing applies for a spending plan. The only way to change your spending habits is to have a plan. Now that the word budget is out of your vocabulary, let’s get started.

Here’s what you do. For one week, starting right now, track everything you spend. I mean everything. Pennies in the couch cushions, quarters in the cup holder, credit card charges – everything. Make this easy -  track your purchases on your blackberry or your iPhone. If you’re the pen and paper type, carry a small notebook in your wallet. An index card in your wallet, right next to your cash and credit cards works great! Write down every expenditure and save your receipts. At the end of the day, transfer the information to an excel spreadsheet. It should only take five minutes. Figure out whatever tracking method works for you. Anything goes – just as long as you do it!  Hey, if you want to take personal ownership and know where your money is going, you have to know your spending habits.

Once you’re tracking your money, we can start to develop a spending plan. Spending plans are composed of four basic components:

1. Identifying your income
2. Listing your expenses (this is why you’re tracking what you spend for the week)
3. Comparing income and expenses
4. Setting priorities and making changes

 Doesn’t sound so hard, eh? It really is that easy.

 (Web Note:  The above points came from the spending plan found on http://www.smartaboutmoney.org/nefe/pages/content.asp?page=1309. Another good example of spending plans, especially for college students, is at http://www.orgs.ttu.edu/r2b/money_management.php.)

After the first week, you can start using financial software to help track and monitor your money. The financial software is fantastic, but I really want to emphasize the importance of you taking control of your spending.  The software, bank, credit card company or anyone else is not responsible for your money….you are!  By simply tracking your spending for a week, you will be better able to know where and how you spend your money. 

Once you have tracked your money for at least a week, and have begun to take ownership of your money, it’s time to start the financial plan and get the overview of where your money is going.  I highly recommend using the free, web-based financial software called MINT.COM.  The website allows you to track all of your accounts in one place. It is a secure website that instantly downloads all of your information in a secure webpage.  And yes, that is my favorite part, it’s web-based so you can do it literally anywhere – well, anywhere you have internet reception!  The software uses great visual effects including dashboards, charts and graphs that are easily compared to average Americans.  All expenditures pop up instantly on your transactions page, in a way that’s easy to read (for example - $45.60 at Target). You are able to categorize the spending with a label that works for you.  If you go over your spending plan, the website can send you an email or text message. Also, the website identifies your APR (annual percentage rate) as well as any hidden fees charged by credit card companies.  And if you enter your retirement plans or investment accounts, the website will instantly compare your portfolio against benchmarks so you can see just how much you have lost this year (that is you and Bill Gates, Warren Buffet and the entire market ;) . . . more to come on this topic later).  It literally takes the pain and agony out of the day to day monotony of tracking the pennies.  It syncs your data and gives you the overview of where your money stands on an up to date basis with just the click of a button.…can you tell I’ve fallen in love with this website?

Seriously though, financial software is vital to your long-term financial health. Intelligently tracking your money allows you to make the most of it. Consider the combination of the stand-alone spending plan and the software as a temporary tool to help you track where and what you are spending your money on. Eventually, you will know your financial habits. But until then, use a plan and your financial software to understand where your money is going. Once you know your past, you can plan your future.

…Speaking of plans, I plan on hiring a large body guard, named Sven, for my refrigerator. If I try to get near it, he will tackle me. Then maybe finally I can make good on that diet resolution.