Know Where You've Been to Get Where You Want To Go
Happy Monday! I hope that everyone had a wonderful and relaxing Sunday with family and friends watching the Super Bowl game..or, as I like to think of it, BEYONCE featuring Coldplay and a football game.
While I’m sad to officially say goodbye to football for the next 7 months, I can say that I will not miss being tempted every weekend by copious amounts of beer, pizza, chips and other delicious treats! For many people, the end of the long football season marks the beginning of being able to focus on their New Year’s resolutions of getting into shape and eating a little bit healthier.
When it comes to dieting, the majority of us don’t track our calorie intake, eat more than we realize and value anecdotal advice, such as “Eat a grapefruit every morning. It will speed up your metabolism!” over research and facts. However, the majority of people only need to remember two rules: 1. Exercise More. 2. Eat Less.
I think we can all agree that weight gain doesn’t happen overnight. Pound by pound, it creeps up on us as we spend 8+ hours a day behind a desk, order Chinese takeout after a long day at the office or have one too many cocktails on a Friday night out. Consequentially, when we set out on a path to lose weight and to live a healthier lifestyle, we can’t expect to see results in the blink of an eye.
I know what you might be thinking, “..Wait, I thought this was a personal finance blog!?” Trust me, it is. Because personal finance is a topic that can be scary, confusing and stressful, I wanted to frame it in a light that all of us can relate to. Just like diet and exercise, when it comes to our money, a majority of us do not track what we are spending, spend more than we realize (or would like to admit) and focus our energy debating interest rates or stocks, rather than educating ourselves on key topics, like our 401(k) or how to create a budget. In the same way that most people do not need a personal trainer or a nutritionist to lose weight, please do not believe that you need a financial adviser in order to create wealth.
While I am looking forward to discussing topics and ideas that will allow you to change your relationship with money and to lead a happier, more fulfilled life, I truly believe that to get to where you want to go, you need to know where you have been. How can you expect to tackle any of your financial obstacles if you don’t know what they are? How can you avoid common financial pitfalls if you don’t understand your own behavior and attitude about money? I want each and every one of you to focus, this week, on understanding your current financial situation. I promise we will get into fun and rewarding topics later!
In the same way that nobody gains weight overnight, our financial situation isn’t shaped by one big thing; it is a series of many small decisions. If you can figure out WHY you’re making the small decisions that you are, you can figure out HOW to adapt your behavior to make better ones.
Many personal finance blogs and books recommend tracking every purchase for 30 days before evaluating and creating a plan that will work for you and your lifestyle. While I agree with the general principle, we have grown up in a generation of instant gratification and information being readily available with the click of a button. I know that we are all busy people and that our time is valuable. Why wait 30 days to better your life when you can start now!? We are so fortunate to have information and history about our financial decisions available at our fingertips. There are countless websites that track your spending decisions for you. A few of my favorites are:
- Personal banking accounts - Any checking or savings account should have an online website for you to view all of your transactions. Most banks will categorize all of your purchases, so that you can see what percentage of your income you are spending on rent, food, auto/transportation, etc. The downside of this method of tracking is that many of us have accounts at several different banks.
- LearnVest.com - Free to use, links all of your accounts in one place and, not only categorizes expenses, but also recommends ways to save money, accounts that could be providing you with better returns, etc.
- Mint.com - My personal favorite! Similar benefits to LearnVest.com, but has an app that is super easy to use and great for people who are always on the go, but still want to be in touch with their finances. It also provides tools to create your own budgets, automate payments and track your goals. I live by this one!
This week, I want everyone to do three things that will be critical in building a financial game plan that works for you.
- Pick a way to track and evaluate your expenses. Don’t spend too long deciding. All are great resources and will get the job done. Setting up your account usually takes just two minutes and navigating the sites are so simple that a monkey could do it. Seriously. Let me know if you can’t figure them out. I am happy to help!
- Evaluate where your money has been going. A majority of expense tracking websites allow you to filter on different time frames. Choose a time frame that is most representative of your habits. Maybe in the last 30 days, you have been paying off credit card bills from holiday shopping splurges. If you’ve had any out of the ordinary expenses, you might want to look at a bimonthly or quarterly view.
Sample of Transaction History on Mint.com
Spend some time this week reflecting on your spending habits. Questions to get you going:
- I spent XX% of my income on shopping. Is this an amount that I am comfortable with or would I rather put my money toward other categories?
- Food and Dining was my highest spend category. Does this reflect my #1 priority or what I value most in my life?
- I contributed just X% toward my student loans. Could I afford to contribute just X% more and save myself hundreds, or thousands, of dollars in interest in the long run?
- What am I surprised by? What am I proud of? What are areas that I would like to cut back on? What are areas that I would like to spend more on?
3. Get into the habit of taking a “Daily Money Minute.” Start each day by logging onto the expense tracking website of your choice. It’s as easy as pulling up the app as you wait for the bus. Look at every transaction, make sure that the charge seems accurate and then look at the category totals for the month. Are you getting close to your ideal budget for that category? For me, taking a Daily Money Minute is second nature. It is how I start every day and has helped me in so many ways. It has saved me from overdraft fees when I had spent more than I, otherwise, would have realized in a certain account. It has helped me easily see when I have been overcharged or when certain bills that are on auto-pay, like electricity, have been higher than normal. This kind of awareness about your spending is critical to your overall financial well-being. Until it becomes a habit, make a note in your planner, set a reminder on your iPhone or put a Post-It on your bathroom mirror.
You can’t improve your financial situation tomorrow if you don’t know where your money is going today. Spend this week focusing on you and developing a true snapshot of where you are in your personal finances today; we’ll get into the fun stuff later! I know this step isn’t always fun, but it is so important to living a financially fearless life. I would love to know what you learn this week, what tips you have that could work for others or any questions that you have for me! Feel free to comment below with any thoughts or email me at email@example.com. Have a fabulous week!