So I am slightly bemused by all the attention given by the media to personal finance/savings sites and tips. There are some free sites that are apparently available like mint.com where you can keep track of your expenses. I like to read about savings tips... but basically, old fashioned common sense seems to work for me. And while cynics wonder if American saving behavior will disappear once economy looks rosier, from my personal experience, I have kept all my habits I picked up just prior to and during the layoff I experienced during the dot com bust of 2001. Along the way, I tweaked my habits and added here and there. So what did I do in 2001 that became ingrained to my daily habits?
1) I started tracking every expense.... so I could be certain that I did not spend over the severance amount I received. You heard that many times. I started by writing down on blank paper -- one sheet for each month. And then a few years later, I realized the virtue of excel spreadsheet. I did not wait until the end of the month but literally, when I came home, I would note everything I spent (every tea, coffee, parking meter, etc.) before I forgot. It was scary in the beginning (the first month or two), but as I started tracking I realized the concrete numbers gave me more comfort than some ambiguous notion of what I had and was spending. It gave me the freedom to know when to stop eating out or to take the liberty to eat out with a friend.
2) Once I found a job a year or so later, then I started tracking my version of cash flow... just noting cash coming in and cash going out. If I moved money between savings account to checking, that was not noted. Basically, money going out translated to anything coming out of my checking to pay bills or cash withdrawals. Money coming in was salary, or other miscellaneous items (refund). Then each month, I would total up cash that came in and subtract cash that flowed out. That would be my "savings" for the month.
3) After a few years of just tracking that, I realized I should set a goal for saving instead of blindly saving. Otherwise, my instinct was to not spend anything other than the bare necessity but having a goal helped me to actually spend some money for leisure (concert, books, etc.). I took my gross income and calculated 30% of my gross. That became my goal for total savings for the year (I heard Oprah was told to save 30% before she became mega-rich so I figured that's a good goal to live by).
Then I set a budget to figure out what my goal "expense" should be per month. I did that by taking my net income from paycheck and figure out my net income for the year. Then I took that number and subtracted my total goal (30% of gross income) and divided by 12 to get my goal "expense" per month.
4) I used to use Yodlee to get the snapshot of my investments. Then I thought what if someone hacked in and could access all my account? I got paranoid. So then I started another excel spreadsheet to keep track on weekly basis. Is it a pain to update manually on a weekly basis? Yup. But I broke it down to categories I like to keep track.
So basically, my habits grew out from one simple advice -- keep track of expense. All else sort of grew out of that once that became second nature. I also think that once you get in the habit of thinking about savings, you seek ways to keep track of what you need to keep track. So the basic point? You don't necessarily need all the softwares and websites to help you ... you can start with a piece of paper and pencil. But taking the concrete step every day really goes a long way. Mine has... for 8 years and counting.
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