The year is drawing to a close, and soon people will be scrambling to declare resolutions for the New Year. I am no exception. In years past I have identified two or three things I would like to improve on, but usually burn out by March. The goals probably sound familiar: lose 50 pounds, become debt free, write a book, save $5,000 in my emergency fund at ING Direct, etc.
This year I am taking a new approach, and rather than declaring New Year’s resolutions I will simply identify five things that I want to do every single day to improve my financial life. They aren’t huge, life-changing habits, but together they represent examples of the kind of daily discipline it takes to turn my financial ship around and stay on course next year.
1. Maintain a spending journal. Journaling is a great way to introduce accountability into your life. Whether it is dollars or calories, keeping a journal of expenditures provides a way to keep track of your daily outgo. It also helps you identify trends that may be valuable in creating next month’s budget, or help in reducing a particular budget category. Write down all of your expenses in the journal and give them a category (housing, food, clothing, school expenses, gifts, etc.). At the end of the month group these expenses together. You might be surprised to learn you spend $200 eating lunch out with coworkers every day, or $2.00 a day at the vending machine.
2. Develop a passive income. Developing a passive income is one of the keys to building wealth because it puts your money to work even when you are not. Passive income may be derived from things like interest accumulation, royalties, rent from real estate holdings (although landlords would argue this isn’t exactly a passive activity), social lending, or you can get close to passive income with activities such as blogging, or selling e-book products online. Even if you only make two or three dollars a day, that is $60-$90 per month that you would not have earned otherwise.
3. Make micropayments on outstanding debts. Many people are now familiar with the concept of snowflaking–collecting small amounts of “found” money and pooling it for a purpose such as savings, paying off credit cards, etc. Well, I like to take that same method and apply it to debt reduction. I call it “snowballing,” after the other popular personal finance concept, the debt snowball. Using any extra money I can squeeze out of my budget, or from passive income, I make small payments throughout the month on outstanding debts. If I left the amount sitting idle in my checking account chances are I would spend it before it was applied to debt.
4. Update your budget. At risk of seeming obsessive, I like to update my budget every single day. I wake up early, and part of my routine is to review my checking account from the day before and mark cleared items in my checkbook. I then subtract any outstanding credits, and add back any outstanding debits, to balance my paper register with the online system’s current available balance. Like I said, it may seem a little excessive, but after going weeks without balancing my checkbook register I found this daily action helps keep financial stress away because I always know exactly where I stand.
5. Read something educational every day. I start my day off reading posts from about twenty-five of my favorite blogs. Then I check the news headlines online before moving onto a magazine article or book chapter I’ve bookmarked the night before. Throughout my day I try to carve out time to read some of the newspaper for local happenings, and usually wind up my day reading more from a book. I had a goal of reading a non-fiction book every week, but quickly burned out thanks to my hectic schedule. Perhaps a book every other week is a more feasible goal for this year. Either way, the idea is to read something educational every single day. And if you can sneak in something finance related, even better.
I have discovered the hard way over the years that success usually comes to those that win the daily battles. You might have noble goals such as to lose 50 pounds in 12 weeks, or pay off 50% of your debt in six months. However, if you don’t win the daily battles you will not reach those long-term goals. Identify some daily actions to take in your own life to improve your finances before setting those long-term resolutions for the New Year.