Leo at Zen Habits Posts Money Hacks…

Leo over at the Zen Habits blog posted 20 money hacks today, ways to help keep your finances in order.  While I don’t agree with every tip in the post, I think this is a fantastic resource and if you follow Leo’s advice, you’ll see a major improvement in your finances.  Some of his tips are the very actions I took to get myself out of $12,000 worth of credit card debt and get myself started on the path to financial independence.

Here are  some things I would add:

  1. Get online banking and use it!  Check your balances at least once a week to make sure things are on track. Also, using online banking will allow you to…
  2. Pay your bills automatically online.  Many banks offer free online bill pay to their customers.  If you set this up to happen automatically, you’ll never be late with a bill again.  And you’ll never have to worry about not having the money, so long as you…
  3. Use multiple bank accounts to earmark funds.  I keep one checking account for my living expenses (food and entertainment, mostly) and another one for my rent and bills and so forth.  As soon as I get paid, I set aside enough money for living expenses for the pay period in one account, enough for bills (half my monthly total for bills since I get paid twice a month) in the other account, and all the rest goes to savings.  This is the equivalent of Leo’s envelopes idea, but for people who…
  4. Don’t use cash.  Okay, I disagree with Leo on this one.  I do almost all my spending via debit card.  By keeping tabs on my account online, I can keep track of whether I’m overspending or underspending(!), and I very rarely have to go to the trouble of using an ATM.  I find it easier to waste money when I have cash in hand than when it’s on a card deducting from my bank balance.  It’s more painful for it to reduce the bank balance because then you’ll notice your spending when you…
  5. Track your net worth.  I agree with Leo that keeping a Google Docs spreadsheet for your finances makes a lot of sense — but I think it’s more valuable to use this for long-term tracking of your progress than short-term tracking of your spending.  Total up all your money (and other financial assets if you have them), then total up all your debt.  Subtract your debt from your assets, and you have your net worth.  You want to watch the trend in this over time — month over month, are you getting richer or poorer?  I check this every payday.  This lets you measure your progress toward your financial goals, which is much more motivating IMO than seeing your spending all the time.

On the whole, as Leo says, you should do what works for you.  I’ve written this just to present another possibility — this is what works for me.

Painting Reality: Examining Your Current Life

So I have undertaken this quest to uplift myself, and invited you to follow along with me and take any inspiration or ideas that you can from my experiences. Let’s begin by examining the process I’m using for self-uplift. The first step is to take stock of your life and figure out where you are right now. Then you figure out where you want to be — what you want for your life, what kind of a future you want to have. With those two points in mind, you can begin to figure out what actions you need to take to move in the direction of that future. Once you know what your first actions are, it’s time to act on them! You may find, as I did, that once you’ve started acting, your progress changes how you think about your goals — or even changes your goals altogether! If that’s the case, the process starts over again (though likely in abbreviated form — after all, you’ve already done most of the planning, so whatever comes next will likely be smaller adjustments). In the next few posts, I’ll be giving an overview of how to go about doing this.

We’ll start with the personal inventory — figuring out what your life is like now and how you feel about that, what you like and what you don’t. Don’t worry too much about your goals yet — that comes later. It’s even okay if you don’t have any goals (or don’t know what they are). For a long time, I struggled with a lack of goals, a sense of directionlessness that made it difficult to achieve anything because I didn’t know what I was working toward or why. It’s okay for now if that’s where you are. What’s important right now is simply to look objectively at the circumstances of your life and evaluate them from a perspective of figuring out what you’re happy with and what could use improvement.

This personal inventory can be as simple or complex as you want, but in keeping with the model of happiness I described in my first post, I suggest examining at least three aspects of your life:

  • Health
  • Wealth
  • Relationships

Consider what you like about your life in each category, as well as what you don’t like. I highly recommend that you write these things down, because often I find that my conscious thoughts only scratch the surface of what’s really going on in my mind, and putting pen to paper or fingers to keyboard releases a lot of pent-up thoughts that I didn’t realize were lurking under the surface.

If things are bad, don’t let this depress you. Keep in mind that taking an honest look at where you stand now is a crucial first step to fixing the things that you don’t like about your life and figuring out how to get to where you want to be. A map to the Promised Land will do you no good if you don’t know where you are on that map right now. The purpose of this exercise is simply to get your bearings, to understand your life as it is today so that later on, once you’ve determined the destination, you have a way of figuring out how far away that destination is and in which direction. If there are some things that you are unhappy about, acknowledge that, own it, and remind yourself that what you’re doing right now is taking the first step on the road to changing those things.

Conversely, if there are things that you are satisfied with, happy about, that bring you joy, be sure to write those down too! Appreciating the positive can be just as good a motivation as a desire to change the negative, so don’t ignore either side of the equation. Look for the good in each situation, even if the good is simply that it isn’t worse than it is! It’s important to identify and acknowledge the things that are good about your life — both because these things will help see you through any rough spots along the way, and because if you’re going to go through a process of change, you should know what you DON’T want to change, too!

With your personal inventory done, you’ll have a more-or-less accurate picture of what your life looks like now. Do something to reward yourself for having done some hard, honest, self-examination, and take a break to decompress before moving on to the next step. You don’t want to get burnt out before you start seeing results from this process!

In my next post, I’ll examine the next step in the process: figuring out what kind of a life you really want!

Meanwhile, talk back! If you have any questions or comments, please share them in a comment below. I’d especially like to hear anything you have to say about your results if you performed this exercise. Tell me what you think!