First, I would like to shout a big WOOOOHOOOO! I have positive net worth!!!! Happy Dance. Please dance with me; it’s more fun that way. I finally took the time to get all my investments loaded into Quicken and was pleasantly surprised to see my Net worth is +$6,575. I will openly admit that is not a huge number and when I mentioned it to my father he laughed. I kindly reminded him that this is a big achievement for me and he conceded the point. It’s a stepping-stone and a moment of positivity that will catapult my financial thinking in the right direction.
Notes on my net worth: I do not own a home and I do not consider my car an asset so it was not included (the money owing on the car was included).
July 2013 Goals – Update # 1
I set some strict goals for myself for the month of July that I am realizing may be a little too harsh. You can’t always quit things cold turkey as you end up going back to previous habits. It’s a slow process and something that should be done gradually. As you all know, my weaknesses are fashion and wine and I can easily overspend. Before I get into the book behind this newfound wisdom, I’ll update you on my July goals:
- No clothing spend – FAIL I bought two dresses and a blouse. Two items were for work and my pending job interviews.
- No alcohol for 30 days – FAIL Last weekend I had a rum and Coke. This is not a huge deal and I knew this goal would be hard to adhere to. Cold turkey method never works.
- Lose 6 pounds (get down to 130 pounds again) CURRENT WEIGHT: 136 pounds – IN PROGRESS, still 136 pounds as of July 10.
- Increase car maintenance savings to $100/month (brakes have to be done soon which will invariably cost $2000) – PASS
- Get a promotion at work/negotiate a raise and an extra week vacation – frugality only takes you so far, after which point you must defer to your God given skills to bring in more bacon (or tofu for vegetarians) – IN PROGRESS
- Operation cupboard cleanout – There is way too much food in the cupboards. It’s my mission to get it cleaned up and manageable by month end. Watch for a separate post! – PASS/IN PROGRESS I successfully cleaned out the cupboards, read the post here. I am working on consuming most of the items I have over the summer and not purchasing anything more. I have finished one bag of rice so far and I returned two bags of spices that were duplicates for a refund of $7.77.
What has spurred the change in my thinking? New Reading!
I recently started reading the New York Times bestseller, I Will Teach You to be Rich by Ramit Sethi. Although I am much further ahead in my finances than many of the suggestions in the book (nor am I a Twenty something), I found Chapter 4 to be very interesting. For many, budgeting is like having a root canal; micro managing every penny as it goes in and out. Personally, I don’t like micromanaging but I do find that tracking my finances in a detailed way, gives me the picture I need of where my money is going.
The Concious Spending Plan
Chapter 4 of I Will Teach You to be Rich, talks about changing your thinking on budgeting. Instead of “budget” its referred to as “Conscious Spending”. According to Ramit, Conscious Spending is not cheaping out and denying yourself things, it’s just having a level of frugality and compromise. The plan uses four major buckets for where your money will go: Fixed costs, Investments, Savings and Guilt Free Spending. Don’t I know about that! I buy a piece of clothing and I feel like I’ve eaten a dozen Krispy Kreme donuts. Ramit’s rule of thumb is that 50-60% of your take home pay should be for fixed expenses. He also suggests having a “Stupid Mistakes” bucket of money – you know, for that emergency root canal, your car breaking down, etc. Next up is your savings. He also suggests that your savings and investment accounts should have targeted goals.
For example, here’s what I have:
Car Maintenance Fund
Dream Home Fund – not really a dream home, more like down payment but I thought Dream Home sounded nicer. I’m not one for a 6500 sq. ft. house when all I need is 1000 at most.
Each of these accounts gets a set amount of money every single paycheck. No questions asked. My RRSP is deducted right off my pay to take advantage of tax savings and employer matching.
Now here is where Ramit’s Conscious Spending plan gets interesting. He suggests taking 20-35 percent of take home pay for guilt free spending. I like this idea but I don’t like it at the same time. I like it because you still need to live and you can’t cut yourself off from your lattes, wine and hobbies. I don’t like it because that’s extra money that could be going to debt repayment.
Let’s use an example, say your net pay is $3000 a month, well 20% is $600. This plan has just given me free reign to spend it on whatever crap I want. Ultimately, you must use your best judgment for your money.
He gives several examples in the chapter of friends that spend more than normal amounts on clothing and entertainment but make sure they don’t overspend in other areas. In essence, the philosophy is 1. Pay yourself first 2. Pay off all debt 3. After fixed expenses, spend your money on what you want, just do not exceed your income.
From the first four chapters, this book is really for a twenty something that is new to finances. I have learned some interesting new concepts, such as the Conscious spending plan. I would like to change my habits when it comes to clothing and wine and will use Ramit’s suggestion of gradually easing off on the spending. He suggests reducing the spend over a period of several months. For example, $500 restaurant spend. Drop it to $450 for Month 1, then $400 for Month 2 and so on. Whatever increment works for you.
You must be conscious of your spending at all times, pay yourself first, and get rid of debt. The true motivator behind finances is always having a goal – do you have a wedding coming up? Possibly a new baby? Or maybe you’re like me, and trying to buy your own home.
Whatever your reason for debt freedom and saving a nest egg, remember to live for today and savour each day. Also, remember that you don’t know what the future holds, as it is yours alone to design.