Practically Speaking: Revive Your Resolution

New Year's Resolution? What?  That is so last month!  At least that's what I keep telling myself every time I crouch behind the wheel as I drive on past the gym.  It's one month into the New Year and almost everyone I know has blown his or her resolution - whatever it is.  If you've trashed your resolution to "start saving more" (or something like that) then all is not lost!

You want to have buckets full of money?  You have to make more money than you spend and you have to save or invest the money you don't spend.  Yawn!  Ah, but TRUE.

I know - we all wish we could make more money.  I'll address that in detail in another article.  Right now let's focus on the "spend" thing.  Sure, some people indeed do not make enough money to make ends meet.  But for loads of people it's just that they're spending too much on stuff they don't need.

I never needed a no-water chai before Starbucks arrived.  Same with my PDA and Bluetooth.  Truth is, I can make chai at home before I leave the house, I could live with "just a regular cell phone" and if I would skip the chatter while driving, I could do without the Bluetooth.  Lucky for me, the last two were gifts and the chai's I get with the gift cards I use sparingly.  Yes, I'm frugal - even a cheapskate at times.

I'm not recommending everyone become cheap just to save a couple of lousy bucks.  I am recommending that everyone wake up and realize that we're only entitled to what we can afford.  Some will argue that cutting back on a couple of beverages a week doesn't make a real difference.  Check out the numbers below and I think you may feel otherwise.  The real crux of the matter is getting control of your money is like getting control of your diet.  You can't just diet for an hour a day.  Skipping lunch and chowing down 2/3's of a pizza and half a pint of ice cream at night ain't gonna cut it.  Same with your wallet.  Every calorie counts and every penny counts. 

Where to begin?  Just about every financial advisor-type person I've met will tell his or her clients that the very first step is to do a spending analysis.  They're right but you don't have to create a 12-page spreadsheet with 2 months worth of data to figure out where the money's going.  The information doesn't have to be packaged in a way to impress a CPA...it just has to be available in a form for action to be taken.  What I mean is, take a week - just ONE week, and really be present in your daily life.

Pay attention to how many times you stop at Starbucks, how many loser lottery tickets you buy, how many times you pay for a meal that you didn't make, how many bags of chips you get at the vending machine, buying another "just perfect" pair of shoes, a quick trip to the store to buy 1 thing you needed and walking out with 4 you didn't, the list goes on!

Look at the other types of expenses.  Pull out your credit card statements and look at the finance charges, late charges, annual fees, etc.  I know it's painful, but go ahead, look!  With the average person carrying about $10,000 in credit card debt, you aren't the only one taking a big gulp when you look at this information.

Look at your other bills and see if you find any late fees or over-usage charges. And take a look at duplication.  Would it cost you less to bundle services or to have only a cell phone?

Now take a little time and write down the numbers on just one piece of paper.  This is important because it's easier to digest if it's all in one spot and it's usually pretty eye opening to see how much money is going out of your pocket.  Now write down all of the amounts of superfluous spending.  Ok, I know it seems like you have to have the latte but that does go under the "Not Necessary" category.  Then multiply each number by 12 if it's a monthly expense, or 52 if it's a weekly thing.  Here's a quick example:

See how fast it can all add up?  This example (it's a very slight modification to a real person's exercise) finds almost $5,000 in one year that could be used to start a significant savings program, a down payment on a house, a remodeling project, whatever!  Now, that doesn't mean that you could immediately start saving all this money but it does mean that you could start making some very basic and daily changes in your routine that will amount to some big dollars at the end of the year.  With moderate changes like just one latte and one lunch out a week, buying soda at the grocery store, spending only half as much on random shopping sprees, using only one phone, and reducing the credit card interest fees by half, the spending illustrated here can be reduced by more than half.

Moderate changes are key.  Nobody sticks to a diet when they take out every good thing to eat.  You won't stick to new spending habits if you take out all the fun stuff to buy either.  Just clip the wings on the dollars a bit so they won't fly out of your wallet so fast.

 
Need more inspiration?  Once you've decided to limit your spending, instead of putting the money back in your pocket, put the actual cash into a pickle jar.  At the end of the month count your pennies.  Then pack up the booty and bring it directly to the bank.

Take a little time to open your eyes to your real spending habits.  Ask yourself if you really need what you are about to open your wallet for.  Save your money.  Then in 2008 you can pick another New Year's Resolution...how about to "not forget the one I made in 2007"!

Please leave me your comments (or send me an e-mail if you would like to keep things more private) and let me know what money questions or concerns you have and I'll try to address them in future articles.  Please keep in mind that this column is about practical advice for everyday concerns.  I do not dispense investment advice.

Heather Montanaro: Money Correspondent:

Heather's column, Practically Speaking, published 3 times a month to Gather Essentials: Money presents practical advice for everyday living and provides insight on how to pair lifestyle choices with financial realities.

Heather Montanaro holds an Executive MBA from Northeastern University and has held senior positions with local technology and service companies.  Now she enjoys staying at home with her 2 young children.  She's made the adjustment from 2 to 1 incomes and enjoys helping others reach their personal goals as a Budget Coach.

You can find all of Heather's Practically Speaking columns at tag: budget coach

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