This is a guest article by Phil Cioppa of Arbol Financial Strategies, LLC. Phil has over 10 years of financial service experience and specializes in asset management strategies, insurance planning and taxation issues. A budget is an important part of any financial plan, and right now is the best time to take another look at yours.

Do you feel like your dollars don’t stretch as far as they used to? No, it is not your imagination. They don’t, because we are experiencing some of the most difficult economic times since the gas lines of the 1970s and the Great Depression in the late 1920s and early 1930s.

What does this mean for you? It means that it’s time to revisit your household budget to make sure that you are living within your means, that you are not wasting your hard-earned dollars on items you don’t need, and that you are setting money aside for what is really important.

What is really important? No, it’s not having the latest high tech gadget, a flashy new car, or more clothes to hang in your closet. It’s building and maintaining an adequate financial safety net for yourself so that you have the money you need to pay for setbacks and emergencies. For example, you lose your job, your employer decides not to continue paying for your health insurance, your car dies and you need to replace it, your child has an unexpected medical problem, your home needs an expensive repair, and so on. Without an adequate safety net, you may have to use credit cards to fund the unexpected, which could be devastating to your finances.

Saving for retirement is also really important. No matter how far away you are from retirement, if you don’t begin planning for it now, your inaction will come back to haunt you. No matter what –- put money aside for the future! When that future becomes “now,” you will be glad you did.

I know that doing all of this may sound like a tall order, but it’s non-negotiable. To start, re-evaluate your financial priorities, study your budget to figure out how your spending and your priorities line up, and then reduce your spending as necessary so that you can begin building a financial safety net as well as a retirement fund. And yes, doing this may require some sacrifice on your part.

If you have to spend less, examine your essential expenses, like food and other day-to-day costs of living. What can you reduce? Also look at the fat in your budget –- the stuff that you enjoy or think is nice to have, but that you really don’t need. What are you willing to give up?

Here are just a few of the kinds of questions you should ask yourself as you rework your budget:

• Is your current cell phone plan truly the best deal for you?
• Can you save money by bundling your phone, Internet and cable service? You’ll usually find that new account holders get the best deals so you may want to change providers.
• Have you explored whether you could purchase your electricity or gas from a less expensive source, assuming those services are deregulated in your state?
• Do you really need all of the TV channels you are paying for? If you changed to a cheaper package, would you miss the channels you eliminated?
• Are you paying too much for your insurance? Ask your insurance broker to evaluate your insurance needs and explore whether you could save by consolidating all of your insurance with one company.
• What about your vehicles? Can you get rid of one or them? And, how often do you use the motorcycle or boat you pay to insure?
• How much are you spending each week on restaurant meals, happy hours, and coffee drinks? If you take the time to add up those expenses, you may be surprised at your final total. Take the money you are spending on such nonessentials and use it to pay off your debt faster, or to increase the amount that you save each month.
• If you’ve been dropping thousands on vacations away, take vacations closer to home or even consider a vacation at home. Given rising airfares, you could save a bundle.
• Refinance your home. With interest rates at all time lows, you could realize a substantial savings by getting a new mortgage loan and paying off your current one.

Nobody likes to change their lifestyle, but nobody likes to be broke either or to come up short when it’s time to retire! The key to surviving and even flourishing in a down economy is to be realistic about your spending, to decide what your financial priorities and needs really are, to give up some of your creature comforts if necessary, and to save, save, save. It’s essential if you want more money in your pocket for today and for tomorrow.

The original version of this article, How Is Your Budget Doing These Days?, is copyrighted by Consumerism Commentary.

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New Year’s resolutions have become so cliché that the process of making them has become a joke. People settle for mundane goals for the year like “losing weight,” “quitting smoking,” and “getting out of debt.” These are great goals, of course, but most who think about these only when the calendar changes soon forget their plans, continue their lives as before, and lament their failure when they reflect as next year approaches.

Part of the problem is that these goals are not specific enough for anyone to take seriously. Gurus and bloggers write all the time that goals need to be “SMART” — specific, measurable, achievable, relevant, and time-based — as if it’s a new concept. This is a helpful way to look at your resolutions if you want to approach your life as a project manager. A better approach is to realize that time moves very fast, and with busy lives it’s better to make modest goals and focus on each small step that moves you in the right direction.

The most popular New Year’s resolutions are tiresome. It’s no wonder people don’t keep them. Few people can be passionate about losing weight or getting out of debt, and even if they are, it will take a lot of work to change the behaviors (or medical conditions) that caused the circumstances needing improvement. These can be multi-year goals, and if your entire success relies on completion within 365 days (366 in a leap year) you’re setting yourself up for failure.

Here are some different ways at looking at financial resolutions that are not only achievable within the year but are more interesting than what you may typically resolve to do. While there are twelve listed here, consider you’re more likely suited for success if you focus on one. The year will be over before you know it, but your resolutions should always be aligned with long-term goals for yourself.

1. Spend money on things that are important.

Your spending habits reveal what is important to you. If you spend more money buying video games than you spend going out with your girlfriend or wife, you have decided on some level that you favor your time with a computer game more than your significant other. The higher value each dollar has to you, with the importance of one dollar related to your level of disposable income, the bigger the importance of whatever you choose to spend that dollar on.

Look where your money goes. You may need to track your spending if you’re not sure. You’ve defined what’s important to you by your expenses. Your shelter (rent or mortgage) and food are obviously important and form the basis of your expenses, but beyond that, you can rate how important any activity is to you by comparing your level of spending. If you don’t like what you see, resolve to spend your extra money — after you cover necessary expenses and saving — on the things you want to be important to you.

2. Create something every month.

The culture in this country is one of consumption. We consume food, media, and resources. In order to consume, we spend money. This year, change your role in society. Become a creator rather than just a consumer. You can create something that other people consume or something that you consume yourself.

• Cook more often than preparing pre-created meals and dining out.
• Create your own adventures instead of watching movies and television.
• Write in a journal rather than reading a best-selling novel.
• Engage your mind creatively, taking photographs, making art, or performing music.

3. Learn a new skill.

This could be the year you focus on trying new things. The best new skills to learn would be those that are related to your interests and passions. Here are a few examples, but think about the things that make you happy and decide on a skill that enhances your attitude.

• If you’ve had a favorite vacation destination in mind in a foreign country, start learning the language and culture.
• If you like running but haven’t taken this type of exercise seriously yet, train yourself for a 5K race.
• Learn how to play the piano.

Many new skills can take more than a year to learn, but the idea is not to consider your year a failure if you don’t complete your mission. Keep taking small steps that move your life in the right direction, and whether you complete your goal within one year is less important.

4. Earn money from your hobby.

Turning your hobby into a business is a tricky subject. Consumerism Commentary started as a hobby, but after a while, it became apparent that writing could also be a business that generated income. In some cases, though, turning a hobby into a business can turn an enjoyable activity into a chore. This has to be a personal decision. If you like collecting coins, do you want to be a coin dealer? If you’re particularly skilled at photography, do you want to market yourself and compete with professional photographers? Perhaps you can keep your marketing to a minimum and work just for your friends and friends of friends.

Not everyone wants to start a business, but keeping your activities small can keep the business aspect of your hobby to a minimum. Strike the right balance between hobby and business so you still gain a maximum amount of enjoyment from the activities you enjoy.

5. Start a blog to track your finances.

I have first-hand experience about how helpful it has been to publicly track my own finances. This is a great way to maintain focus on any goal. By making your progress public, you are holding yourself accountable for your success. And if your goals are interesting to others, even strangers, they can join you in your quest and offer support — and more often, criticism — when you need it.

Rather than using a blog to track your success, allow the blog to be your success. Start a website using WordPress or Tumblr and write anonymously about the financial issues in your life. You don’t need to be a great writer, but if you continue, your writing will improve. Don’t be concerned about building an audience or earning money. Writing for its own sake helps clarify financial issues, particularly when you read what you’ve written over a period of time.

Tracking your finances in software like Mint.com or Quicken isn’t always enough. When you look at your finances with the intent of writing about them, your brain performs at least a minimum amount of analysis, and this is a step further than most people take with their finances.

6. Support local businesses.

Emily Guy Birken wrote recently about the 3/50 Project, an initiative that encourages consumers to spend $50 among three local businesses each month. Keeping your money local helps improve the economy in the community where you live, and it helps you build relationships with your neighbors near you and across your town.

Following an initiative can provide extra motivation for achieving a goal, but you can do this without an initiative as well. Supporting local businesses is a possible resolution that most people don’t consider. Usually, people resolve to save money, and that could mean shopping online or visiting big-box or warehouse stores. Spending money in these locations does not help a community thrive — at least, not directly.

The same is true about local community banks and credit unions. By moving your money away from big banks, you are taking a financial action that is more beneficial in the area where you live. This is a simple, achievable resolution for the new year.

7. Sell or give away your stuff.

This could be the year you focus on decluttering your life. When I moved into my current apartment a few years ago, I seemed to have so much space available. I fell into the typical habit of expanding the way I live to fit into my new environment. If you look around your living space, you can probably find a number of things you don’t need. Here are just a few suggestions of where to start:

• Look through your closet and give away the clothes you no longer wear.
• Sell your old games, electronics, movies, and books on eBay or Amazon.com.
• Organize your papers and shred old documents you no longer need to keep.

This sounds like a good weekend project rather than a New Year’s resolution, so to make this worthwhile, consider running through this process on the first Sunday of each month. Each time, you’ll find more to eliminate. If unchecked, “stuff” can take over your life. If you have so much it’s burdensome, your possessions can own you rather than the other way around. Reduce and eliminate your dependency on things that take up space.

8. Spend more time with activities that make you happy.

I mentioned above that you can determine what’s most important to you by following the money. The same thing is true about time. If you were to analyze every waking minute of my day, you’d see that I spend most of my time working on my business and most of the rest of that time with my girlfriend. Or that’s what I’d like to believe. I, for one, spend a good portion of time entertaining myself with movies and television. Productivity nerds would fairly criticize me, but I do find value in resting my brain by allowing a local grumpy doctor solve medical mysteries so I don’t need to or by watching a clever con game unfold.

But buy spending my time this way, I’ve traded my enjoyment in creativity, like photography and music, for sitting in front of a television. Decide what’s important to you and schedule time to dedicate to those activities. I’m not a fan of keeping a schedule, but when you can schedule activities you enjoy rather than scheduling corporate meetings, you will end the year happier and more fulfilled.

And the reason we make resolutions at all is because we are unhappy with something in our lives. If we can spend more time on enjoyable activities, we won’t be nearly as unhappy.

9. Volunteer with an organization that matches your values.

Until the government decides to offer a tax deduction for volunteer work, this potential resolution won’t have a direct effect on your finances, but it could inspire you in ways that do affect your money. The first step is creating a mission statement for your life. In fact, defining your mission can be a complete resolution itself for the year, as defining a meaningful mission requires thoughtful self-reflection that goes beyond the confines of a lunch break at work.

Once you have an accounting of your values and life goals, it’s easier to determine what organizations share your view of the world. Spending time with these organizations and the people who share your philosophies can be rewarding. Often, the reward is through personal satisfaction and pride but there can be a financial aspect, as well. You may decide that you want to use your wealth to improve life for a community, or you may decide that you would like to motivate yourself harder to build your own wealth to help you complete your life’s mission.

10. Be happy with what you have.

The drive to want more for ourselves creates motivation to move forward, to earn more money, and to improve our financial habits. When there’s a mission behind this drive, a purpose in life, it makes that motivation more meaningful. Your should also stop wanting for a moment to consider that if you are reading this article, you were most likely lucky to be born in a situation or community where wealth-building, education, and even sanitation are possible. The “pursuit of happiness,” along with life and liberty, concerned the founders of the United States, but happiness is easily within reach.

Resolve to consider all the positive things in your life: your family, your wealth (no matter how bad your financial situation is, it could be worse), your friends. Consider the opportunities you’ve been given that helped you achieve what you have so far as well as the work you’ve put into shaping your life.

11. Don’t settle for low-quality relationships.

Unfortunately, there are often people in your life who bring you down. You don’t want to surround yourself with yes men, but if you look at your extended circle of friends, chances are you have a few with whom spending time makes you feel good and a few who often dampen your mood. While you don’t want to eliminate relationships with people from whom you can receive kind criticism, it is beneficial to reduce time with people who consistently have a negative attitude.

I’ve discovered this over a long period of time. I’ve always held onto friendships, regardless of the quality, because I believed that every close connection was as important as another. Perhaps I grew up, or perhaps I just had less time to spend with people. Perhaps there have been a few events where I had placed faith in a friend and had been disappointed, and another friend advised me I shouldn’t have such “high” expectations for my relationships. There are enough great people in the world not to have to settle for mediocre people in your life. If you feel you are consistently lowering your expectations, it may be time to spend time with others — as long as you are doing as much as possible to be a good person, yourself, in your inter-personal relationships.

This is the age of Facebook. People brag about how many “friends” they have, and it’s more of a thrill of collection than an enjoyment of real connections. Resolve to enhance the quality of your relationships rather than quantity. Although this goes against most “networking” advice for professionals who want to advance their career, it’s an approach for people who want to advance their life.

12. Let go of your grudges.

Just like it will benefit you to reduce your exposure to people with negative attitudes, consider expelling the negative feelings you’re harboring towards others. I don’t believe that positivity in itself brings about wealth — you can’t increase your bank account by just thinking about how nice it would be to have a bigger bank account, regardless of what New Age aficionados tell you — but letting go of thoughts that prevent you from accepting opportunities and greeting the world optimistically will help put you in a better position to take advantage of good things that come your way.

The above resolutions are not specific. You can use them — or better, just one or two — to guide your thoughts and attitude for the coming year, or you can use them to create a basis for measurable targets that come December 31 you can say you reached. Some tie directly into your finances, and others are related laterally. All of them can help you go beyond the typical neglected resolutions like “losing weight” and “saving money.”

Do something worthwhile and meaningful with your self in 2012.

Photos: L. Marie, Ancient Art, LizMarie_AK

The original version of this article, 12 Alternative Financial Resolutions for 2012, is copyrighted by Consumerism Commentary.

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I’ve exchanged some of the stress and risk in my life for a more comfortable situation.

At the end of October, as some readers have been aware, I relinquished my ownership of Consumerism Commentary. There was an announcement in the Wall Street Journal that I’ll link to below for those who are curious about some of the circumstances. Despite no longer owning this website, I am deeply involved in its operation, particularly from an editorial standpoint, though not limited to just the articles. I still write all the articles published under the names Flexo and Luke Landes and oversee and edit any content by other contributing writers such as Ellen Cooper-Davis.

Very little on Consumerism Commentary has changed or will change from a reader’s perspective due to this shift in ownership. It does change my immediate financial outlook, however.

Although little has changed about the way I work from day to day, I am technically an employee. This arrangement has benefits as well as drawbacks. I have better health insurance coverage than I had with COBRA coverage with my old employer’s plan, and it’s certainly better and much more affordable than I would have had with individual coverage. I don’t need to worry much about the effect of changes in a competitive marketplace on revenue because my pay check is consistent. Theoretically, a large company has the resources to grow this website’s presence larger and more quickly than I might have been able to accomplish on my own, and I can focus on more important things, like writing, without spending much time on other business matters.

On the other hand, I have ceded some of my independence and must now create a new strategy for moving to the next step in my life.

I don’t intend to go into much detail about the change in ownership, a change that has been in development for well over a year, but it is worth mentioning due to its effect on my finances in the future. I’ve used Consumerism Commentary as a way to share the details of my personal finances through monthly reports, goal sharing, and other articles wherein I discuss very personal matters, and I plan for this to continue. If I weren’t to mention this change, it would make it difficult for me to share my goals for the future in context.

I will offer my specific goals and resolutions for the new year soon, as I’ve done in many recent years.

You can read more about this on the official release on the Wall Street Journal, and I’ll have more to share from a personal perspective in the coming months.

The original version of this article, A Different Environment for 2012 Goals and Resolutions, is copyrighted by Consumerism Commentary.

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A little less than a year ago, I mentioned that 2011 would be the year that everything changes. It’s a phrasing that I borrowed from Torchwood, but it was relevant for me as well as to the television program’s concept. I’ll have more to say about this year’s changes later.

At the time I created my goals for the year, it was difficult to predict how well my business, primarily the operation of Consumerism Commentary, would perform. I had just left my day job to work for myself full-time. It was a decision that I had been considering for several years, once I realized that running a website could be a profitable way to live. On reflection I should have made this change several years ago, as my business has long been able to sustain my finances. I first accepted this fact a few years ago when I moved the nicer apartment in which I live now. It’s not expensive, but it would have been unaffordable with just my day job income.

Even after this, it took several years for me to be comfortable with the idea of relying solely on that revenue. I knew I was in a risky business, and the ability to generate revenue from advertising was shown to be even riskier a few months later.

Without much warning, several other personal finance bloggers lost up to 80 percent of their revenue when the nature of the visitors to those websites changed. Some websites, on the other hand, were unharmed or even benefited, but the risk was never eliminated. When I created my goals and resolutions for 2011, I had risk in mind, but perhaps not as much risk as I should have. Nevertheless, looking back at the past year’s success, one might conclude I was much too conservative.

Income

At the end of last year, I remained conservative when planning for income changes in 2011. I would consider 2011 successful if I increased my income by $100,000 for the year. I exceeded this goal in 2011.

Net worth

I recognized net worth would be difficult to predict when I designed these goals last year. It would be far too dependent on my income, and to a lesser extent, the stock market. I ended the year with about $538,000 on my balance sheet. Calculated using the same method which includes the income generated by the business but does not include the value of the business, I was able increase this number beyond my goal. I will be more specific when I look at my end-of-year balance sheet. I far surpassed my conservative goal of increase my net worth by $275,000.

Investments

At the end of last year when I created these goals, I focused on retirement. As a business owner, it’s hard to know exactly what retirement may mean. When you work for a corporation, it’s easy to fall into the usual expectations for retirement, working for a set number of years until retirement age, leaving your work behind at that time to move to Florida and begin collecting benefits from the government and distributions from your retirement accounts. Working for myself, and particularly working in a business where the future could change at any moment, it’s harder to define what life would be like many years in advance.

Nevertheless, I set the conservative goal of saving 10 percent of my income for retirement. I was able to maximize my contribution to an Individual 401(k) throughout the year while investing regularly in a taxable investment account. Although, I spent only a small percentage of my income each month with no major purchases throughout the year, much of what I have saved is not necessarily designated for retirement, nor is it invested at all.

A couple weeks ago, I met with a Certified Financial Planner from Vanguard Flagship Services, and I have a strategy in place to invest for the medium and long term that’s appropriate for my particular financial situation.

Savings

As I mentioned above, having an aggressively increasing income paired with only modestly increasing expenses helped me build my net worth and my savings this year. With some aspects of my life in flux this year, I decided it was not yet a good time to settle down and purchase a house. This is a decision that is about more than finances. The decision to buy a house, for me, depends on long-term plans for family and career, and these are aspects of life I have not quite yet determined. When I renewed my lease on my apartment in central New Jersey this past summer, I paid for the option to break the lease without penalty at any time, thinking I might have other aspects of my life sorted out before it was again time to renew in 2012. There is still time left.

Savings goals other than a house still rely on other decisions in my life, including whether to have children.

Charity

Throughout the year, I’ve been contributing to my charitable gift fund, a donor-advised fund at Fidelity, that gives me the flexibility to grant gifts to non-profit organizations throughout the year. In the past, I’ve given to a program at my undergraduate university and the non-profit organization I used to work for. This year, I also added a local arts organization to my list.

Photography

As we get beyond the purely financial goals and resolutions, it’s easier to see where I’ve failed. I planned on finding ways to make photography a larger part of my life this year. I’ve enjoyed photography throughout my life, though it’s never been a core passion of mine. That has started to change over the past few years, and I’ve taken several classes to improve my craft. I wanted to dedicate some time every month to gaining more experience, particularly with portraiture. Unfortunately, the success of my business has come at the cost of not being able to dedicate as much time to this endeavor as I would have liked.

Professional photography is not the right choice for me. I would never want to photograph a wedding, and that seems to be the basic income-generating activity for most freelance photographers. I’d prefer to ignore the business aspect of photography completely and focus on creating images I would enjoy. While I didn’t have the time to dedicate to this in 2011, I’m looking at ways to restructure my life to make this more of a possibility in 2012.

Personal health

My health has been on my mind all year. Most likely a result of not having a large lunch in a corporate cafeteria almost every weekday, I’ve lost about five pounds this year. I’m not significantly overweight to start with, but I was definitely not at my ideal weight. I didn’t meet my goal of losing fifteen pounds, so I still have more to lose. The exercise I was getting one year ago was interrupted by a major snow storm from December into January, and it killed my momentum for some time. A few months ago, I joined a gym, and recently travel interrupted my progress.

Getting exercise seems to be more successful with assistance and motivation from a partner, and that’s something I just don’t have right now. All of the above are clearly excuses. The only motivation that matters comes from myself, and if I’m serious about getting into shape and losing weight, I just need to do it.

From a financial perspective, it would be hard to call 2011 anything but a success, but with a broader view I haven’t done much to change my life for the better this year. If 2011 was the year for focusing on my business, 2012 will be the year to focus on myself. In a few days, I’ll post a year-end look at my finances which will include numbers and other details, and after that, I’ll present my goals and resolutions for 2012.

Did you reach your goals and complete your resolutions for the year?

The original version of this article, Reflecting on My 2011 Goals, is copyrighted by Consumerism Commentary.

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The school year within the United States public education system lasts about ten months, so some teachers face an interesting budgeting issue that most American workers do not.

The first issue is handling a below-average paycheck. Compensation for public school teachers varies wildly depending on years of experience and location, but for the most part throughout the country, starting teachers receive below-average compensation for their level of education. The pay may be accompanied by decent benefits and a pension, but it’s safe to say most people don’t go into primary or secondary education for the money.

Without getting into the reasons that compensation for public school teachers is low, a low salary requires thoughtful conservation of money. While many teachers are often part of a household that has two incomes, that isn’t always the case. The usual tips apply:

• Design a budget that works. A budget, particularly for a household whose expenses approach or exceed income, is essential for coming out ahead at the end of every month.
• Track your spending. Once you start paying attention to how much you’re spending on gourmet coffee or other unnecessary expenses, you will have a stronger ability to see room for financial improvement.
• Get out of debt. Student loans are often the first debt teachers must tackle. The typical path to becoming a teacher requires four years of college education. That is the minimum; higher salaries are often available to teachers who have a master’s degree. While there are often alternative paths to receiving a certification, most teachers have at least a bachelor’s degree in education. While there are ways to keep the cost of this education low, that might not have been considered while going to college. Thus, teachers often start out in a low paying industry with thousands of dollars of student loan debt. Start a plan for eliminating that debt as soon as possible.

Teachers work (officially) about ten months a year, and school districts have different methods of paying their teachers. These are the two main approaches.

1. Teachers receive paychecks every week, every other week, or twice a month, even over the summer. This way the full salary is paid evenly over the entire year.
2. Teachers receive their full pay spread across the ten months they work, receiving nothing over the summer.

With the second approach, a teacher would need to take care not to spend all income throughout the ten months he is working if he intends to spend any money throughout the summer. Mathematically, the best approach would be to save one-sixth of each paycheck in a high-yield savings account, smoothing out income to include the summer months. When the summer arrives, the teacher can create his own paycheck by withdrawing from the savings account.

Many teachers continue working over the summer, whether acquiring additional certifications or preparing lessons for the new school year. Some have secondary jobs outside of teaching in order to earn an additional income, as well.

Teachers who stay in the same school district for over a decade can often turn below-average incomes to above-average incomes, and those who choose to go into administration can earn even more money, but teachers who have only a few years of experience or less can struggle financially. A teacher could improve her finances by being aware of their income and expenses and by budgeting for the full year.

The original version of this article, Full-Year Budgeting for Teachers, is copyrighted by Consumerism Commentary.

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Money Magazine featured a story about Rick and Amy Mendez, a couple in their early forties with two children, earning an income of $225,000. They have a healthy retirement plan balance, and they needed to borrow from their 401(k) to pay for an emergency. Here is a family of four earning $225,000 a year, with a nanny and two investment properties, that can’t afford to replace the roof in their primary residence.

It’s easy to judge other people’s choices when they are brave enough to feature their expenses in a national magazine. This level of income for a family of four should be enough to cover expenses, save for the future, and handle emergencies, but the Mendezes are running into problems. The writer of the article analyzes the family’s expenses and concludes three changes are necessary in order for the family to put away $25,000 for emergencies: slice the budget, turn off the 401(k) for now, and pay down the credit card bill to the tune of $2,000 per month.

The financial adviser and the article’s author completely overlook that the family owns two investment properties in Florida that are under water. Like many others, the Mendezes succumbed to the perceived easy money available in investing in Florida real estate. When the real estate market crashed, the paper losses have prevented them from acknowledging that they made bad investments and should get out of them.

It’s not clear how much of their $4,450 monthly payment towards mortgages, 401(k) loans, and car loans goes to these two properties, but I estimate they could save at least a thousand dollars per month if they sell. Since the properties are underwater, though, they’d have to come up with the balance of the loan. It’s not clear what the value of the properties are and the remaining loan balances, but this short-term hardship could be worthwhile to prevent long-term problems. With the increased monthly cash flow, they could start building a $25,000 emergency fund.

Do you think they should keep the failing investment properties and wait for the values of the homes to recover?

Money Magazine

The original version of this article, Family Earning $225k Annually, No Emergency Fund, is copyrighted by Consumerism Commentary.

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While it may not be the most exciting activity in the world, building a budget is one of the most important pieces of getting your financial life on track, especially if you’re starting from a particularly precarious point. When I first realized I needed to improve my money situation, I was in debt and had no savings. Creating a budget was my first move in the right direction. I figured out what I was required to spend for my needs, and moved on to what I’d like to spend on my wants.

The state of my finances dictated I didn’t have anything left over for wants, and I was hardly meeting my needs with my income, so I had to make some sacrifices to reduce the cost of living. After a while, when I was earning more income, out of debt, and increasing my savings, I could loosen up my budget and afford some of the wants.

Budgets are seen as negative for two reasons:

• Typically, budgets are designed with the intent of restricting spending rather than allowing spending.
• Typically, sticking to a budget means not having flexibility.

When budgets are viewed as negative, people are less likely to follow them. Budgets should be approached as a positive — a recipe for spending that frees you, not limits you. One way to take that approach is to add in some flexibility.

Flexibility in budget categories

With budget categories, it’s easy to feel locked in. Budgets can cause stress, and stress can physically manifest itself in many harmful ways. Chances are you’re already stressed about money, so allowing yourself to be worried about making your budget could be harmful to your health. Yet, if you’re three weeks into the month and you’ve already spent all the money you have budgeted for that month’s food, having a strict budget can lead to negative feelings about that budget. You may consider this situation your fault, if you didn’t plan the month properly and could have spent less earlier, and guilt is yet another negative feeling related to the budget.

In reality, you’re not going to just stop spending on food if you’ve reached the end of that month’s funds. You’ll either borrow from another category’s spending or, if it’s available, turn to credit to feed your family for that last week or so. Either way, if your budget is strict, you may interpret this as a step backwards, and if it happens often, it could mentally derail your financial progress.

When designing and sticking to a budget, it’s important to keep in mind that it is acceptable to borrow from an unused category to cover unexpected expenses in another, even if it’s a result of poor planning. You can always do better the next time. If you do need to resort to credit, don’t fret; pay off the debt with excess money from next month’s budget. If, however, you start to see a pattern of spending beyond your budget in one category from month to month, it’s time to reevaluate your budget and decide if you need to change your spending, adjust your categories, or earn more income to compensate.

Flexibility in time

Most people budget from one month to the next. Every month, the budget resets and you’re given a clean slate. When you’ve reached the end of the month and haven’t spent your full budget in any particular category, you have a few good options. First of all, this is a great position to be in, because you’ve spent less than you’ve expected, and you’ve survived. You can use this as an opportunity to look at your spending, and if you think this is sustainable, adjust your budget going forward to represent the lower amount of spending.

The options you have for your surplus can go a long way to improving your financial condition. Let’s say, across three categories like food, clothing, and utilities, you spent $100 less than you expected. Most of the time, that $100 would just disappear, remaining in a checking account for another day. Here are a few ways to look at that $100 and turn it into something positive.

• Roll it forward. Apply the $100 to next month’s budget and let it be a cushion for your spending.
• Splurge. While not best for your financial growth, creating rewards for yourself for sticking to your budget is a good way to keep yourself motivated.
• Pay off debt. Adding $100 to your Debt Avalanche can save you money in interest.
• Save it. Use the $100 to add to or start a high yield savings account.

In our interview with J.D. Roth earlier this month, J.D. pointed out that year-based budgeting is more effective than month-based budgeting. I think that month-based budgeting is easier to keep track of, but when you look at your expenses on a month-to-month basis, you miss expenses that come up at certain times during the year. For example, when you design a budget, you’re not necessarily thinking about spending on gifts for your family, but if you create your budget based on what you spend in February, when December comes around you may find that you haven’t planned properly. Basing your budget on the expenses you need to cover across an entire year will help you think about what you might be forgetting on a month-to-month basis.

From there, you could take your annual budget and divide by twelve to determine your monthly spending, and when that happens, flexibility of time is necessary. You could calculate that your gift-giving budget amounts to $80 a month, but when it comes time to spend that money, most of it might be spent towards the end of the year. If you start spending $80 for gits each month because it’s in your budget, you won’t have anything left over when the December holidays come around. So annual budgeting takes a little more discipline to make sure you’re spending at the right time, and it emphasizes the point that what you don’t spend in one month can be added to the next month’s budget.

The more dire the situation is, the less flexibility you may have to work with, but some flexibility and the right approach could make budgeting much more effective. Aim for a positive approach with flexibility to move between categories rather than strictness and an approach based on money scarcity, and your budget will have a better chance of succeeding. With budgeting success, your financial condition will continue to improve, and at some point in the future after long periods of good habits and increased income, a budget will be less necessary for your future overall financial success and independence.

The original version of this article, How to Design and Stick to a Flexible Budget, is copyrighted by Consumerism Commentary.

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When I started my first real budget as an adult, the concept was not difficult. I knew I had to track my spending and keep myself from paying more than necessary for expenses I could control in order to fix my financial situation. To reverse the trend of increasing debt every month, I came up with a simple spending plan that suited my needs.

Although the software I was using to manage my personal finance — at that time, a free version of MoneyDance, though I also experimented with GnuCash — categorized my expenses into at least twenty categories. Like I discussed with J.D. Roth from Get Rich Slowly on this past Sunday’s podcast, complicated budgets don’t work as often as simple plans that break spending down into the most core components.

J.D. is a fan of the Balanced Money Formula of budgeting, which is an overall approach of spending 50% of your after-tax expenses on “needs,” 30% on “wants,” and 20% on “savings.” These ratios serve as a goal that one can strive to reach eventually, much like the ideal weight I’m slowly working towards today. But this is not a full budgeting solution. It lays the groundwork, but you need to examine your spending with a little more detail, possibly asking yourself and answering a few questions.

What constitutes a need or want? Some areas of spending can be reason to be needs when they may actually be wants, and what one person wants may be something another family needs. For an entrepreneur whose business relies on access to the internet, this is a need — and a business expense. Is a cell phone a need or a want? What about a smart phone versus a basic phone? Where does charity fit into the picture?

You will likely find that some expenses are partly needs and partly wants. Food is necessary for survival, but is dining out every week the only option for keeping a family alive?

Even once questions like the above are answered, budgeting hasn’t really started. You cannot effectively budget without tracking your finances and knowing what you are spending — and what you could spend in the ideal “low expense” world — within a variety of real, meaningful categories. If I didn’t create a category for my rent expenses when I budgeted, I may not have worked to reduce that expense at a time I really needed to keep my expenses low. If I didn’t focus specifically on the amount of money I spent on food, I wouldn’t have been able to reduce my spending at restaurants, fast-food and otherwise.

There is an essential list of categories that you need to budget for when you’re looking to reduce your expenses due to an inability to save for the future. The key is finding the balance between a plan simple enough to maintain motivation while detailed enough to have a meaningful effect. Looking at just your wants, needs, and savings is good for tracking your budgeting success, but in practical terms, you’ll need to determine specific categories.

When considering budgeting, I like to refer back to Maslow’s Hierarchy of Needs and my college Introduction to Psychology course. Physiological needs come first, including food, water and shelter (rent or mortgage, for example), and clothing. Sex is also a physiological need, but budgeting money to spend for sex might be beyond the scope of financial needs.

Once physiological needs are covered in the budget, you need to think about safety needs. Health insurance is probably towards the top of this list, despite the fact that most people don’t budget for insurance — they rely on an employer to just deduct an amount from a paycheck. Insurance is an oft-forgotten line item in a budget, perhaps due to the need for simplification or due to a lack of consideration. Also in the safety category, but arguably a physiological need as well, are the utilities that cost money, like providing power to your home. Humans survived for many thousands of years without electricity, though, so I would not rank this as high as shelter and food. Nevertheless, it’s important for living in modern society.

All other categories and the other levels in Maslow’s hierarchy could be considered wants. Education, gift-giving, dining out, and entertainment should be part of your budget. Love and belonging, esteem, and self-actualization are the higher levels in the pyramid-shaped representation of the hierarchy. The expenses below apply to everyone within the household and do not include taxes. Debt repayment, savings, and investing aren’t on this list, though they play important roles in budgeting. They might be suited to be placed under the 20% “savings” banner, while the below categories focus on the “wants” and “needs” of the Balanced Money Formula.

Level 1: Physiological Needs

• Housing: rent or mortgage payments
• Basic sustenance: groceries, cooking and water
• Clothing: non-designer brand essential wear

Level 2: Safety Needs

• Power (electricity, gas)
• Basic telephone service
• Insurance: health, home, and life
• Vehicle or other transportation
• House repairs and maintenance
• Expenses related to operating your business

Level 3: Love and Belonging

• Gift-giving
• Charitable contributions
• Entertainment
• Spending time with friends and family

Level 4: Esteem

• Work-appropriate clothing
• Education and professional development
• Dining out
• Fitness beyond basic health needs

Level 5: Self Actualization

• Hobbies
• Internet, if not needed for generating income
• Television
• Vacations, non-essential travel
• Luxuries

What do you think of the above list? Should anything be added or moved to a different hierarchy level?

The original version of this article, Budget Categories Based on Maslow’s Hierarchy of Needs, is copyrighted by Consumerism Commentary.

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I last evaluated my progress towards my goals at the end of January, so it may be time to have another look. At the beginning of 2011, I set financial and personal goals for the year to keep me focused on improving not only my finances but other aspects of my self.

Goal 1. I will consider the year successful if I increase my income from my projects by $100,000. Status: complete. I’ve already achieved this, comparing the first four months of 2010 with the first four months of 2011. At first glance, it may appear that I was too conservative with this goal, but there is some fickleness in the market that is tough to navigate.

Goal 2. My goal is to increase my net worth by at least $275,000 in 2011. Status: on track to exceed. I’m almost there. My increase so far this year has been $221,000. Again, while it appears my goal was too conservative, it still remains difficult to know what the situation will look like in a few months.

Goal 3. I will invest one tenth of my gross income for retirement. Status: on track. My investments are designed to maximize my Individual 401(k), but I’ll need to look outside the box to continue investing for retirement in the most tax efficient manner. Many readers have commented that I should have considered dedicating a stronger percentage of my income.

Goal 4. Offer a down payment of 30 to 40 percent on a house. Status: stalled. This is a possible goal, but first I need to decide where and when to “settle down.”

Goal 5. Charity. I didn’t set a specific goal for charity, but I have a few organizations I continue to contribute to on a monthly basis, as well as my charitable gift fund. I am already making plans for an even bigger charity challenge for the month of November, so I am counting on readers joining me for a great cause at that time.

Goal 6. I plan to have two photo shoots a month. Status: needs improvement. As we start looking at the more personal goals rather than financial goals, the cracks are apparent. I may have averaged two photos shoots per month since the beginning of the year, but I haven’t put as much time into photography as I would have liked. This is a great hobby, and I want to do more. As is typical, priorities that involve income often require more of my attention. My former photography teacher might call me to help with a session with a famous civil rights activist who lives in the area, but the session might not happen, and even if it does, there’s no guarantee that he’ll call.

Goal 7. By the end of 2011, I want to have lost at least 15 pounds through more exercise and better nutrition. Status: on track. I started the year doing well with exercise, and I’ve lost about 10 pounds so far. My pants no longer fit around the waist, and this is definitely an improvement. Spurred on by some encouraging words, I plan to find and work with a personal trainer to help my achieve this goal and continue to improve my physique.

Are you progressing towards your goals for the year?

The original version of this article, Goal Progress After April 2011, is copyrighted by Consumerism Commentary.

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When one thinks of earthquakes in the United States, California is usually the main target. The San Andreas fault line is well-known for powerful quakes. There are others located within the United States that, although they haven’t caused severe seismic activity in the most recent century or two, could produce earthquakes resulting in severe damage. The New Madrid fault line in the mid-west, a fault line in South Carolina, and possibly most dangerously in terms of population, a fault line in New York City, are at risk for causing damage through earthquakes. The architecture at these locations is not as seismically designed as some architecture in California — where, in turn, the architecture is not as prepared for earthquakes as in Japan.

Damaging earthquakes in these regions of the United States other than along the San Andreas fault line are possible but not likely, so watch out for hype in the news media, an industry that is often quite happy to fan the flames of fear. Regardless of the probability, it might be worthwhile to develop an emergency plan so your finances have a better chance of surviving a disaster.

1. Have a passport. You never know when you’ll need to leave the country. In times of a national emergency, you may be able to leave without documentation, but having a passport will make this process easier at any time. My passport expired a few years ago, and I have the documentation to have a new one created. I’ve procrastinated setting up the appointment to have this process completed, but I don’t plan on waiting much longer. Receiving a passport can be a long process if you’re not interested in paying a fee for expedience.

2. Have a stash of cash at home. When financial advisers, professionals and amateurs, talk about emergency funds, they are usually referring to savings accounts at banks. There may be an emergency circumstance that prevents you from reaching this money in a timely manner. It might be helpful to keep a good amount of cash in your home, in an unlikely location to avoid the possibility of losing it during a robbery. Cash on hand is the first component of a comprehensive emergency fund.

3. Contact and account information for your insurance policies and bank accounts. You’ll want to have this information in a location you can easily grab if you have to run out the door, but not so convenient that it could fall into the wrong hands. Thinking ahead about the type of information you’ll need to have with you to survive a disaster as financially secure as you were before might lead you to the idea that it’s better to consolidate your financial accounts to keep it simple. This is my plan for the next few months. I’ve lost count of all my bank accounts, many of which I open to review for Consumerism Commentary. It’s time to consolidate and simplify.

4. Your wallet with ID and credit cards. You most likely have this already; make sure you grab it as you run out the door.

5. Keep gasoline in your car’s tank. In previous disasters, there have been problems getting gasoline. Gas stations run out, and people fleeing are sometimes forced to abandon their vehicles. Mass transit systems can break during the stress, as well. Having transportation ready to go in case of an emergency will help you get where ever you need to go.

What else do you need to ensure your finances will survive a disaster?

The original version of this article, How to Financially Survive a Disaster, is copyrighted by Consumerism Commentary.

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The year is no longer new and novel. I’ve stopped accidentally writing “2010″ on my checks, though I still double-check the date before sealing envelopes. New Year’s resolutions often don’t last past the first month of the year, so it’s time to see how “average” I am — how much I am like the typical American who doesn’t stick to the lofty goals set at the beginning of the year. For the record, I don’t see dropping goals as a problem, because setting the goals, and thinking about the type of person you want to be or the accomplishments that mean the most to you, is almost as important as reaching those goals. The better those goals are, the longer it will take, too.

As usual and expected, I’ve already had some successes and not-yet-successes in 2011. Here is how I’m doing so far in comparison with my goals for 2011.

My income for the goal is to earn $100,000 more than I earned from just my non-day-job revenue last year. January was a promising month. I don’t know if I’ll be this lucky later in the year, but I’m taking this as a good sign. A quick introspection: if you look at the words I used in the last sentence, I’m attributing January’s success to external, uncontrollable forces like luck. I should continue to see my success as a result of my hard work and focus, and possibly a seasonal trend.

When I set my goals for net worth, I noted that the bottom line will be slightly out of my control due to how much I have invested in an unpredictable stock market. It’s not completely out of my control — I could change my investments or pull my money out at any time. I won’t, though. I accept the short-term volatility in the stock market in return for a chance at excellent performance over time. I’ll publish my net worth report shortly. With the S&P 500 up 1.49% on the year as of writing this article, and with significant income this month and limited major expenses, I expect to see a health increase since December.

With my investments, I receive a score of “didn’t succeed yet.” I should have opened my Individual 401(k) by now, but I haven’t finished with the applications and forms. Thanks to my delay, I missed a better opportunity to buy into the stock market. Now that I’m between 401(k), I’m not gaining the advantage of automatic investments. I resolved to invest 10% of my income to retirement, and I haven’t yet put this in place a system for ensuring I accomplish this.

I set a goal for myself to take a little more time out of my life for photography. Specifically, I directed myself to have at least two photography sessions each month. Some of my plans in January were thwarted by a number of snowstorms, and I preferred not to take my photography equipment out in the bad weather. I managed to fit only one outing in January, taking photographs of a friend’s band performing at a local cafe and bar. I do have my second shoot of the year, a portraiture session with a vocalist, scheduled for this week. Just like a flexible budget, three shoots in February can make up for the one shot in January.

I have good news with my health goal. I resolved to lose fifteen pounds in 2011 through more exercise and better nutrition. I’ve already lost five pounds. I mentioned I’ve been tracking my exercise with an Android application, and it helps me see how, once again, the weather is thwarting me from getting done what I want to get done. I haven’t been running as often as I’d like (three times each week) due to snowstorms. However, this is just an excuse. If I wanted to, I could run in the snow. I could buy a treadmill. I could shovel my way to a local gym. I need to get back on track in February and lose another ten pounds or more.

Although I’m not meeting all of my goals yet, I still believe it’s better to have these goals and continue working towards them rather than what seems to be a new trend: eschewing goals because typical Americans give up within a month. I don’t know any typical Americans. Everyone I know is a unique individual who has their own motivations, desires, and challenges. While it’s likely that, on average, people trend towards “typical,” that’s not how it works when looking at any one individual. It may be popular to forgo setting goals this year, but overall, those who set goals and think about their ideal identity have a much better chance of working towards their ideal than those who give up before they start.

Did you set goals or resolutions this year? How are you keeping up?

Photo: ollesvensson

The original version of this article, 2011 Goals: First Month Status, is copyrighted by Consumerism Commentary.

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Welcome to 2011!

I’ve been reading 2010 recaps from friends and bloggers for the past few weeks and the general consensus is that people are happy to see the year go. With unemployment, health issues, and even death, the new year is being welcomes with open arms. I’m looking for a good year as I’ve outlined in my goals and resolutions, and I’m not alone.

Before I start sharing some of my favorite goals and resolutions I’ve seen around the internet for the coming year, here are some tips for making those New Year’s resolutions stick.

New Year’s resolutions often get a bad rap, simply because most people don’t keep them. Self-reflection and goal-setting, with an eye to thinking about who you’d like to be, is a good exercise for any time of the year, even if you don’t stick to your goals. Ignore the nay-sayers who say it’s a useless exercise. It’s very helpful for identifying what is important to you in your life. Even if you don’t meet all of your goals, you learn more about yourself along the way, and get closer to being who you want to be.

Single Ma’s Goals for 2011. Single Ma from Fabulous Financials is focusing on fitness and fun in addition to money this year, and looks to be a mentor for a younger single mother.

Miranda’s Money Resolutions for 2011. Miranda wants to work less and earn more in 2011 — certainly the American way! She also wants to sleep better this year. Sleeping well pays off for a variety of reasons, and I’ll certain be adjusting my life this year to move from an average of four to five hours of sleep a night to seven to eight.

Amber’s 2011 Goals. Somebody’s getting married this year! I’m looking forward to reading more on Blonde and Balanced about the process and relevant decisions leading up to the big event. Amber will focus this year on putting other people’s needs in front of her own.

Evan’s 2011 Goals and Objectives. Evan from My Journey to Millions is a new father looking to find balance in his life. He’ll focus on losing weight and expanding his blogs and businesses.

Kay Lynn’s 2011 Goals and Plans. The Bucksome Boomer plans to become debt free this year. She also will focus on personal goals such as losing weight and exercising. Kay Lynn plans to increase her income from blogging to an average of $1,000 per month.

Financial Samurai Goals and Resolutions for 2011. Among a list of what seems to be one hundred goals, Sam will be trending towards vegetarianism this year, which is just a fancy way of saying eating less meat.

One more late addition: Investor Junkie’s 2011 Financial Goals. Investor Junkie will be starting a new web-based business idea this year. I’m looking forward to seeing what he has in mind. He also will be taking strides towards a paperless office, reducing bills and junk mail sent to his house.

Happy New Year! May 2011 be the year we all achieve our goals.

Consumerism Commentary participated in a number of carnivals including the Carnival of Personal Finance, Best of Credit Cards and Saving Money Carnival, Carnival of Money Stories, Carnival of Passive Investing, Festival of Stocks, Wealth Builder Carnival, and Stock Carnival Ecstasy.

The original version of this article, Welcoming 2011 With Goals and Resolutions, is copyrighted by Consumerism Commentary.

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Every new year provides an opportunity for self-renewal. The relatively arbitrary custom of recycling the dates on the calendar is like having a second (or a third, or fourth, etc.) chance to change the world. Although its history is a bit murky, the tradition of new years’ resolutions probably stemmed from this feeling. It took me a while to be comfortable with the ideas of making resolutions. I believed for a long time that it was pointless, since people overall tend to fail to keep their resolutions into the new year. Eventually, scientific studies confirmed what I already believed to be true.

Nevertheless, through Consumerism Commentary, I began to create resolutions and goals at the beginning of each year. The financial goals have proved to be easy; at least, I’ve been able to meet almost all of them for the past few years, possibly indicating I’m being too conservative in my planning.

It has been the non-financial resolutions which have been more difficult to stick with, mirroring the experience of most Americans. For example, while I’ve lost some weight in accordance with part of my resolutions for 2010, I don’t consider myself to be in shape. While I resolved to keep my home in presentable condition at any time, I failed in 2010 to make that a reality. That’s the most common failed resolution, and I don’t like being typical.

I don’t want to feel like a statistic in representation of the “average American male,” so my resolution for 2011 is to go beyond what has been comfortable for me. My non-financial goals will be more specific this year, as specific as I have been with my financial goals.

2011 is when everything changes.

I’ll share my financial goals first, followed by the non-financial goals that pertain mainly to my quality of life and self-improvement. These are all short-term goals that are tied into my life-long personal missions.

1. Income

My single income goal for 2011 is to replace the income provided by my former employment and benefits. To make this easy to track, I’ll just use the figure of $100,000, which more or less represents the value of my former salary and benefits.

I will consider the year successful if I increase my income from my projects by $100,000. While I haven’t looked at my finalized 2010 income yet, I expect it will be well into six digits. I evaluate my income on a monthly basis, and if the current trend continues, I should reach this goal easily. I am every concerned with the volatile nature of the income, however, so I stay prepared for the worst-case scenario.

2. Net worth

I didn’t set a net worth goal in 2010 because it’s too difficult to predict. With a significant portion of my net worth invested in the stock market, this is a variable that is more or less out of my control. That’s an arguable point; I could keep my money in less risky investments and better predict my end-of-year balances, but that defeats the purpose of investing in the stock market for the long term.

I could set a net worth goal for my cash holdings, but I can affect that easily by moving cash in and out of investments. This is why I believe income goals are more relevant than net worth goals. However, I’d be comfortable setting a net worth goal in the form of a range, with the realization there are no consequences for not meeting this goal if the “failure” is due to the stock market. My goal is to increase my net worth by at least $275,000 in 2011.

3. Investments

Without an active investment in an employer-sponsored 401(k) plan, I need to change my approach to retirement investing. Thankfully, I shouldn’t have to change it by much. I’ve already researched my retirement investing options while self-employed and when the calendar changes I’ll open up some new accounts. I will invest one tenth of my gross income for retirement.

Why such a low percentage? As I’m now working for myself, I’m starting to reconsider the need to abide by the traditional retirement paradigm. If I’m getting paid for activities that I enjoy, I may not want to pick a specific age and stop. I want to be able to spend the time I want now doing a variety of activities that make my life interesting, so locking all of my money away is not my biggest priority. I consider myself lucky to have some flexibility now, and I do want to take advantage of that flexibility.

My other investing plans depend on my savings need, though if I buy a house (to live in, not as an investment) and therefore release myself from holding as much in savings as I am now, I will have a better idea of what I have available to invest with a time horizon of five to ten years.

4. Savings

People often ask me why I’m still renting an apartment. Even with real estate prices down, friends point out to me that I could have purchased something when I left college more than a decade ago and come out ahead. I then remind them that I had no money when I graduated college and had I purchased a house then, at the time I was working for a non-profit organization earning little money, I would have been in debt over my head for most of the last decade. I will buy a house, though, when I’m ready to settle down somewhere for thirty years and start a family.

When I do, assuming I’d be fully responsible for the finances (which I may not be), I want to have a sizable down payment ready to go. I’m not sure paying for a house fully in cash is the best financial move from a leverage standpoint, though it would be great not to have any debt obligations. I may compromise by offering a down payment of 30 to 40 percent. There are many variables at play in this decision beyond the finances, so I must take care of those first before considering buying a house. I will be forever slow to move on the “important” decisions.

5. Charity

I’ve been taking a multi-pronged approach to charity. First, I have a donor-advised charitable fund housed at Fidelity. I now contribute automatically to this account on a monthly basis. With the account, I can recommend grants to charities and non-profit organizations that match my interests. For example, I’ve given to specific programs offered by my undergraduate university as well as to the non-profit organization where I worked after college. For the past couple of years, I’ve offered to match readers’ charitable contribution with my own to a different organization each year. In 2011, I’ll continue the Thanksgiving charity challenge and grant an additional $1,000 through the donor-advised fund to another organization.

6. Photography

Over the past few years, I’ve grown more interested in photography. Now that I’m not spending eight or more hours a day wasting my time in a cubicle, I have more flexibility to explore this and my other interests. I still plan to spend the bulk of my reclaimed time working on Consumerism Commentary and other related projects, I will set aside some time to practice photography as well. I plan to have two photo shoots a month. This could include walking around the local university town for some street or architecture photography, hiking with my camera equipment for some nature shots, or a portrait session.

I’d like to book three or four paying photography sessions in 2011, as well. I don’t plan on advertising my photography services as a business and expect to book these through friends. I don’t yet have a portfolio to share, but perhaps by the end of the year I will be ready for that step. It’s more important for me to learn more about the art and craft of photography first through practice as well as at least one additional class.

7. Personal health

In the past I’ve made vague statements about my desire to improve my health and get in shape. I’m serious about improving my physical appearance, and I am going to make that happen this year. While I’ve already changed some of my dietary habits and have managed to lose some weight, I haven’t achieved a point of physical activity that satisfies me. My plan for this year is to develop a system of rewards that is tied to my physical activity.

By the end of January, I’d like to be in the habit of getting 30 minutes of strenuous physical activity (running, doing push-ups, riding a bicycle, etc.) three days a week, rewarding myself for each successful day. By the end of the next month, I’d like the number of days per week to be extended to five. By the end of 2011, I want to have lost at least 15 pounds through more exercise and better nutrition. Now that I’m making my own schedule, I can set aside time during the day for exercise. With my freedom this year, I can make this happen.

Having seven different goals seems like it could be too much for one person. I don’t believe that I’m biting off more than I can chew. For the most part, since I’ve become somewhat disciplined (but not cheap) with money management, just taking care of my income should be enough for the other financial goals to fall into place. My struggle has been only with the non-financial goals, and I do believe that I have the capacity to focus on and reach these targets if I stay disciplined with them and dedicate myself to them, similar to the way I dedicated myself to getting myself out of a financial mess almost ten years ago.

The original version of this article, Goals and Resolutions for 2011, is copyrighted by Consumerism Commentary.

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There isn’t a lot of time left in 2010. As I get older, time seems to move faster. Perhaps now that I am not spending eight or more hours dedicated to a day job, I will be able to slow down the passage of time. With more time, 2011 may be better for me in terms of meeting the goals and targets I set for myself. I only have a few weeks left to meet my 2010 goals.

Rather than wait to see what I might be able to cram in during the last week of the year, I’ve decided to evaluate my progress as of today.

Income

At the beginning of 2010, I wasn’t convinced that my income from outside my day job would pick up. I have put in a lot of work, and some faith in some partners to help in the areas I didn’t have time for, and it has paid off. The goal I set called for maintaining a six-figure income outside my day job. Even without the relatively new development of having left the corporation where I’ve worked for the past nine years, I was able to build income well into six figures.

Investing

In terms of investing for the future, I’ve put a lot of money away. I was scheduled to maximize my 401(k) contribution this year, but leaving the job early meant I fell slightly short. I’ve made up for that by investing in my 2009 IRAs. In the past few months I’ve begun investing in my 2010 SEP IRA as well.

Net worth

I haven’t set a net worth goal since the beginning of 2008. The confidence I had at that time was shattered by the end of the year thanks mostly to the stock market and the economy. I didn’t meet my net worth goal in 2008, and I didn’t set one for 2009 or 2010. I ended 2008 with about $180,000 in net worth as I currently measure it. On December 31, 2009, my net worth was around $300,000, and I’ll be ending this year around $525,000. With or without predefined goals, my net worth growth has been successful this year.

I’ll write more about my income and expenses when I wrap up the year with my final net worth report of 2010.

Other goals

Beyond finances, I set a few additional goals for the year. I wanted to get in shape this year. I didn’t establish any new healthy habits this year, but I did eat healthier in general. In the past few months, I’ve greatly decreased my intake of red meat, and I’ve managed to lose some weight. Earlier in the year, I was on the team that won a six-week health challenge at work through eating healthier and changing some habits. I didn’t, however, exercise much more than I had been the past few years. With more flexibility moving forward, that will change.

The most important goal I set was to spend time on the activities that I enjoy. Through leaving my day job, I can focus on the work I do enjoy, such as writing articles and managing this website. I spent more time with photography in 2010, taking more classes and having the opportunity to practice the craft.

Overall, this has been a successful year. Even if I didn’t make every goal I set for myself, I was able to build strongly on everything that is important to me. In a few days I’ll start thinking about my goals for 2011.

Did you meet your goals this year?

The original version of this article, Evaluating My Progress Against 2010 Goals, is copyrighted by Consumerism Commentary.

If you enjoyed this article, follow @flexo on Twitter and visit Facebook for more updates.

I was talking to a friend and former co-worker the other day about a recent major acquisition in the finance industry. One large company in this industry had financial trouble of its own in the last few years, received an infusion of capital to keep it afloat for a while, and began selling off its divisions. Another financial company purchased one of these divisions for what seemed like a deeply discounted price.

My friend believed the acquiring company overpaid because an investment of a certain amount of money should reflect a certain amount of expected annual revenue, and according to his calculations, the division could not be earning the revenue that would make the purchasing price a good move. This friend is just an observer and may not be aware of certain insider details, but he was analyzing the potential return on investment (ROI) for the acquiring company, or at least repeating what other analysts had been saying publicly.

Any financial decision deserves an analysis of ROI. For example, if you are shopping for a rental property, you can compare purchasing options by calculating your expected rate of return. For each property, your down payment and other initial expenses total your investment, and your expected net income after operating expenses, mortgage payments, and taxes is your total profit. Divide the profit by your investment for your rate of return on each property, and look for the best investment.

This is a personal finance blog, so there is a tendency to look at life through the eyes of someone obsessed with personal finance. It’s easy to forget that profit is not the motive for everything we do in our lives. A popular argument is to look at the tuition and other expenses you pay for a college education as an investment with an expected financial return.

It’s easy to use the ROI model and come to the conclusion that many private four-year bachelor’s degree programs are not worth the “investment” when considering your salary growth when compared to state programs. ROI is also used when people determine that a college education is worthwhile if it sets you apart from others in your field; an investment banker with a four-year degree will earn more after spending $100,000 on their education than a musician who paid the same amount to attend the same school.

If return on investment were the only consideration, everyone would go to the least expensive college to earn a degree in the most lucrative field. The country would be filled with engineers and investment bankers, After a while, however, the laws of supply and demand would spring into action, and more competition among graduates would drive down the “market price” for these professions. Regardless of what the prevailing top-earning profession of the day is, everyone who had the mental capacity to do so would chase that job and do so from the least expensive school.

The choice of a starting path for your life through a career should not be based on ROI. It is beneficial to be aware of what your finances might look like, and most people would want to make sure they can afford at least the necessities, but there is more than just the hard numbers to consider. Your true return on investment goes beyond the income you’ll earn.

Here are a few things to include when considering you’re complete return on investment. These are all things that are hard to quantify.

• Your human capital. As I mentioned recently, education is one way to boost your human capital. Robert Pagliarini, author of The Other 8 Hours, also explored human capital in this recent podcast.
• Your experiences. In general, the value of experiences increases over time while the value of things you acquire — and money, thanks to inflation — decreases over time. The value of experiences is perception, but it matters.
• Your mental exercise. I spent my time with some of the most intelligent and talented people while in college, both students and professors. The people I met while pursuing my studies opened doors to meet more amazing individuals — people who are the best in the world at what they do.

While this article is focused somewhat on education, you can look beyond a pure financial ROI for any decision you make. If you are considering a vacation to South America, you do not worry about whether you will recoup your costs.

If you plan on buying a camera, you may plan to earn money from photography, so perhaps your financial return is a consideration. Professional photographers may make purchasing decisions based on whether a new piece of equipment will help them earn more money, but amateurs are looking for the experience and mental exercise portions of the total return on investment.

People who have worked hard to learn about personal finance and investing often try hard to look at everything through a financial lens to the detriment of their ability to see the bigger picture. Financial considerations should definitely be part of any decision involving money, but you must not limit yourself to the numbers.

Photo: cogdogblog, Zoe_Q

The original version of this article, Broaden the Concept of Return on Investment (ROI), is copyrighted by Consumerism Commentary.

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This article is presented by Kelly Whalen, Consumerism Commentary staff writer.

It’s the time of year when everyone is talking about their New Year’s resolutions or goals for the year. Tops on the majority of Americans’ New Year’s resolutions for 2010 are losing weight, quitting smoking, and saving more money.

While losing weight and quitting smoking seem to have nothing to do with personal finance in reality they have a lot in common with the goal to save more money, as well as effecting your bottom line.

By using these personal finance principles you can achieve almost any goal this year.

Automate it. One of the simplest and most effective methods of saving more money is to automate your savings. By automatically withdrawing money you don’t have to think about shifting money around.

How can you apply this to your New Year’s resolution? Take some time to plan now so you don’t have to think about it later. If your goal is to get up and exercise every morning before work, you could lay out your clothes so in the morning everything is ready to go.

Budget. If you don’t know where your money is going it may be hard to come up with the extra cash you need to start saving. You take the time to analyze your budget so you know where you wouldn’t ming cutting back versus what’s important to you.

How can you apply this to your New Year’s resolution? Whether your goal is to cook 365 days out the year, or getting fit you need to come up with a plan for implementation. Planning out the optimal time for you to work out is keeps you accountable.

Dream up a reward. Saving is something we know we should do, but not something that’s fun to do. Coming up with a reward is a fantastic way to motivate yourself, and anyone else in your family.

How can you apply this to your New Year’s resolution? Whether your reward is a pair of designer jeans after you’ve lost that last 5 lbs. or a vacation paid in cash once your debt is paid in full, you can motivate yourself by placing a photo of your reward in your wallet or on the wall, or by using your goal as a password.

Stick with it. When you are budgeting or saving money you will make mistakes, and at times it will seem easier to just stop budgeting and worrying about their saving money. Stick with it then and the payoff will be huge.

How can you apply this to your New Year’s Resolutions? Eating a donut doesn’t mean the diet is over, just like sneaking one last cigarette doesn’t mean you should go back to a pack a day. You will mess up, it’s in our nature to make mistakes. Just remember to pick yourself up and try again.

What are your New Year’s resolutions or goals? Flexo listed his goals for 2010 here. My goals are listed on my own site. Whatever your goals are, I hope you have a happy 2010!

The original version of this article, How To Stick With Your 2010 Resolutions, is copyrighted by Consumerism Commentary.

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My one goal from the beginning of 2009 was to do at least one creative thing a week. When I thought of it, it seemed pretty ambitious, then I started writing twice a week for this site, and it was automatically taken care of, so any other creative thing I did was just metaphorical gravy. I think I’ll need to bump up that ambition for the next year if I’m going to end up being really proud of the things I create.

I learned some things about myself this past year. Specifically:

• I’m not terrible at improv theater, even improv comedy, which has had always terrified me
• I know I’ve always liked performing, but I think I might have that character trait most celebrities have – the one where they don’t feel properly human unless they’re entertaining someone. As far as I know, there’s no cure for this, and I might as well embrace it
• It’s totally okay for my wife and I to have separate personal projects
• I will never get rid of this awful credit card debt while I keep buying things to entertain myself
• The only likely way for me to erase said debt in the next year is to get a second job

Taken all together, the only conclusion I can come to is that in the year MMX, I’ll need to work aggressively to start some kind of entertainment career to combine with my regular day job. Maybe that means voice-over work, maybe it means my own Web series, maybe it means stand-up comedy, I don’t yet know.

If my research into some of my favorite entertainers is accurate, they make do by having multiple sources of income. For instance, not just from selling books of fake text messages to/from the president, but also from doing creativity workshops with corporations. That’s the other big thing I learned this year: you can have different products for different audiences. Seems so obvious now.

So, new goal: publish at least one entertaining thing a week. For my purposes, “publish” means do something where the public can see it.

Next week I’m going to perform in an open mic comedy night. The weekend after that, some friends and I are recreating 15 seconds’ worth of one scene for Star Wars Uncut. Naturally, I’m not getting paid for either of these. But the immediate goal is just to get it out there, build up a portfolio, and show what I can do.

Publishing something every week seems pretty terrifying at the moment, but then again, so did my first few improv classes. Besides, now that we’re living without regular TV service, there do seem to be quite a few more hours available in the week. Might as well fill them with the things that make me feel properly human.

The original version of this article, Smithee’s Goals for 2010, is copyrighted by Consumerism Commentary.

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Although I’ve been tracking my finances publicly on Consumerism Commentary since 2003, this is only the fourth year I’ve outlined specific financial goals for the new year. The next year is a bit of a mystery for me. I feel like some changes are necessary, particularly in my day job. Although I have some big plans for the work I do outside my job, I have to consider the possibility that these plans simply won’t work out. I’ve been hedging my bets for a while, but I’m not sure that I can continue putting as much as I want into my projects, working 9 to 5 in a corporation, and maintaining my health and sanity.

So it will be interesting to see where I am able to go this year.

While I try to determine my immediate life plans, the least I could do is set some financial targets.

Income

While my “Other Earned Income” increased from 2008 to 2009, there was a trend throughout the year of less of that income being generated through advertising. That is both good and bad; while it means I’ve diversified my income somewhat, advertising is generally the main source. It is possible that advertising has had a slow year in general, and will pick up with the economy, but I’m not counting on it.

My goal for 2010 is to maintain a a six-figure income outside of my day job. I think I will need to keep conservative expectations this year. This will be difficult enough considering the trend of declining income in the second half of 2009.

Investing

I’ve been considering increasing my non-retirement investing, currently $1,000 per month in the Vanguard Total Stock Market Index. I am not sure the numbers make sense, though. The stock market has spiked up recently and I prefer to increase investing following declines. I will continue investing in my retirement accounts but I’m going to consider ceasing my automated monthly non-retirement investment in VTSMX.

The limit for investing in a 401(k) in 2010 will be $16,500, reflecting no change from the 2009 maximum. I’ll continue investing a percentage of my income for retirement that would hit that mark after 52 weeks. I will also fund my 2008 IRAs this year.

If you’re considering investing, ShareBuilder is offering 10 free automatic investment trade credits if you start an investment plan in January. Normally, these automatic purchases of stocks through ShareBuilder cost $4 each, so you could save up to $40 on transaction fees. Keep in mind it will still cost $9.95 to sell your investment.

Non-financial resolutions

The most popular New Year’s resolution, even more popular than to get out of debt, is to lose weight. I have no choice but to be like everyone else; my primary non-financial resolution is to get in shape this year. I am not significantly overweight, but I need to increase my level of activity and eat healthier.

I don’t consider myself to be very organized, and living by myself, I have a tendency to let entropy take hold. I will resolve to keep my apartment in such a condition that I could quickly prepare for visitors rather than needing a weekend to make my living quarters presentable.

And finally, I plan to continue doing things that I enjoy and that enrich my life. One of my favorite hobbies right now is photography. I signed up for a second photography class starting in January, but unfortunately the course might be canceled due to low enrollment. I’ll keep finding interesting things to work the creative side of my brain — in addition to writing.

What are your goals and resolutions for 2010?

The original version of this article, Flexo’s Goals and Resolutions for 2010, is copyrighted by Consumerism Commentary.

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At the beginning of the year, I set a few financial goals and resolutions representing what I would like to accomplish by the end of 2009. Like last year, my progress is mixed. I’ll get to that in a moment.

I’m not a big fan of the concept of financial goal setting. Goals or targets evoke the image of an endpoint, the touchdown. If you keep running through the end zone, you will hit a wall. The financial goals I set and share each year are markers or milestones. The collection of money, even a certain amount of money like one million dollars, is not a goal. The goal is the kind of person you want to be and how you use the money you accumulate.

Nevertheless, setting time-based financial targets is helpful to measure progress against expectations, even when some variables are beyond control. Here is how I did in 2009.

Goals for 2009

Income: My goal for “Other Earned Income” in 2009 is $108,000, or an average $9,000 per month. My stretch goal is to surpass this year’s success with $132,000.

Result: success. Other Earned Income is basically any income I receive other than the salary from my day job. Surprisingly, I surpassed my stretch goal. However, the year ended weaker than it started. Just maintaining my income throughout the year required more diversity in income sources and much more work than I expected.

Investing: Contribute the full $16,500 to my 401(k). Contribute the maximum to a Roth IRA if possible; if not, contribute to a Traditional IRA and convert the account to a Roth IRA in 2010. Contribute the maximum to an SEP IRA. Invest $250 per month into an account to help pay for future children’s education.

Result: mostly a success so far. I did contribute the maximum to my 401(k) this year, a feat I would not have been able to accomplish (without a major lifestyle change) if I were working with my day job salary alone. I did contribute the maximum to my 2008 Roth IRA and SEP IRA earlier this year, and I plan to do the same before my 2009 taxes are due in April.

Now that my business has been reclassified, I may have more flexibility in how I determine how much I can contribute to the SEP IRA, so I won’t be able to determine the amounts until I work with my accountant.

In addition to retirement investing, I invested $1,000 in the total stock market index fund at Vanguard in a regular non-retirement account at the beginning of each month since May.

I did not, however, set aside $250 each month for my future children’s education. I am still undecided about how — and whether — to tackle this before having children.

Saving: After I pay my taxes, I’d like to take half of whatever I have left and earmark that amount for a down payment on a house.

Result: qualified success. The amount I have in savings accounts, including business accounts, has increased this year from $80,000 to $120,000. I consider that a success. I haven’t specifically earmarked half of that for a house. My “House Fund” at ING Direct holds about $14,000 while I’ve allowed my business savings account to accumulate.

One of the reasons I haven’t invested most of this is because, as I’ve been saying for a few years, I want to have the funds available for when I decide to purchase a house and need a down payment. I’m still not keen on the idea of settling down.

Overall result: mild success. I don’t set net worth targets any more due to the volatility of the stock market. I should end the year with a modified net worth of around $300,000. I have to extend great thanks to the stock market for recovering this year from lows at the end of 2008.

Although I earned more money this year than I earned in 2008, I also spent more money. Overall, my “savings,” what I have left of my income after expenses, decreased by about $20,000. If we take taxes out of the picture, the situation changes. I paid close to $50,000 in taxes this year, including a significant 2008 tax bill, compared to $20,000 in 2008.

Thankfully, I’m working with an accountant now who has already saved me $15,000 between 2007 and 2008.

Tomorrow, I will use some of these results to determine my financial targets for 2010. Did you meet your goals this year?

The original version of this article, Evaluating My Progress Against My 2009 Goals, is copyrighted by Consumerism Commentary.

If you enjoyed this article, follow @flexo on Twitter and visit Facebook for more updates.

While a budget in one form or another is a must-have financial tool, it’d quickly become big and ugly if you tried to anticipate and include every expense you might run in to. You’d quickly lose interest and wouldn’t stick with your budget, right?

A budget is a basic recorder of recurring expenses, and trying to cover a purchase you didn’t foresee is like fit a round peg into a square hole. Unplanned expenses happen to everyone though, so what we can do about them?

Anticipate the expense

This sounds counter-intuitive to the rest of this post, but you don’t need a magic 8-ball to do it. If you’re aware of the next time your car is going to need an oil change, you can set aside that money in your budget to cover it. That way you don’t step up to the counter to pay for it while wondering where that money is going to come from.

Setting aside $30 or $50 each month for unplanned expenses will help you cover those little repairs or fees you might run into. and you’ll have even more on hand if you don’t use it during the month.

Lock down your emergency fund

This is extremely important. You are the only person who can determine what you consider an emergency, but don’t run for cover the first time you run into a problem. Your emergency fund shouldn’t be the first place you go when you find yourself short a couple of bucks, it should be the last.

Cut back In other areas of your budget

Did you plan for three tanks of gas this month but ended up using only two? Don’t spend that money on just anything, move it over to cover an unexpected expense. If you’re living within your budget, you’ll probably find that you’ll be able to do this quite often. When you have months where everything runs smoothly, you’ll be able to save that cash!

Make extra money

If you’ve got the time and the desire you could earn a couple extra bucks to meet your needs for that month. Are you going to babysit for your neighbor, or have a garage sale? That extra income can help you when you don’t have another way to pay for something.

Find another way

Can you borrow the item you need? If you can get someone to loan you the item you’re considering purchasing, you can keep from incurring another expense. Taking a bit of time to consider your options and see if there’s another way to solve your problem may help you save money.

Unexpected expenses are a major factor of what I call “the month-to-month monster,” living paycheck to paycheck. If you can work to reduce the impact of these purchases on your budget, you’ll be able to strengthen your financial foundation and get to the point where you can begin to establish real wealth.

The original version of this article, Unplanned Expenses and Your Budget, is copyrighted by Consumerism Commentary.

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Now that the halfway mark of 2009 has passed by, it wouldn’t hurt to review the financial mini-goals I set for myself at the beginning of the year and determine how far I have strayed from my path. For me, these goals are only milestones. They help my gauge my progress but numbers in my bank account have little correlation to my quality of life and do not have much bearing on my non-monetary, real goals.

Last year, my success at reaching arbitrary financial milestones was hindered by the stock market, so when I set my goals for 2009, I focused on metrics that are not affected by short-term investment performance.

Income

My goal for “Other Earned Income” in 2009 is $108,000, or an average $9,000 per month. My stretch goal is to surpass this year’s success with $132,000.

“Other Earned Income” refers to the gross revenue (before subtracting expenses) derived from running a number of websites, most notably Consumerism Commentary. I don’t write much about how I earn money through these websites because I feel it is too introspective to publish. It would be like writing a book about writing that book or singing a song about singing that song. There is a market for self-referential writing, but I’m not particularly interested in writing about the minutiae of blogging. Consumerism Commentary is a blog about money, not a blog about blogging.

Anyway, according to my June financial reports, I am on target to meet my target as long as I maintain about $4,000 Other Earned Income per month for the rest of the year. Barring any unforeseen problems, this is achievable, but mostly due to significant income earned earlier this year. To meet my stretch goal, I would have to earn an average of more than $8,000 each month for the rest of the year. That is less likely as I expect the remainder of the year will look more like May than March.

Grade: B.

Investing

• Contribute the full $16,500 to my 401(k).
• Contribute the maximum to a Roth IRA if possible; if not, contribute to a Traditional IRA and convert the account to a Roth IRA in 2010.
• Contribute the maximum to an SEP IRA.
• Invest $250 per month into an account to help pay for future children’s education.

According to my most recent pay stub, I have transferred $8,836 to my 401(k), split evenly between “Before-tax” and “Roth” contributions. It seems I may overshoot my goal, so I will make sure to adjust my contributions to prevent my 401(k) from hitting the maximum early, reducing the amount of employer match I receive.

I have not yet contributed to my 2009 IRAs yet, although this might be a good time to do so. Usually I want until the tax deadline, but with the stock market hitting lows again, I should consider starting my IRAs now.

Although I set a goal to invest $250 per month for the education expenses for a theoretical future child or children, I have not done this. My internal debate is whether to start the fund now and get a head start or to wait until I plan on having children, reducing the risk of being penalized for withdrawing the funds at some future date without education expenses to cover.

Grade: C.

Saving

I’m working on finding a tax accountant to ensure that my tax bill isn’t any higher than it is supposed to be. After I pay my taxes, I’d like to take half of whatever I have left and earmark that amount for a down payment on a house.

Through 2009 so far, my savings progress has been strong. I do not think I specifically earmarked half of my remaining savings on April 15 for a future home purchase, but I have been paying attention to my “Orange House Fund.” No, I do not particularly plan on purchasing a house colored orange; “orange” refers to the fact that this bank account is housed at ING Direct, a bank that has claimed orange as its color. The fund currently sits at about $13,000, and I add money occasionally.

If I need to buy a house in a hurry, I could draw from a number of other accounts to come up with 20 percent of a reasonably priced house in this area. I tend to distribute leftover income to a variety of goal-based savings accounts, and a house is only one of these.

Grade: B.

I did not set a net worth target for 2009 as this number is pulled in different directions by the stock market, something over which I have very little (that is, zero) effect. My investing strategy is to stay invested in the stock market for all assets other than cash I might need in a few years, so as time goes by, my net worth is driven increasingly by the performance of stocks.

How are you progressing against your goals?

The original version of this article, Evaluating My Progress Towards 2009 Goals, is copyrighted by Consumerism Commentary.

If you enjoyed this article, follow @flexo on Twitter and visit Facebook for more updates.

Do you have a 5-year financial plan? What about just a general idea? Do you know where you want to be financially in 25 years? Have you ever set a financial goal? If you decided you wanted to save $5,000 this year, could you do it? Far too often we get into situations where we let money control us, instead of being in control of our money. Learning to set and achieve goals is one of the simplest ways to achieve the financial freedom you’re seeking, but it might be one of the hardest as well.

A goal, a purpose, and a plan

A 5 year financial plan can sound like a daunting challenge. Most of us have trouble staying within our monthly budget (it’s those darn Jelly-Bellys), and trying to find the time and and energy to draw up a plan can be difficult. The good thing is, your financial plan or goals can be as complex or as simple as you’d like. You can simply decide that you’re going to save 10% of every paycheck, or that you’ll take your lunch to work three days a week.

Don’t cut back just for the sake of cutting back, though – have a purpose. If you cancel your cable to save money, save that money! If that $90 just cycles back into your monthly budget you’re reducing your expenses for nothing. You can use that extra money to pay off debt, or to save up for a new purchase. You could pay off your car, or buy the latest season of 24. See how easily a purpose can become a goal?

Motivation

A purpose and a goal provide an important factor that comes into play when you’re making a change in your life – motivation. If you don’t want to do something, it’s harder to do it. Spending is a habit for some people. It’s difficult to break habits. But now you have a carrot on a stick – your goal. You can weigh everything you want to do with your money with what you really want. If you’re not sure if you want something, compare it with how much you want your goal. Which one do you want more?

Put a visual reminder of your goal somewhere where you can see it every day. If you want a new dress, print out a picture and tape it on your fridge. My wife and I have our savings goals charted on a piece of paper on our bedroom wall. Every time I want something I head over to that chart and see how much closer we’d be to our goals if I would save that money instead of spending it.

Your Goals Become Your Guides

Now that you have a goal, and you’re weighing different ways to achieve it, you’re formulating a plan. That didn’t take very long, did it? In its simplest form, a plan is really just a collection of goals, and how you’ll achieve them. Short-term goals have smaller plans, and long-term goals can have elaborate plans. You can control a plan by limiting it to what you need to succeed.

If you’re trying to save up for a down payment on a house, your plan should include what you’ll do to get to that point. Not eating out once a week so you have money to save up for a TV is good, but it’s not a part of that plan. Your mini-plans and big plans (your goals) can help you determine what in your budget is a need, and what is a want. It can help you learn to moderate your spending and to make better financial decisions. If you want to retire in 10 years, you’ll think twice about buying a $100,000 boat if you don’t have the money for it.

Don’t Give Up

Now, a word on goals. If you set a goal and don’t reach it when you want to, or struggle and want to give up, don’t. You can always achieve your goals, you just need to re-think them and re-commit yourself to achieving that goal again. Just because you splurged and spent more than your budget or had some unexpected problem that threw you way off doesn’t mean you can’t try again.

Our financial strategy is goal-driven, and it’s brought success, happiness and peace of mind. We still have rough spots, but we’re more equipped to deal with them and can minimize the damage. Learning to let your purposes become goals and plans will help you on the road to financial independence.

The original version of this article, Goals Bring About Real Results, is copyrighted by Consumerism Commentary.

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I offered to write articles for Quicken occasionally, and the first of these articles was published yesterday. It focuses on trimming budgets and expenditures.

President Obama has proposed cutting the federal budget by $17 billion. That’s a large amount of money, but it’s a tiny slice, 0.5%, of the total federal budget.

Here is an excerpt:

I would love to cut back my expenses like POTUS, so here is what a 0.5% reduction would do for me: $20. That’s one dinner out over the course of a month or perhaps a movie date for two, not including refreshments. If your budget is closer to average, your 0.5% may be lucky if it approaches $5… I think you — and I — can do twenty times better. Cutting 10% from the federal budget would be a tall order, bound to infuriate interest groups and pundits… But cutting 10% from your budget won’t anger anyone…

Read the full article at the Quicken blog.

The original version of this article, How To Be Twenty Times Better Than Barack Obama, is copyrighted by Consumerism Commentary.

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April is National Financial Literacy Month in the United States. In most cases, schools do not extensively teach financial skills. Teenagers, highly susceptible to messages from the media, often do not have guidance from teachers, who are not trained to teach financial skills, or from parents, many of whom do not model healthy financial behavior. This series of articles at Consumerism Commentary serves to help inspire discussion about basic financial concepts. Please feel free to forward this article to someone who might benefit from a basic financial overview.

Forming a budget is a key to taking control of your finances, and they are best begun when you are young. This is the fourth article in the Money Basics series; so far this series has covered checking accounts, savings accounts, and interest.

I will be the first to admit that I don’t like budgets. My personal approach is to review and adjust my spending rather than create spending limits in advance. However, there was a time in my life that budgeting was necessary, and there was a time that I should have focused on a budget but didn’t.

When I was a teenager, I spent some time visiting one of my friends. He had material desires, like many teenagers, but relied on his parents. Often, his requests were met with a common parental response: “I’d love to help you, but it’s not in our budget.” My impression was not that his parents actually kept a formal budget; this response was just an excuse to curtail the collection of useless things. Regardless of the truth behind the words, a budget came to mean a restriction or limitation designed to eliminate fun and the things we want.

It’s true that budgeting, assigning categories to your expenses and deciding how to focus your spending, is not a fun exercise. And I think those who try to make it artificially fun are missing the point. Like bathing and cleaning your house, it’s just something that needs to be done — at least, at first.

Whether your income is from an allowance, a part-time job, or a full-time job, it’s smart to create your own budget. The point of the budget isn’t to curtail fun, it’s to ensure you have the money for fun when you want it. If chores entitle you to $75 a month, you have $75 to split into categories of spending and savings. If you have no required expenses like car insurance or gasoline, you may decide that $40 could be directed towards savings (a good idea) while the remaining $35 can be used for movies, concerts, or anything else you may enjoy. Savings should be the first part of your budget, and with no expenses you could put at least half your income into savings with the rest available for fun.

Budgeting gets more complicated when you have more responsibilities and therefore more expenses. For example, if you own a car you will need to factor in car insurance, gasoline, maintenance and repairs. Suddenly you are not having fun with the money you earn, or at least, not as much of the money you earn. Unfortunately that’s the stigma of budgeting.

Visualize your budgeting

In today’s world of electronic transactions, debit cards, and online access you your bank, it’s quaint to think about placing cash in envelopes with labels. This is a great way to visualize your budget, however. Start with a set of envelopes labeled “savings,” “car” (or “transportation”), “food,” “rent,” “utilities,” “charity” and “fun.” In each of these envelopes, you will place a portion of the income you receive. If you imagine you receive your income in cash at the beginning of each month, this envelope system makes sense. Start by putting 10% of your income directly in your savings envelope. This is a good habit to fall into early.

Rent and utilities are generally predictable expenses that are roughly the same very month. On day one, when you receive your income, place the exact amount of cash you know you will owe for rent and utilities into the appropriate envelopes. After these set expenses, you can decide how to divvy up your cash.

You know you will need to eat throughout the month, so that might be your next focus. It may be harder to imagine how much money you will need for food without tracking your spending for a time, but make a guess for now. Do the same for your transportation envelope. The remainder can be split between charity and fun, but consider beefing up your savings envelope, too.

Don’t seal the envelopes. You will need to remove the money once your expenses are due, but you are also allowed to transfer money from one envelope to another. Going on a road trip? Transfer some money this month from your savings envelope to the transportation envelope. (If you don’t have enough in the savings envelope, it may be a sign that you’re not ready to go on the road trip.) If you eat less this month, you can transfer some cash from the food envelope to another, such as savings or fun.

For your first budget, use a pencil and paper, even if you don’t use actual cash and envelopes. Look at the numbers and get used to working with them, doing simple calculations to make sure you’re spending less than you’re earning and saving at least 10% of your income. A pencil and paper system is great because it’s practically free and completely customizable. There are free online tools that help you budget, like Quicken Online and Mint, but their features can be overwhelming if all you want to do is set up initial flexible guidelines for your spending. Software designed specifically for budgeting, like Mvelopes, You Need a Budget, and PearBudget have thorough features, but you must buy the software or pay a monthly fee for its use. And unless you have room for a budget category called “software,” you may want to skip this in favor of the simpler but just as effective pencil and paper.

Suggestions for advanced budgeting

Here are a few tips I shared when I wrote about taking control of your finances.

Consider the 60% rule. I’m not a fan of rules, but sometimes a guideline can help get you started on the right path. As an individual, you can decide what’s right for you, but sometimes an example helps. The 60% rule suggests that the first 60% of your gross income (before income taxes are taken out) should be designated for your non-discretionary, essential expenses, like housing, food, clothing, and taxes. The rest of the income should be split with 10% going towards savings, 10% towards retirement, and the rest for “fun,” or your discretionary expenses.

Reward yourself for staying under budget. If your budget is realistic — not too difficult nor too easy to achieve — then you should reward yourself when you spend less than you plan. With your “fun” expenses, your spending may be variable month to month and difficult to predict. If you make a conscientious effort to spend less than you expected, perhaps by seeing fewer movies in the theater or cutting back on vacation plans, you have extra money left in your envelope (virtual or otherwise). First, move that excess money to savings. If you don’t perceive savings to be an intrinsic reward, treat yourself to something you’d like.

Use ING Direct’s subaccount feature. Since you can split money in ING Direct’s high-yield savings account into separate buckets, you can label these subaccounts to match your budgeting categories. this lets you earn a decent interest rate while keeping your money organized.

Pay yourself first. No matter what, make sure some of your excess income is diverted to your savings. If you set up direct deposit into your checking or savings account, this will require less work. Your savings envelope contains 100% of your income (minus income taxes) after you are paid, and from there you can distribute funds to your remaining envelopes.

(The following tip is new.)

Budgets are not set in stone. Once you have the process down to a science, don’t be afraid to loosen your grip and introduce flexibility. You can borrow from one category to pay for larger expenses in another, and you can borrow from one month to pay for the next. Just don’t get caught into the trap of borrowing from your future.

The original version of this article, Money Basics: Budgets, is copyrighted by Consumerism Commentary.

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One lesson I learned this past year, after setting financial goals for 2008 and evaluating my progress as of last week, is that I shouldn’t set goals that are heavily dependent upon forces beyond my control, such as the stock market at large. My main target of a $210,000 “modified net worth” assumed the stock market would not perform so poorly. There’s that idiom about assumptions.

I’ll take a slightly different approach with my financial targets for 2009.

Financial goals for 2009

Income

Last year, I looked past my day job salary towards the income from my side jobs, including Consumerism Commentary. My target for 2009 was to earn $100,000 from a variety of sources outside of my primary job. I succeeded, with an official tally of $121,000. I’d like to see this year-over-year increasing trend continue, but again I need to look at the market.

Most of this income comes from advertisers, and many of these advertisers are financial companies. I don’t have to look hard to find news stories about the troubles facing companies in the financial sector. In addition, experts are predicting a slow year for internet advertising across all sectors. While a year ago I was considering following some of my blogging colleagues by quitting my day job and pursuing blogging and related projects full-time. This is a luxury I’d like to have, but I’m still playing it conservatively. As long as I can continue to basically work full time with two jobs without losing more of my sanity, I’ll do so.

My goal for “Other Earned Income” in 2009 is $108,000, or an average $9,000 per month. My stretch goal is to surpass this year’s success with $132,000.

Investing

My investing progress for 2008 was haphazard and unorganized. I’d like to be more clear in 2009 about achieving investing targets. This is what I’d like to accomplish by year end (or by the time I file my 2009 tax return in April 2010). The ability to reach these goals depends on earning the “Other Earned Income” I’ve indicated as my goal.

• Contribute the full $16,500 to my 401(k).
• Contribute the maximum to a Roth IRA if possible; if not, contribute to a Traditional IRA and convert the account to a Roth IRA in 2010.
• Contribute the maximum to an SEP IRA.
• Invest $250 per month into an account to help pay for future children’s education.

Saving

According to my year-end balance sheet, I currently have over $80,000 in various savings accounts and money market funds. I have a sinking feeling that a good portion of this is earmarked for the IRS. I’m working on finding a tax accountant to ensure that my tax bill isn’t any higher than it is supposed to be. After I pay my taxes, I’d like to take half of whatever I have left and earmark that amount for a down payment on a house.

Net worth

Last year, I made the mistake of setting a goal for my total “modified net worth.” I failed thanks to poor performance in my investments. Had I moved my investments to something safer than stocks at the first sign of trouble, I may have been able to make my goal. By doing so, I would be reacting to short-term indicators. Had I sold off stocks and bought safer bonds, I might have achieved a positive return on my investments and surpassed my 2008 goals. Staying invested in stocks was the right choice for my investments that won’t be tapped for a few decades.

For 2009, I will not set a net worth target. It is more meaningful to focus on my income and keep my spending in check.

Throughout the year, I will occasionally compare my progress against these goals. I have fewer goals this year, and the ones that I am keeping are the most meaningful, measurable, and mostly within my control.

What are your financial goals for 2009?

The original version of this article, Flexo’s Financial Goals and Resolutions for 2009, is copyrighted by Consumerism Commentary.

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In December 2007, I set a number of financial goals or targets to be accomplished by the end of this year. In some cases I was successful while in others I fell short. It’s important to keep things in perspective; when I set these goals, the economy was in a significantly different state. The goals reflected a positive economic outlook but a cautious approach to my income. Here is how I measure up.

Goals for 2008

Income:I don’t see much growth ahead in my salary, but I would say that if I continue to work hard on my side projects, one of which is this blog, $100,000 in additional income is not out of the question. The industry could change drastically, so one year from now, I could be looking back at these goals and laughing at the ridiculousness of that number. I’ll call $125,000 my stretch goal. If I am able to earn that much next year, it may be time to leave my day job and devote myself to my projects full-time.

Result: success. I’m on target for earning about $117,000 in additional income this year, between advertising, affiliates (percentage of product sales driven by my websites), and freelance writing. I feel like I don’t have much to show for it, however, and I am concerned about my upcoming tax bill.

Investing: I plan on contributing the full $15,5000 to 401(k) accounts. I also plan on contributing as much as possible to my 2008 SEP IRA account, but the amount I can invest depends on how much income I make from my side business.

Result: not success. According to my final pay statement of 2008, I contributed $14,142 to my 401(k), split between before-tax and Roth 401(k) after-tax contributions. I missed the target by not carefully planning the contributions. In February, I increased my 401(k) contribution rate from 25% to 33% of my salary. Later in the year, I bumped up my contributions again to 50% of my salary, the maximum allowed, to try to reach the $15,500 goal by the end of the year. It was too late, however, and I fell short.

I won’t fund my SEP IRA for 2008 until I file my tax return because the deductions I take will determine how much I am allowed to contribute.

Debt: I have about $13,000 left in student loans at an interest rate above 4%. This is the only debt I currently carry. It is reasonable for me to completely eliminate this debt by the end of the the year. I have the cash to do so now… Stretch goal: eliminate the $13,000 debt by the end of June 2008.

Result: success. Earlier this month, I sent the final check to my student loan servicing company and am now completely debt-free. It was an anticlimactic experience for me; I’ve had cash available to pay off the student loan for a long time, but I wanted to keep cash on my balance sheet for as long as possible. Still, by the end of the year, I was paying over $1,000 per month to eliminate the debt. It will be nice not to send those payments out the door.

Saving: My primary saving goal is for future real estate, so I want to have $40,000 earmarked for a down payment (plus closing costs) either by the end of the year or by the time I sign on the dotted line. I may not use all of that cash depending on how it would affect my liquidity at the time. I’d also like to double my emergency fund so I could last four months without significantly reducing my expenses and without tapping credit. Stretch goal: accomplish these goals by the end of June 2008.

Result: not success. According to a preview of my year-end balance sheet, I have over $70,000 in savings accounts spread across a number of banks, plus about $10,000 in money market mutual funds at Vanguard. I need to consolidate these accounts and properly organize the funds. I should be able to find $40,000 to earmark for a down payment. My emergency fund, or the cash I have in an ING Direct account labeled “Emergency Fund,” has increased this year from about $8,000 to about $13,000. Like the down payment earmark, it’s a question of moving money from one account to another, but the cash is there.

Charity: Last month, I established a charitable gift fund in my name. In lieu of creating my own foundation, an expensive and overly administrative process, this is going to allow me to direct my contributions to non-profit organizations at any time easily. My goals for this year are to choose two or three organizations to support, grant at least $5,000 to the organizations, and contribute an additional $10,000 over the course of the year to the fund.

Result: not success. With the stock market experiencing a major dip this past year, I was reluctant to distribute funds from the charitable gift fund. I added to the fund this year, and rather than investing it all, I left half in a money market fund and invested the rest in a stock market index fund. With this strategy, I can grant half of my contribution in 2009 and allow the remainder to grow. The goal is to grow the fund to a level at which the grants can come from the interest and gains alone, with the principal left to sustain giving every year. In 2008, my charitable giving was funded outside of the charitable giving account.

Net worth: I am ending the year with a modified net worth of about $120,000. I’ll have a more concrete total when I post my full financial reports in the next few days. This number will likely be about twice the amount of my net worth at the end of 2006. I’d like to continue this trend by doubling my net worth by the end of 2008, but that may not be realistic. Let’s call this goal $210,000 by December 31, and the stretch goal will be $240,000.

Result: not success. I did end 2007 with a modified net worth of $123,000, a little less than twice my net worth at the end of 2006 ($69,000). Doubling my net worth would be a great trend, but the stock market ensured that this would not be a possibility in 2008. Despite investing throughout 2008, my investments have only increased $5,000, including my contributions. That’s a negative rate of return. My modified net worth at the end of 2008 is heading towards $180,000, significantly short of my goal. I would likely have exceeded the goal if the stock market increased at a rate closer to average.

Some of the goals could have been reached by rearranging or reorganizing my accounts. I should have considered the effect that a down stock market could have on my finances when I initially determined my goals of 2008. In the next few days, I’ll set my goals for 2009, a year that will present a lot of questions for me.

The original version of this article, Evaluating This Year’s Progress Against My Goals, is copyrighted by Consumerism Commentary.

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Last month, I began writing about the process of taking control of one’s own financial condition. It’s common to outline any process by describing a series of steps, and that is the form I have chosen for writing about this particular process. The steps I’ve described roughly follow my experience as I learned to take responsibility for my money, or lack thereof.

Most recently, I wrote about step 6, getting out of debt. Eliminating the money you owe to other people and companies is a process in itself. Although I’m describing this process of a series of steps, it is not necessarily necessary to wait until one step is completed before beginning the next. This next step is a good example.

If you have debt, you can begin the next part of the process, setting goals, before you finish paying what you owe. You might believe it’s late in the process to start talking about goals, since you may have heard somewhere that it’s “wrong” to attempt to start a process without clearly defined targets. I disagree. No matter where you are going, everything I’ve written about so far in this series applies in the same way.

At some point, it’s important to ask yourself why. Why bother taking control of your finances? Why focus on saving and investing as much as your income as possible? Why think about ways to earn more income? The obvious answer is to grow your net worth. It can be a challenge to find a deeper answer, but usually there is something.

SMART goals are not so smart

If you’re involved with business management, you’ve probably heard about “SMART” goals. I’ve written about the “SMART” concept on Consumerism Commentary, most recently when I formed my financial goals for 2008. To be “SMART,” a goal should be specific, measurable, attainable, relevant (or realistic), and time-based. For example, earning $10,000 in sales commissions during December could be a “SMART” goal for someone.

Forget about “SMART.” It focuses on nothing that will help you yet. Rather than trying to determine how much money you want to have, start thinking about what you’d like to accomplish within your lifetime. Don’t be specific and don’t concern yourself with whether the goal is attainable. A good life goal will set you on a journey, and the journey is more important than the goal itself. On this journey, it’s common to discover new aspects of yourself, and these aspects will sometimes encourage you to change your goals. That’s nothing to worry about.

Your goal should be less like one a business might have and more like a mission or a vision, though it doesn’t have to be lofty. Here are a few examples.

• Help alleviate global hunger and poverty
• Encourage arts education
• Bring peace to the Middle East
• Provide every opportunity for my family

Long-term goals vs. short-term goals

Look at the big picture. Decide what your place in the world might be. Once you set a major life goal, you have a direction for your first few steps. Your goal might change, so be flexible. But until then, make every decision with this long-term goal in mind. Your life goal may manifest itself in different ways. For example, if your goal is to encourage arts education, there are many paths you can take. You could earn a degree in education and become a teacher. You could start a foundation that offers grants to programs that promote arts education. You could be a financial planner who donates some amount of money to an arts organization every year.

Any two people could choose drastically different paths with the same goal in mind, and the path will have more of a bearing on your short-term financial goals than the destination. The teacher will need to find the money to enroll in a college to earn a teaching degree. The person who wants to start a foundation might have to start with $1 million or more.

If visualization is motivational, consider writing goals down. To follow a standard form, write your long-term life goal at the top of a piece of paper. In order to achieve that goal, understanding that you might never fully achieve it, what are some of the smaller milestones you must achieve? For example, the teacher must earn a qualifying degree. He must also earn a teaching certificate. The individual who wants to help bring peace to the Middle East may want to earn a degree in international relations and be elected or appointed to a political position. Each of these accomplishments consist of another level of goals.

If this structure is beginning to sound like an outline, that may be the form your goals should take on paper. Each larger goal requires a number of smaller goals.

We don’t need to think about finances until we get to the lowest level. I’ve heard people say, “My goal is to earn $1 million by the time I’m 30 years old,” and I want to get away from that type of thinking as much as possible. Money is not the goal; money is only a tool that can be used to help you reach real goals. For example, one of the sub-goals involved in becoming a teacher is partaking in an accredited college program that offers an education degree, either a bachelor’s degree or master’s degree depending on your needs, at completion. In order to receive this education, there are additional sub-goals, including the ability to afford the education. The money might come from loans, scholarships, fellowships, grants, or your own income, but this is where finances finally come to play in process of setting goals.

Everyone has a life goal. It may be a calling, like helping to cure AIDS in Africa, or it may be a personal goal to be the best mother you can be. You can consider this your mission. Without defining one (or more), financial goals have no context. Money is nothing by itself. Getting out of debt is a goal, but only so far as it gives you the flexibility to use your money for a better purpose. What’s yours?

The original version of this article, Take Control of Your Finances Part 7: Set Goals, is copyrighted by Consumerism Commentary.

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This morning, I posted an article on one of my favorite blogs about personal finance, Get Rich Slowly. The article follows my ongoing transformation from an external to an internal locus of control philosophy and explains why an internal point of view is more beneficial to achieving financial goals.

Please read Financial Success Comes From Within and participate in the discussion.

The original version of this article, Finance, Goals, and the Internal Locus of Control, is copyrighted by Consumerism Commentary.

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In about 6.5 months, I will be free of credit card debt for the first time since 1998. Much like Inigo Montoya and the “Revenge Business”, now that it’s over, I don’a know what to do with the rest of my life.

Readers of Consumerism Commentary have proven their wisdom many times over, so I’d like to take that into consideration. Please visit my YayBoo page on the subject and help me prioritize my next steps.

Or, you should be able to use the widget below:

(If you follow Consumerism Commentary through an RSS reader, you may have to visit this page directly to see the widget.)

The original version of this article, No More Credit Card Debt: Now What?, is copyrighted by Consumerism Commentary.

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I have never been a fan of a monthly budget. In early 2002, when I admitted I was spending more than I was earning, I forced myself to enact categorical limits for my expenses. It helped for a short time, but it wasn’t long before I found myself with a new spending philosophy and more income. The system of budgeting eventually became less imperative. I was in the habit of controlling my spending, and the shackles of a budget were not for me.

Also, my budget was frequently off. In a category like clothing, for which I may have budgeted $25 a month for new clothes, I may be significantly over the limit one month while under the limit for several following months.

The “envelope” budgeting system lets you carry over the unused surplus in one category to be used later. If I spend only $10 in clothing in April, the remaining $15 can be added to my available funds in May. For me, if I were to budget, this flexibility would be one of the most important aspects. Also, I would require the flexibility to adjust my budget whether life changes require an increase in spending or if my observed patterns are different than I expected.

But what good is a budget in terms of motivation for real change if you know you can adjust it to fit your desires as you progress?

People generally don’t budget well when projecting monthly expenses. There is a tendency to underestimate true expenses, particularly when actual historical data aren’t used as the basis. A budget in this form creates expectations which, if not met, could lead to lowered motivation. A budget abandoned after the first few months is a wasted exercise.

A recent study concluded that a budget based on yearly expenses will be a better spending plan. People tend to overestimate their expenses when they consider the entire year ahead. Actual spending will have a better chance of falling within the budget, and this success could motivate further budgeting.

By looking at your expenses over an entire year, you give the bumps a chance to smooth.

If you are bored or frustrated by typical budgeting, particularly the way budgeting is designed in software like Quicken and Money, try looking at the larger picture rather than focusing on fluctuating monthly expenses.

The Year of Magical Budgeting [New York Times]

The original version of this article, If Monthly Budgets Don’t Excite You, Try This, is copyrighted by Consumerism Commentary.

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About the author: This is a guest post by the anonymous author of the blog Father Sez, a father of four children who wishes to share with and learn from other parents with the goal of preparing children for facing the world independently.

You know your financial life is in a mess. You know the steps you should take in order to straighten your financial life out. You set SMART financial goals and developed plans to achieve these goals. You figure that if you keep plodding at your plans you’ll eventually reach your goals.

Life is not often this simple. There will be obstacles. Old habits may be a little hard to break.

Having a turbo charger will help.

And what would that be? Simple, start your own personal finance blog! A blog that would chronicle your past, your present goals to transform yourself, and your journey to achieve these goals.

a) The Dumb Little Man wrote a great article on the 7 common reasons why people fail to achieve their goals. Prominent amongst them was failure to write down the goals, failing to review them periodically and not having a support group.

Your blog by its very nature will overcome these. This happens by the very process of you writing up your posts, doing the research that may be needed for the post and the comments that your readers would be making. And very importantly on a regular basis.

b) Having a goal buddy is accepted as a powerful aid to achieving goals. They provide motivation, accountability and preserve our determination. I am sure you’ll agree that it’s not easy to find a goal buddy. With your blog, the readers in the community you build will be your buddies. They’ll give you continuous motivation, accountability and determination.

c) Once you have started your blog and announced its supporting mission statement, you’ll start feeling that you have a duty to perform — a duty to studiously and strenuously work to achieve your goals. You’ll feel that you are a role model to your readers.

Read how the act of not following his own suggestions for a mere two months affects Glbl Guy. He confesses this slip up to his readers, whom he calls his accountability partners.

Incidentally, he received a whopping number of comments, every one of them supporting and encouraging him and to overlook the lapses as just being human. You cannot get a better community of goal buddies than this!

d) Receive continuous guidance, tips and resources on improvements that can be made in your plans. The blogosphere is incredibly generous when it comes to sharing information and tips. As you proceed on your blogging journey, you’ll find yourself reading a lot of other blogs. And you’ll find tons and tons of advice and help.

You can get solutions to almost every obstacle that you may meet in your own journey of financial transformation. Tips on frugality, 100 ways to reduce your energy bills, how to prepare your budget, financial calculators, or understanding risk, all are answered in other blogs.

Many of the blogs I read and respect were set up for this very reason.

For example, Flexo created Consumerism Commentary to “hold himself accountable for his finances.” Ana of Debt Free Revolution wants to detail her debt reduction efforts and strategies.

Present day technology has made it easy to create and maintain a blog. While some people may swear by online tools that help in our goal setting and achieving process, I suggest that starting a personal finance blog (or a fitness/health blog, if getting rid of excess weight is your goal) is a far better option.

Just starting a blog for the sake of starting a blog will not be of much use. You must first have a will, a will to transform your life. When you have this will, the blog will turbo charge your journey to transformation.

To start your blog, visit WordPress.com. If you are joining the personal finance blogosphere, add your blog to the index at pfblogs.org and get insight about running your blog at the MoneyBlogNetwork Forums.

To read more about finance and family from this author, visit Father Sez and subscribe to the blog’s RSS feed.

The original version of this article, Turbo Charge Your Financial Transformation, is copyrighted by Consumerism Commentary.

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For the first time in several years, I decided to design a budget for myself. I’ve never been a fan of budgets. While I used one when absolutely necessary to get myself on track initially, after recovering from low income and high expenses, I decided to ditch the idea when I was comfortable spending significantly less than I was earning. My prevailing thought was, Why restrict myself if I’m managing to spend only on necessities, save for short-term goals, and invest for long-term goals?

Budgeting is great, even necessary, for people living pay check to pay check or if living is otherwise tight. It’s a great tool if it is implemented intelligently and if it is flexible. There’s no reason to beat yourself up if you’re over one category by 10% for example, particularly if you can balance out the difference in another category or in another time period. The budget has to make sense as well. Don’t set the budget too low to reasonably meet or too high to be pointless.

Part of using a budget is reconciling your actual spending against your budgeted spending. I intend to do this on a quarterly basis this year, which will smooth out some of the monthly bumps. As this is the first time I’ve worked with a budget in a long time, I thought it would be a good time to review the first month. Additionally, the MoneyBlogNetwork is encouraging a writing project this month on budgets, so the timing works out well.

Continue reading to see my first Actual vs. Budget report. Click on the thumbnail to zoom in on the data.

My salary was as expected in January. I’ve received no raises and no bonuses so far, but my other income was higher than expected.

As far as my expenses go, I did a good job of staying under budget, despite the bottom line. I didn’t go grocery shopping in January, apparently. I’ve been surviving on the food I’ve had in the apartment as well as dining out and ordering in. You can see in my Dining Out category that I was a little over budget. My power spending was higher than budgeted only because I paid for two bills during the month of January. My tax spending was higher than usual because I also included a quarterly tax payment for 2007.

I purchased a new phone this week, a BlackBerry 8830, which necessitates a data plan. This means that for the rest of the year, I will be over budget in this category. My monthly plan will run about $60 after my employee discount. I got a good deal on the phone as well.

My budget doesn’t include all expenses, just the ones I intend on monitoring. Perhaps it needs to be more comprehensive. Does anyone have any suggestions for improving my budget or the Actual vs. Budget report?

The original version of this article, Actual vs. Budget Report, January 2008, is copyrighted by Consumerism Commentary.

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As January comes to a close, it might be a good idea to take a look at the year-long goals I created for myself at the beginning of the year and my progress so far.

Goal 1: $100,000 in additional income. As of today, I am right on track for earning $100,000 outside of my day job. Anything can happen this year, however. I have to consider the possibility that this income will be reduced to almost nothing with a slight change in Google’s algorithms, for example. I will also be voluntarily reducing certain portions of my income next month in the hopes of retaining consistent income growth in other areas. (Text link ads will be phased out on Consumerism Commentary and a number of other websites.)

Goal 2: Contribute $15,500 to my 401(k) and the maximum to my SEP IRA. In January, I contributed $861 to my 401(k), not including my employer’s matching contribution. In order to meet this goal, I will need to increase my contributions. I’ll add a few more percentage points during the next open trading window which will likely occur around the time I receive my raise and bonus (if I do receive anything). The timing of the next 401(k) increase will depend on some other job-related factors.

When I finalize my taxes, I will have an idea of how much I will be able to contribute to my SEP IRA.

Goal 3: Eliminate $13,000 of student loan debt. I’ve started by increasing my monthly payment from $127 to $250. That’s obviously not enough to get me there by the end of the year. After tax season, I’ll have an idea of how quickly I’ll be able to pay off the remainder. With the interest rate massacre occurring among the high-yield savings accounts, I am anxious to use some savings to pay off the loan (while keeping in the mind I’d like to keep enough lying around in savings to cover a down payment at some point).

Goal 4: Accumulate $40,000 in savings for a down payment. I added to savings this month, but not by much. My “Relocation Fund” is approaching $5,000, but once I pay my taxes, I’ll have a better idea of how I can redistribute the savings towards various goals.

Goal 5: Choose two or three charitable organizations, grant $5,000, and contribute $10,000 to the charitable fund. In my 2008 budget, I set aside $5,000 in both June and December for charitable contributions. I haven’t decided on any organizations yet, but I am thinking about contributing to the group I used to work with despite last year’s decision to disassociate myself.

Goal 6: Increase net worth to $210,000. Thanks to the stock market, my net worth has made no progress in the first month of 2008. My non-invested assets have increased this month, but everything else is down. Almost all of these investments are allocated in equities to last until retirement, so this “fluctuation” isn’t bothering me right now. If poor stock market performance continues this year, I will have a tough time making this goal.

All in all, it’s “too early to tell” whether my progress so far this year will help me approach my final goals for the year. How about you? Are you on track for meeting your goals and resolutions?

This article is part of the MoneyBlogNetwork’s monthly group writing project.

The original version of this article, Flexo’s Financial Goals: First Check-Up, is copyrighted by Consumerism Commentary.

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My mother and I have recently started the journey to retirement together.

By together, I mean that she’s starting to consider retiring in the next few years, while I’m realizing just how much help she’s going to need in order to get there. I’m up to the challenge, but it’s going to be a lot of work.

She’s a long-term state employee, so she’s eligible for both a pension and Social Security benefits. That’s the easy part. The challenge is in figuring out her budget and the rest of her financial situation, which lies obscured within a heap of unopened envelopes.

Luckily for Mom, most of her bills are set up for automatic payment, but her propensity to ignore an entire year’s worth of mail is disturbing. During a visit to her home last week, I asked for more information on her investments, and she just shrugged and pointed me to the pile. She’s got no idea what investments she owns, nor any estimate of their value.

To me, this is completely unacceptable. I know instantly that because she’s not even aware of what monies come in or out, she’s presently living above her means. I know this because I learned her savings account has been dwindling, but she’s been blissfully unaware of that as well.

So, how to fix it?

I use a combination of Mint and Fidelity’s Full View for my own finances, but I wanted to find something similar for Mom. Enter Yodlee MoneyCenter (click for demo), which some awesome readers told me about a while back.

I signed Mom up, then grabbed a letter opener and blazed my way through the stack. It wasn’t quick, since I needed to set up online access for every single one of her accounts, but I armed Mom with the telephone and talked her through the endless security questions. Before we hung up, we asked each customer service rep the same thing: “What kind of account is this, and what restrictions do I need to be aware of?”

We were able to set up most of the accounts immediately, and as I added them into Yodlee, I jotted in notes on information we’d gotten on the phone: “Variable Annuity IRA – No restrictions” or “Mutual Fund Accounts – 20 trades per year.” You can see samples of this in the screenshot below.

Once I was through making sense of her investments, I moved on to the unopened bills and added her credit cards, cable bills, etc., adding notes for the ones which are automatically paid. We certainly will need to do some consolidating there; I aim to simply her finances so she can begin to understand them.

For the few accounts we cannot access online, I created manual entries so we can at least factor them in. I plan to add her house and car as assets next week so we can get a true picture of her net worth, but for now, I have what I need for the next step: an organized way to view Mom’s finances and accounts so I can start to get an idea of what her earning and spending behaviors really look like. Ultimately, I’m going to print out this dashboard and take it to a financial advisor to ensure that her investments are properly allocated.

But first, I need to do an income and expense chart so I can work out a monthly budget. Without a sense of what she spends today, we’ll never know what she’ll need to live in retirement. Plus, if I can make Mom more conscious of her spending, she might identify some areas where she can reign things in a bit, helping her to live more within her means today. Yodlee MoneyCenter helps with this too — I can categorize her past expenses and then set and track budget goals for each category.

Yodlee MoneyCenter was definitely the right tool for the job, and now that we’re organized, we’re ready for that next step: a trip to the Social Security office. Stay tuned!

The original version of this article, Helping Mom Retire, Part 1: Conquering the Stack, is copyrighted by Consumerism Commentary.

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I decided this year that a rudimentary budget would help me further analyze my spending beyond my monthly income and expense reports. Since moving to my new apartment last July, my discretionary expenses have been increasing. Perhaps designing a spending plan and evaluating my real expenses against the budget each month will help me rein in some of that spending.

To create this budget, I examined my expenses from 2007. It’s reasonable to expect that costs for certain items, like gasoline and groceries, are going to increase. Some predictions call for runaway inflation this year, but I’m taking a more practical approach. I’m also using conservative estimates for my income. I’m forecasting a 3% salary increase in March, below my expectations, but anything can happen in the corporate environment. I haven’t included a bonus in the forecast, although I expect to receive one in February or March.

I’m also budgeting income from other sources steady at $6,000 per month. I hope that this is a conservative prediction. My goal for 2008 is to earn a total of $100,000 outside of my day job and I won’t get there earning $6,000 each month.

Keep reading this article to see my budget worksheet followed by more explanation. Clicking on the thumbnail will present a larger, more legible chart.

While most line items are consistent from month to month, I adjusted the months in which I will receive three pay checks. I also adjusted my forecast rent expense for the month I renew my lease — I’d be surprised if my rent did not go up. It may not increase 10%, but it seems like a conservative guess. The total rent budget for the year accounts for 15% of my projected income. I’m comfortable with that level of spending.

All budgeted expenses, discretionary and non-discretionary, add up to only 54% of my total projected income. This means I have a a significant portion of income not earmarked for spending. I intend to use the surplus to pay off my student loan debt this year (another one of my goals) as well as save and invest as much as possible. The surplus will also help me pay for any unexpected decisions I make this year, and I’m “expecting the unexpected.”

I’ve simplified the categories I normally use in my monthly reports in order to add flexibility and not tie myself down too much. I think I included the major categories, but this is my first attempt at creating a budget in several years. If there’s anything I’ve left out, please let me know.

6:30 pm Update: I’ve fixed calculation errors in the table, so view the graphic again if you were confused the first time.

The original version of this article, Flexo’s Budget for 2008, is copyrighted by Consumerism Commentary.

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Businesses use budgeting to forecast income and expenses for the year. With a budget, individuals who manage companies’ money will have a decent of idea of how much cash they need at any time of the year to meet the company’s obligations. Personal budgets work the same way. At the beginning of the year, it’s helpful to determine a rough guideline for future spending.

Personal budgets are the most useful for people whose spending approaches or exceeds their income. For people in this situation, sticking to a plan is the most important aspect to improving financial condition. Saving for the future can only take place when the amount spent each year is less than the income earned. Otherwise, debt increases each year. A debt that grows each year is like slavery; more and more of the work you do and the money you earn goes to paying someone else rather than yourself. Additionally, interest expense should generally be unnecessary, unless the cost of debt is less than the income you are generating due to that debt.

It’s best to avoid debt and its expense as much as possible, and a budget can get someone to that point. Budgeting helped me when I quit my low-earning non-profit job. First I took an inventory of my situation and reflected on a few months of income and spending, using the free-at-the-time personal finance software Moneydance. From there, I could take some educated guesses about my future spending, targeting areas where I had to cut back until I could increase my income.

Now that I’m in a better financial position, I argue that a budget is no longer a requirement. One of the most important aspects of personal finance is to spend less than you earn. A budget gets you to that way of living. Once you’re comfortable and once you’ve limited your bad habits, a budget is not as urgent. If you’re watching your spending each month, you can easily adjust without a budget. However, if you are living paycheck-to-paycheck, a budget is going to keep you from getting behind month after month.

In a former job, I prepared “Actual vs. Budget” reports for the company. The areas of the company that provide services to the business units don’t make money from the public. There is little opportunity to earn more money for the company in these areas, so the best way to help the corporation meet its financial goals was to cut costs as much as possible. Thus, vice presidents wanted to review their performance against the budget on a monthly basis.

There is a tendency to get carried away with personal budgets. While those living on the edge of spending all their income or more should scrutinize each time they part with their funds, living one’s life chained to a spending plan is unfulfilling. If my income or savings allows for it, I want to be able to overspend. I don’t want a budget that controls me. I don’t want to feel nervous or anxious about spending money because I may be going beyond an arbitrary amount I set for myself months prior.

Therefore, a budget for someone with a solid control of their finances should be a rough guideline. There should be no punishment when spending goes over the plan as long as it’s not indicative of a troubling trend. Budgets should be adjustable. There are many times when life changes come unexpectedly. (Do you have an emergency fund?) It’s not out of the question to discard a budget and start over if circumstances dictate broad changes.

That is the point of view I have decided to take when developing my budget for 2008. I haven’t created one since 2002, and even then, I abandoned it within a year because I managed to get myself in gear within months. Nevertheless, I’ve decided to design a rough personal budget this year. My spending in the past few months has increased, mostly because I was in a position to do so and I had been putting some purchases off for years.

Each month, in addition to my balance sheets and income statements, I will publish an actual vs. budget report. This will help me identify the categories where I consistently “overspend” (according to my own guidelines). Though Quicken helps me do this now, I would say that it is simply too detailed. Rather than the 41 categories I present in my monthly report, and the many more I have in Quicken, my budget reports reduces my spending to a total of 9 non-discretionary and 5 discretionary categories.

I will post my spending plan tomorrow morning.

Image credit: Jeff Keen

The original version of this article, Importance of Budgeting Relates to Financial Condition and Habits, is copyrighted by Consumerism Commentary.

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Unlike my first mistake, Failing to Utilize the Energy Tax Credit, my next mistake is one where I at least have a second chance. It’s not too late to fix this one for 2008.

2. Failing to Establish a Spending Budget

I tried to spend less, consider my purchases more, and get the best deals possible when buying things in 2007. While I did halfheartedly inventory my spending and try to get my costs down for each category, I did not establish a budget for these categories at all.

This means that things like restaurant spending and even the occasional clothes shopping spree can get a bit out of hand — I don’t even have an idea of a spending limit, I just go by what feels reasonable at the time. I need to get on top of this for 2008.

But how? Well, I’ve found a few resources which look promising:

* Spending Plan Worksheet (PDF) – This worksheet seems like a good thing to sit with and use to ensure you cover all your bases budgetwise. I like how it feels so simple.

* Flexo’s Excel Income and Expense Report Template – For years now I’ve been half-starting budgets in Excel, trying to determine costs. I need to collect my expenses more comprehensively in a template like his to predict my spending for 2008. Math-hater that I am, however, I don’t think I can actually keep these numbers up monthly going forward, so I plan to go with an online service instead for progress tracking.

* Yodlee MoneyCenter – I recently tried out this online service and am liking what I see so far. One thing I noticed was a nice little feature that lets me set goals for each category of spending. I would use this service to just import my history, but sadly it won’t allow me to import an entire year. A year from now, however, I think the Spending Reports option will be incredibly valuable for me, since I plan to keep up with categorizing my transactions here.

* Inspiration – Of course, when you’re embarking on an arduous task like collecting a year’s worth of expenses, it helps to have some motivation. One article I found compelling: Savings: Making a money-smart spending plan [Bankrate.com]

How do you handle your budget? Have any hints you can share?

The original version of this article, 5 Stupid Financial Mistakes I Made in 2007: Failing to Establish a Spending Budget, is copyrighted by Consumerism Commentary.

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Now that I set my financial goals for 2008, I have to start taking steps to achieve them. This is only the second year I’ve set goals like this for myself, and after good results last year, I’m feeling confident. Do you set goals for yourself? Feel free to share them within the comments, particularly if you have your own blog and have written about your 2008 goals. Feel free to include your link in the comments below.

Here are some bloggers’ goals.

No Credit Needed: 15 Resolutions and Goals for 2008
AllFinancialMatters: Share With Us: What Are Your Goals for 2008?
Get Rich Slowly: My Three Goals for 2008 and How I’ll Approach Them
Mighty Bargain Hunter: Thanks for 2007 and Goals for 2008
FiveCentNickel: Setting Financial Goals for 2008
Being Frugal: A Look Ahead: Goals for the New Year
Smart Easy Money: 10 Financial Goals for 2008
Single Ma’s Fabulous Financials: Single Ma’s Goals for 2008
Frank the Financially Savvy Atheist: Goals for 2008
Blogging Away Debt: Out 2008 Financial Goals

If you have goals to share, let us know in the comments.

The original version of this article, Morning Roundup: Goals Across the Web, is copyrighted by Consumerism Commentary.

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I noted recently that most people fail at financial new year’s resolutions. That may because of the tradition that the typical “resolution” is a light-hearted attempt at improving one’s self, many times uttered in a drunken state, without much of a plan for attainment. If you want to succeed, set a real, solid goal, devise a plan for getting there, and check your progress.

After reviewing my progress over the last year, I am in a better position to set some specific, measurable, attainable, relevant, and timely (SMART) goals for the coming year. Keep reading Consumerism Commentary throughout the year, and subscribe to the RSS feed (more options and info here) to check in on my progress and give me a hard time if I start to slip.

Continue reading for my goals and resolutions.

Goals for 2008

Income: Last year my goal was to earn $40,000 from my side business in addition to my day-job salary. I almost doubled that amount. I don’t see much growth ahead in my salary, but I would say that if I continue to work hard on my side projects, one of which is this blog, $100,000 in additional income is not out of the question. The industry could change drastically, so one year from now, I could be looking back at these goals and laughing at the ridiculousness of that number. I’ll call $125,000 my stretch goal. If I am able to earn that much next year, it may be time to leave my day job and devote myself to my projects full-time.

Investing: I have several goals for investing this coming year. Roth IRAs may be out of the question, so I believe I will focus on maximizing my contribution to my 401(k). This will be split between a Traditional 401(k) and a Roth 401(k), for which there are no income limits. I plan on contributing the full $15,5000 to 401(k) accounts. I also plan on contributing as much as possible to my 2008 SEP IRA account, but the amount I can invest depends on how much income I make from my side business.

Debt: I have about $13,000 left in student loans at an interest rate above 4%. This is the only debt I currently carry. It is reasonable for me to completely eliminate this debt by the end of the the year. I have the cash to do so now, but I haven’t yet made any decisions about my living situation. How fast I pay off this debt depends on whether I will be buying a house this year. I’d like to have an excessive amount of cash ready for a down payment to minimize leverage and interest payments on a mortgage. Stretch goal: eliminate the $13,000 debt by the end of June 2008.

Saving: My primary saving goal is for future real estate, so I want to have $40,000 earmarked for a down payment (plus closing costs) either by the end of the year or by the time I sign on the dotted line. I may not use all of that cash depending on how it would affect my liquidity at the time. I’d also like to double my emergency fund so I could last four months without significantly reducing my expenses and without tapping credit. Stretch goal: accomplish these goals by the end of June 2008.

Charity: Last month, I established a charitable gift fund in my name. In lieu of creating my own foundation, an expensive and overly administrative process, this is going to allow me to direct my contributions to non-profit organizations at any time easily. My goals for this year are to choose two or three organizations to support, grant at least $5,000 to the organizations, and contribute an additional $10,000 over the course of the year to the fund.

Net worth: I am ending the year with a modified net worth of about $120,000. I’ll have a more concrete total when I post my full financial reports in the next few days. This number will likely be about twice the amount of my net worth at the end of 2006. I’d like to continue this trend by doubling my net worth by the end of 2008, but that may not be realistic. Let’s call this goal $210,000 by December 31, and the stretch goal will be $240,000.

I have my work cut out for me in 2008. There are other things I’d like to accomplish, only marginally related to personal finance. You’ll notice that these resolutions are not all as specific as the goals stated above. They are similar to my resolutions from last year. I will need to focus on creating a plan for achieving these so they don’t go unnoticed twelve months later.

* Find a new day job or move ahead in my current job with an eye towards more responsibility.
* Exercise three times a week and ride my bicycle more frequently.
* Improve the organization and management of my time.
* Eat healthier food and less in general.

I plan on focusing on the above goals and resolutions throughout the year. The first check-up will be at the end of the month. As many people fail to uphold their resolutions after just one month, I hope that I find myself above average.

The original version of this article, Flexo’s Financial Goals and Resolutions for 2008, is copyrighted by Consumerism Commentary.

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On December 30, 2006 I officially announced my financial goals for 2007. Before I set new goals for 2008, I should take a look at my progress this year. Below, I’ll cite the goals I set a year ago and evaluate my progress.

Income: Generate $40,000 in revenue outside of my day job. I think this is attainable. My side income has seen fairly consistently growing and as long as I keep working hard, I should be able to reach this amount. One challenge related to the environment becoming increasingly competitive. Stretch goal: $60,000.

Income results: Passed with flying colors. Preliminary numbers show that I significantly exceeded my stretch goal. I’ll still have to make some adjustments as I received income for some other individuals that still needs to be distributed, but I should clear $70,000 in income related to internet publishing. Most of that comes from advertising on Consumerism Commentary, but an increasing portion comes from affiliate sales. While I am grateful for my success thus far, I am still blogging because I enjoy writing and building online communities. The satisfaction in blogging is generated by regular readers, but the income comes generally from passers-by who are generally looking for something else.

Spending: I’ve managed to keep my spending fairly low over the last few years, except for gift season and food expenses, like dining out and groceries. I’m fine with the spending on gifts but my goal for 2007 will be to create a budget for food and stick to it. This will involve buying smarter and healthier groceries, cooking more, and eating out less. If I can stick to $100 a month for groceries and $100 a month for dining out, it would be a big improvement. Stretch goal: $80 and $80.

Spending results: Failed. On average, I spent $117 per month on groceries and $167 per month on dining out. Both numbers are slightly up from last year, probably reflecting a higher cost of food rather than a change in behavior. If anything, I shopped more efficiently and ate out at restaurants less this year. Including both the “dining out” category and “convenience food” category (which includes lunch at work and snacks), I spent $190 per month this year compared with $230 last year.

However, spending in general has increased. Earlier this year, I moved into a new apartment that is larger, more comfortable, and more inviting than my old location. Over the last few months, I’ve purchased some things that make my time in said apartment more enjoyable, including a high-definition television, an HD DVD player, and an XBOX 360 game system. I don’t expect this type of spending to continue, however.

Investing in 401(k): I’m currently investing 12% of my day-job income into the 401(k) my company offers. The only reason I can afford this is through the help of my side business income. My goal for 2007 is to increase this to 15% by July. This should be possible with a little income bump. Stretch goal: max out the 401(k) with an investment of $15,000. That will be a significant stretch.

401(k) results: Exceeded my goal. In May this year, I increased my 401(k) deferral from to 25% after an earlier increase from 12% to 16%. That’s not quite enough to max out the 401(k) in my low-paying job. According to my last pay stub of the year, I contributed about $10,000 to the 401(k). My employer matched some of that contribution, as well. Investing this much for retirement is only possible due to the additional income mentioned above.

Investing in Roth IRA: I already max out my Roth IRA investment. My goal for this is for nothing to change.

Roth IRA results: As expected. It’s no surprise, but I fully contributed to my Roth IRA this year. Doing so may have some unintended consequences, unfortunately. I’ll have to check after preparing my 2007 tax return, but I may have to withdraw a portio of my Roth IRA contributions. For 2007, if modified adjusted gross income exceeds $99,000 then the IRS won’t allow a full contribution to a Roth IRA. With an income above $114,000, the Roth IRA is completely unavailable. At this point, it’s too early for me to tell whether I’ll have to withdraw funds from my 2007 Roth IRA at the last minute.

Saving: The account I have marked for emergencies would cover one month of my current expenses. If I were to be in an emergency situation (i.e., no job) for longer than a month, I still have other cash I could use before resorting to credit, but that would involve borrowing from other savings goals. I’d like to double the size of my emergency fund by the end of the year. I’d also like to double the percentages of my day-job income I devote to long term savings goals, like relocation (a house, hopefully). Stretch goal: triple the percentages.

Saving results: Succeeded. I have doubled the balance in the savings account earmarked for emergencies, which now would last about two months without income from either my day job or my side business. I still have various savings accounts earmarked for other goals that can be tapped if necessary. Unfortunately, with income coming from various sources and going to various accounts, it’s been a bit difficult for me to track the percentages. It’s safe to say that on average throughout the year, I saved or invested a larger percentage of my total income than I spent.

Debt: If I follow my schedule, I will pay off my car loan (at 2% interest from a relative) by September. The interest rate is favorable enough I’d rather keep the money in savings, so I’m not going to speed this up. On the other hand, I have about $18,000 in student loans remaining to be paid. The interest rate isn’t as favorable at 4.25%, but the interest paid is tax-deductible.

Debt results: Achieved the goal ahead of time. I paid the remaining balance of my car loan off in July. While 2% interest wasn’t hurting, and I was earning more from interest in savings than paying in interest on the loan, I still wanted to rid myself of that debt as soon as possible. The money to buy the car was lent to me by a family member, so I felt like the right thing to do was pay it off as soon as possible. He could have been earning higher interest with that money in a savings account.

I still have a balance on student loans, a combination of money used for undergraduate studies and my MBA. My masters degree was 90% paid for by my employer, but I didn’t always use the reimbursements to pay down the loan. When I originally started the MBA, the financial adviser for the university suggested I get a loan anyway and use reimbursements to pay back the loan. Looking back, I probably should have used the reimbursements to pay the school directly, avoiding any involvement of debt.

Charity: The non-profit organizations I’ve worked with in the past appreciate volunteers who give their time, and this is the approach I generally take. I like that 100% of the time I give affects the organization. When you give money, a portion is kept by the organization for administrative expenses and will never make it to the programs sponsored by that organization. While I understand that administrative expenses need to be paid for, I believe I have more of an effect by directly involving myself. Despite this, my goal for 2007 is to select an organization that means something to me, one that I cannot spend time with and one I know the money will be put directly to its purpose, and donate $1,000. Stretch goal: $2,000.

Charity results: Met, with explanation. On my expense sheet, I donated $5,127 to charity this year. This includes an arts organization that supports youth musical education and performance, the pfblogs.org Financial Literacy Challenge at DonorsChoose and a charitable gift fund. Since I did not yet choose a recipient for the $5,000, it’s hard to say that I fully met the goal. I’ve written several times about my difficulty in choosing recipients for charitable giving. I’ll have to perform some deeper research and get involved with something new next year.

Soon I will decide and post my goals for 2008, which is sure to be an exciting year.

Image credit: Daquella manera

The original version of this article, Full 2007 Goal Review: How Well Did I Meet My Goals?, is copyrighted by Consumerism Commentary.

If you enjoyed this article, follow @flexo on Twitter and visit Facebook for more updates.

As the end of the year draws near, it’s a widespread custom for individuals to make internal promises, and call these promises “New Year’s resolutions.” The end of the year is a good time to look back on the past twelve months and determine what aspects of life did not live up to expectations and resolve to improve those facets in the coming year. Does it really work? Not for many, particularly when it comes to some of the more important resolutions.

For the sake of argument, let’s say that financial resolutions count among the more important resolutions. According to Harris Interactive, 58% of people who make New Year’s resolutions include a goal pertaining to their financial situation. Part of the problem that leads to a 51% failure rate within one month is that these resolutions aren’t really goals at all.

Even those who take resolutions more seriously than others — the others are the ones who make drunken declarations on New Year’s Eve with noisemakers and champagne — don’t take time to think about how their success will be measured or how attainable their resolution will be. The important resolutions, and remember we’ve already determined that the financial resolutions are important, shouldn’t be resolutions at all — they should be specific, measurable, attainable, realistic, and timely. (Yes, that’s “SMART,” the oft-cited acronym in the world of corporate decision-making and brainwashing.)

The most popular financial resolutions, according to the same Harris Interactive survey cited by Michelle Singletary of the Washington Post, are in order of popularity, saving more, paying off debt, and reducing spending. As I mentioned above, a little more than half of these resolutions are abandoned within a month; it stands to reason that a majority are abandoned by the time people are making resolutions for the following year.

Resolutions should be reserved for things you don’t really need to accomplish. Leave the declarations broad, like “I intend to lose weight this year.” Don’t say how much weight you intend to lose; that would start bordering on a goal rather than a resolution. If losing weight were important to you, you’d have a plan for doing so. The things that are important to you should be declared with specific goals, if not following the full SMART metaphor, then at least specific.

In the Washington Post article mentioned above, the author profiled four families that successfully improved their financial picture after resolving to do so. They had more than just resolutions. They had plans, they sought help, and they tracked their progress. Without these important factors, a resolution will simply carry over and be the same resolution the following year.

I’m a prime example. Each year, I resolve to myself to improve my physical condition, lose some weight, and get in shape. It never happens because I don’t plan well. I will start an exercise and stay with it for a few weeks, but it doesn’t take much of an interruption for me to drive myself off course. I did well sticking with my financial goals for 2007 because I wrote them down (and published them online), had a plan, and stuck with it. When I set my 2008 goals in the next few weeks, I will be looking at other aspects of my life other than financial. No resolutions, however; they’re meaningless.

The original version of this article, People Fail at Financial New Year’s Resolutions, is copyrighted by Consumerism Commentary.

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To retire comfortably, you’ll need to have an income of 80% of your maximum pre-retirement income.

That’s a common rule of thumb you hear trumpeted by financial planners. Unfortunately, it’s not accurate. It may give someone planning their retirement a basis for thinking about creating income during those years, whether from part-time work or income-producing investments, but it can also provide a false sense of security.

“The Mole” is an undercover financial planner who writes for Money Magazine, and he has a better way at looking at retirement needs. It promises to be more accurate. He believes that if you have to estimate something, you should estimate your expenses first, and work backwards from there.

Clients often come to me with this same question, and I can’t answer it without knowing how much they are spending. Some clients making $100,000 per year are only spending $50,000, while others are earning $110,000 and getting further in debt. So you should really ask, What percent of my current annual expenditures should I expect to spend in retirement?

Typically, unless they make drastic lifestyle changes, retirees will spend the same, if not more, than they did before retirement. The Mole suggests estimating your full expenses and adding 10% to that figure. Now you’ll need a way to come up with that income in retirement.

Taking this approach would certainly inspire me to come up with ways to cut back expenses. Perhaps I will move to an area with an extremely low cost of living. Perhaps I should do any world traveling now while I have a steady income.

It’s not all bad. Once you’ve retired, you don’t have the “expense” of saving aggressively for retirement, so more of your income will be available for your expenses.

Retirement – How Much You’ll Really Need [Yahoo Finance/Money Magazine]

The original version of this article, Retirement Income Rule of Thumb Debunked, is copyrighted by Consumerism Commentary.

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Back in December, I set some goals for myself for the upcoming year. Now that 2007 is halfway complete, it’s a good chance for me to take a look and see how I am doing in these particular pursuits.

Income goal: Earn $40,000 in revenue outside of my day job. Stretch goal: $60,000. According to my latest income statement, by June 30 I’ve earned almost $40,000 (before expenses) including side business income, interest and dividends. The stretch goal is in sight.

Spending goal: $200 or less on food. Stretch goal: $160 or less. Forget it, it’s not happening. I haven’t been able to commit myself to the planning necessary to shop smart and prepare a good portion of my own food.

Investing in 401(k) goal: 15% of salary by July. Stretch goal: max out the contribution. I have been contributing 25% of my day-job salary for the past few months. That puts me above the regular goal but a bit shy of the maximum contribution. In September, I can reevaluate my position and perhaps find a way to contribute the maximum $15,000.

Investing in Roth IRA goal: fully invest. My Roth IRA contributions are going strong, but I will have to check later this year to make sure my amount of income won’t exempt me from eligibility for the Roth IRA.

Savings goals: double emergency fund. I have increased the amount in my savings account marked for “emergencies” by about 50%, which means I have about two months’ worth of expenses in that one account. This increase took place only in the first three months of the year. If I had to, I could draw cash from other savings goals or even my Roth IRA. I also stated goals to increase the proportion of my salary headed for all savings. I haven’t tracked this well because I just put everything in savings except what I need for bills and other spending.

Debt goals: pay off car loan by September, and accelerate student loan payments. The car loan on target but I haven’t increased my payments to the student loan.

Charitable goals: donate my time. Earlier this week, I spent several hours working for one of my favorite non-profit organizations, helping with their marketing efforts at an event. I also have some funds I’m earmarking for a charitable donation, but the organization I was formerly considering is now off my list. I’ll be thinking about how to handle my charitable involvement for the remainder of the year.

I’ll check in with these goals at the end of the year.

The original version of this article, Flexo’s 2007 Goals: Status at the Halfway Point, is copyrighted by Consumerism Commentary.

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Tired but happy asked whether she really has to declare her goals for 2007. Last week, I wrote about goals for 2007 in three parts: Share Your Goals, The Basics, and Flexo’s 2007 Goals) and inspired those already thinking about their goals to share the details online and possibly those who weren’t thinking about goals to give it some thought.

But you shouldn’t just set goals because some personal finance blogger is encouraging it. Personally, I’m incredibly sloppy with my goals. I don’t have specific long term goals because more time (between now and the future point at which I’ll measure progress against hypothetical goals) introduces many more uncontrollable variables. The idea of setting goals is very popular among motivational speakers and productivity gurus because the activity helps people become more focused and therefore more worthwhile to big corporations that employ them.

Setting goals is not necessary at all. If thinking about a target isn’t right for you, then there’s no reason to spend time on an activity that won’t pay off.

The original version of this article, Do I Have to Declare Goals?, is copyrighted by Consumerism Commentary.

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I promised I would determine and publish my goals for the upcoming year by the end of the week. Giving myself a deadline motivated me to think about it. Here are my regular and stretch goals for 2007. They are SMART (specific, measurable, attainable, relevant, and time-based). I’ve tried not to include variables over which I have no control.

For example, the director of my department told us several weeks ago that no one should expect a raise this year. No matter how I perform in my day job, I am limited to what the corporation provides, and financial services companies of the type I work for are notoriously cheap. It doesn’t help to be located in a “distant suburb” rather than the city. And it doesn’t help that my department generates no profit for the company.

Without further blabbering, here are the financial goals.

Goals for 2007

Income: Generate $40,000 in revenue outside of my day job. I think this is attainable. My side income has geen fairly consistently growing and as long as I keep working hard, I should be able to reach this amount. One challenge related to the environment becoming increasingly competitive. Stretch goal: $60,000.

Spending: I’ve managed to keep my spending fairly low over the last few years, except for gift season and food expenses, like dining out and groceries. I’m fine with the spending on gifts but my goal for 2007 will be to create a budget for food and stick to it. This will involve buying smarter and healthier groceries, cooking more, and eating out less. If I can stick to $100 a month for groceries and $100 a month for dining out, it would be a big improvement. Stretch goal: $80 and $80.

Investing in 401(k): I’m currently investing 12% of my day-job income into the 401(k) my company offers. The only reason I can afford this is through the help of my side business income. My goal for 2007 is to increase this to 15% by July. This should be possible with a little income bump. Stretch goal: max out the 401(k) with an investment of $15,000. That will be a significant stretch.

Investing in Roth IRA: I already max out my Roth IRA investment. My goal for this is for nothing to change.

Saving: The account I have marked for emergencies would cover one month of my current expenses. If I were to be in an emergency situation (i.e., no job) for longer than a month, I still have other cash I could use before resorting to credit, but that would involve borrowing from other savings goals. I’d like to double the size of my emergency fund by the end of the year. I’d also like to double the percentages of my day-job income I devote to long term savings goals, like relocation (a house, hopefully). Stretch goal: triple the percentages.

Debt: If I follow my schedule, I will pay off my car loan (at 2% interest from a relative) by September. The interest rate is favorable enough I’d rather keep the money in savings, so I’m not going to speed this up. On the other hand, I have about $18,000 in student loans remaining to be paid. The interest rate isn’t as favorable at 4.25%, but the interest paid is tax-deductible.

I’d like to pay this off faster than scheduled to reduce the amount of interest I pay over time. This amount wouldn’t be so high if I used my company’s tuition reimbursement properly, but many times I used those checks to assist my cash flow. If I pay this off in two years, I’d like to have half of the loan paid off by the end of 2007. Stretch goal: pay off the entire loan.

Charity: The non-profit organizations I’ve worked with in the past appreciate volunteers who give their time, and this is the approach I generally take. I like that 100% of the time I give affects the organization. When you give money, a portion is kept by the organization for administrative expenses and will never make it to the programs sponsored by that organization.

While I understand that administrative expenses need to be paid for, I believe I have more of an effect by directly involving myself. Despite this, my goal for 2007 is to select an organization that means something to me, one that I cannot spend time with and one I know the money will be put directly to its purpose, and donate $1,000. Stretch goal: $2,000.

The above goals are measurable, so I’ll be able to check my progress throughout the year. Here are some other things I’d like to accomplish in 2007:

* Exercise three times each week and ride my bicycle when the weather is nice.
* Improve my organizational skills.
* Communicate more with friends and family.

There you have it. Now when I don’t reach these goals, I’m publicly accountable.

The original version of this article, Planning and Goal Setting Week: Flexo’s 2007 Goals, is copyrighted by Consumerism Commentary.

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Before I can define my financial goals for 2007, it’s nice to review the basics. What are goals? I think Etta Mae Westbrook, a “family economics” professor, explains it well [pdf]:

* Goals state what you want to do or achieve. Goals will give your life direction. Financial goals will help you to determine where your money will go.

* Goals should be an extension of your values. If the goals are not related to your beliefs about what is important and good in life, the possibility of your achieving the goals is unlikely. If you do achieve a goal not related to the values you hold, you will probably feel unrewarded and dissatisfied.

* Goals need to be specific. The goal, I want lots of money in the bank, has little meaning. Is “lots of money” $5,000 or $50,000? When will you know you have “lots of money?” Write each goal in specific terms. Write the goal in terms you can measure.

Goals can be long-term, but they don’t have to be. The goals I want to set for myself this week are for one year from now, a short time frame. They should be in line with my longer term goals, which I’ve never really outlined here before.

Many people, especially those with business degrees, have heard this before: goals should be SMART; that is, Specific, Measurable, Attainable, Relevant, and Time-bound.

Attainability, or realism, is an important piece neglected by Westbrook’s article. I could, for example, set a goal to earn $1,000,000 in income next year, but what would be the point? It is extremely unlikely that will happen, and I’m not being a pessimist. That’s just the way it is. Montana State University has a short article about setting realistic goals.

Setting realistic goals allows success, and success breeds more success. The goals shouldn’t be so realistic that they’re easy, though. I like what Jim from Blueprint for Financial Prosperity has done: define regular goals and stretch goals. This allows you to take into consideration many unpredictable variables.

I also like the Setting Financial Goals series on the new blog, Personal Finance for Students and Fresh Grads.

I promised that I would publish my goals by the end of the week, which happens to be New Years Eve. I’m still working on them and time is running short; let’s see if I can keep the first 2007-related promise to myself.

The original version of this article, Planning and Goal Setting Week: The Basics, is copyrighted by Consumerism Commentary.

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I plan to use my time this week to review my financial progress in 2006 and set some concrete goals for 2007. I’ve never been a fan of concrete goals because so far, unexpected surprises have had effects on my progress every year for my adult life, sometimes positive, but sometimes negative. This unpredictability has discouraged me from setting specific short-term goals, for fear of coming up short or rendering the goals irrelevant.

By the end of the week, I will have some specific goals that I will hope to attain one year from now. I’ll also use them as a measuring stick throughout 2007.

Feel free to share your own goals for 2007 in the comments, or if you’re a blogger and have published an article about your 2007 goals, feel free to add a comment with a link. I’ll add links to the main part of the post as I find them.

* Investor Trip: Investment Goals for 2007
* Wealth Junkie: My Goals For 2007 – What are yours?
* No BS Finance: 2007 Financial Goals
* Moomin Valley: 2007 Net Worth Goal
* The Financial Oracle: Goals for 2007
* Million Dollar Journey: Goals for the New Year (2007)
* General Finance: My 2007 Financial Goals
* Blueprint for Financial Prosperity: Regular and Stretch Goals for 2007
* Alpha Guy: 2007 Goals
* Save Money: Some Stuff to Look at for 2007
* Erasing My Debt: My 2007 Goals
* Many more links are listed in the comments, so take a look!

Leave some comments with your goals or with a link to a post containing the details. I’ll publish my goals by the end of the week.

The original version of this article, Planning and Goal Setting Week: Share Your Goals, is copyrighted by Consumerism Commentary.

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For those of us in the United States, Independence Day is coming up. Coincidentally, Consumerism Commentary began two years ago this month. This website is also concerned with independence — financial independence.

Writing here forces me to take a look at my finances. I had to take a look at the many mistakes I made prior to actively thinking about managing my money, and creating a weblog to track my progress made perfect sense.

This isn’t to say I haven’t made mistakes after starting the blog. I still make purchases whose only justification is to satisfy my desire for “things,” but unlike several years ago, I can generally afford to do that once in a while.

Thanks to everyone who has been reading the past few years (as well as those who have joined in over the past few months).

Today, Grace Wong from CNN Money offers three steps for declaring a goal of financial independence, tying the idea to the holiday theme. It’s a little bit of a simplification, but nonetheless true. Her steps: set the goal, assess the cost, and craft the plan.

My plan is to have a great weekend.

The original version of this article, In Pursuit of Financial Freedom, is copyrighted by Consumerism Commentary.

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