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!

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How To Stick With Your 2010 Resolutions

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.

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Smithee’s Goals for 2010

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?

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Flexo’s Goals and Resolutions for 2010

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?

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Evaluating My Progress Against My 2009 Goals

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 Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

Unplanned Expenses and Your Budget

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 Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

Evaluating My Progress Towards 2009 Goals

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 Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

Goals Bring About Real Results

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 Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

How To Be Twenty Times Better Than Barack Obama

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 Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

Money Basics: Budgets

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?

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Flexo’s Financial Goals and Resolutions for 2009

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.

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Evaluating This Year’s Progress Against My Goals

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?

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Take Control of Your Finances Part 7: Set Goals

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.

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Finance, Goals, and the Internal Locus of Control

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.)

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No More Credit Card Debt: Now What?

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]

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If Monthly Budgets Don’t Excite You, Try This

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.

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Turbo Charge Your Financial Transformation

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?

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Actual vs. Budget Report, January 2008

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.

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Flexo’s Financial Goals: First Check-Up

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!

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Helping Mom Retire, Part 1: Conquering the Stack

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.

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Flexo’s Budget for 2008

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

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Importance of Budgeting Relates to Financial Condition and Habits

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?

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5 Stupid Financial Mistakes I Made in 2007: Failing to Establish a Spending Budget

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.

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Morning Roundup: Goals Across the Web

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.

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Flexo’s Financial Goals and Resolutions for 2008

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

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Full 2007 Goal Review: How Well Did I Meet My Goals?