Year's End

“Year’s end is neither an end nor a beginning but a going on, with all the wisdom that experience can instill in us.” - Hal Borland

I recently wrote an article appearing in the latest issue of the BLADE, a Southern California GLBT magazine. In preparation for the New Year, I thought it was worth repeating here...

The New Year, with its focus on resolutions, is a natural time to consider steps that will improve your financial fitness. Sandwiched between sipping your last holiday cocktail and receiving your post-Christmas credit card statement, there are at least 21 days to develop some good habits. It takes just three weeks of repetition to establish new behaviors so here are a few ways to jumpstart the process:

1. Write it down
The first rule of goal setting is to write it down. Numerous studies prove there is a direct correlation between goal setting and success, yet few people take the time to articulate their goals on paper.

Magic happens when you apply pen to paper. If you list out 10 goals in January, hide the list for the entire year and then read it, you will be amazed at what came to pass. There isn’t a scientific explanation behind this phenomenon. It just works. It actually works better when you outline a plan to achieve these goals, but first things first. Just the mere act of writing it down will crystallize the thought and give it force.

2. Don’t abuse your credit card
Unless you are over 50 and aging in Palm Springs, most of us entered adulthood with a strange sense of financial entitlement. As part of the credit card generation, we were conditioned early on to buy now and pay later.

Credit card debt is the number one roadblock in getting ahead. The consequences of a high credit card balance can be debilitating and there is nothing more oppressive than feeling the sting of a Dolce & Gabbana purchase three years after the fact. One simple exercise is to take a month and make all purchases in cash. By using dollars, it reinforces the tangible effect of purchases and expenses.

3. Spend less
You have to spend less than what you earn. It all boils down to the boring basics of accounting. Income in, expenses out. Make sure there is more money coming in than going out. Benjamin Franklin warned, “Beware of little expenses. A small leak will sink a great ship.”

Quite fitting that his likeness graces the $100 bill. Follow his advice and you will see more of Ben in your wallet or handbag (whichever you happen to be carrying these days). Learn the difference between necessities and indulgences. For example, the Crunch membership is a necessity. Joining both Crunch and Gold’s is an indulgence.

If you want to live within your means, then it helps to track expenses. This is the quick way to learn that the daily dose of Starbucks can wreck havoc on a well-intentioned budget. There are software programs that retrace your monthly financial expenditures or try the user-friendly Money Tracker at www.MoneyPants.com.

4. Buy Assets, Not Liabilities
Let’s face it, most of us feel stuck in the rat race. We strive for a pay raise, a year-end bonus or perhaps, covet a financial windfall from an ex-lover in the hope that our financial situation might improve.

Robert Kiyosaki, of Rich Dad Poor Dad fame, stresses the importance of buying assets instead of liabilities. What is the difference? A $3000 vacation is a liability. A $600/month car-lease payment is a liability. Affordable luxuries like $3 lattes are liabilities.

Assets (such as rental properties) generate income. If you don’t want to be a landlord, then buy investments such as stock, bonds, and mutual funds. Start small. The first step is a savings account. The second step is depositing money in this account. Save, rinse, repeat – it’s not a secret formula.

5. Pursue Happiness
There is a proverb that says, “If you want to feel rich, just count the things you have that money can’t buy.” Money is not the cure all. Money is a tool that eases burdens or provides security.

“The reason people don't get happier when they get wealthier is that they spend money on things like bigger houses and more expensive cars that don't improve their quality of life,” explains Cornell professor Robert Frank in a recent Business Week article. “Instead, Americans should use their incomes to buy inconspicuous goods – such as freedom from a long commute or a stressful job.”