This article is a part of a month-long Morningstar Money Challenge. You can find the details here.
Almost a decade ago now, Morningstar’s director of personal finance Christine Benz began her 30-Days to Financial Fitness series on Morningstar.com with a quote from William James. James, an American psychologist, said there were three rules to change one’s life. Step 1 – Start Immediately, Step 2 – Do it flamboyantly, and Step 3 – No exception.
She said James was right on the money with the "immediate" part. But does enacting lasting change in your life need to be momentous or flamboyant? Nah,” said Benz.
I’d take the liberty to start this Morningstar Money Challenge with another piece of advice from an old Chinese proverb.
The journey of 1000 miles starts with a single step.
Most people who have achieved big goals (or little goals) will tell you they've done so little by little, one small step at a time. My brother decided one morning that he wanted to ascent Mount Kilimanjaro, and that evening itself, he began to train, by going on a 1-kilometre walk. When I wanted to lose weight and get healthier, I couldn’t abide by any form of exercise, so I stopped adding milk and sugar into my coffee. (I lost some of the weight, and now drink way too much coffee – but that’s neither here nor there)
Benz points out that this same situation is true when you aim to achieve your financial goals as well.
“The broad goals of funding a comfortable retirement, paying for a vacation or education, or buying a first home can seem daunting, particularly when you think through the actual cash amounts that you'll need to save. But if you break these broad goals down into smaller, more manageable tasks, and tackle them one at a time, you can begin to make real progress toward your goals,” she says.
To help people achieve their financial goals without getting overwhelmed, Benz wrote a book, 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances. The book contains 36 separate financial-planning tasks, from creating a budget to selecting the right investments to crafting a retirement portfolio, each of which can be accomplished in a half-hour or less.
Taking inspiration from the book, over the next month, we will help you complete one money-related task per day, to help you get a bird-eye view of your finances, and to help you decide next steps. You don’t need any prior experience, or knowledge before you begin – all you need is a willingness to get a hold of your finances.
Additional Reading:
- Morningstar Money Mythbuster
- Teach Yourself to be a Better Investor
- What to Stash, What to Trash
We will start by helping you understand your financial situation. To do that, you first need to start tracking your expenses. This simply means figuring out where your money goes each month. The best way to do this is to look at your bank statements and listing out where your money is being spent.
“There are web sites and financial software programs devoted to helping keep close tabs on your household's cash flows, but tracking your expenses can be as simple as jotting them down whenever you find yourself opening your wallet or writing a check. Group your expenses into one of two main categories: fixed (i.e., spending that doesn't change and you can't do without) and discretionary,” suggests Benz.
She recommends that you plan to keep track of your expenses for at least a month; that way you can identify patterns in your spending and zero in on your problem spots.
“Examining cash flows in this way is the first step in creating a budget that aligns with your priorities and the realities of your life. You may also find that tracking your expenditures will have the salutary effect of causing you to think twice before spending money on things you don't necessarily need,” she says.
Additional Reading:
- 100 Ways to Cut Down Expenses
- Assess your Cash Flow
- What to Stash, What to Trash
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