Al Abut

Personal Finance Makeover

Monday, April 03, 2006

Update: Whoops! Fixed a broken link to my new year's resolutions. This stuff wouldn't make much sense without it, would it?

The personal finance blog iwillteachyoutoberich has a wonderful and insightful series on giving yourself a financial makeover for the new year (intro, part one, two and three) and I've found it to be invaluable in the last few months. It is a must-read, filled with a simple list of practical tips. The timing couldn't have been better, as the series is perfectly in line with a common theme amongst several of my new year's resolutions: mastering my personal finances.

Personal finance is a particular challenge for me, an area I've wanted to improve for years. I've always been one of those kinds of people that did their budgeting by the seat of their pants, relying on gut feelings about where they are and what they needed to do in the short term. Setting monetary goals and then working towards them by keeping track of expenses and forecasting what my future revenue streams had to be... that just never really was "me" and I thought I could get out of ever having to do that by either getting rich or marrying a pennywise girl. I occasionally had the nagging feeling that my outlook might be the very thing holding me back from the financial independence I craved, but the feeling never popped into a fully-formed realization. I did a pretty good job of making sure that my salary kept going up at a decent clip every year and I figured that meant that I'd eventually earn enough that everything I wanted in life would simply fall in place without ever having to sit down and plan it all out, but I realized at some point in the last few years that the equation wasn't in my favor. I was in a treadmill where my expenditures kept creeping upwards at the exact same rate as my earnings.

Something clicked this year that made me want to improve that part of me. I can't explain exactly what the impetus was - it just happened. Everyone's ready for change when they're ready for change, I guess. Picking up the Idiot's Guide To Getting Rich (2nd edition) over the holidays was also a good motivator - despite the book's get-rich-quick title, it's really just a treatise on good financial habits. And both the idiot's guide book and the iwillteachyoutoberich have the exact same starting foundation: track your current expenses to understand where you are. You can't figure out how to go forward until you know where you stand.

And looking back on my resolutions for 2006, I see something interesting: they all appeared to be different when I was first writing them up, but after spending the last two months tracking my finances and writing down every penny I spent (for the first time ever), I see all of the goals through a different lens. Now I see that many of the things I want to accomplish rest upon having a solid grasp of my personal finances as a foundation before I can do anything else. And I have a feeling this goes for many of my life goals that go beyond just this year. This is perhaps perfectly obvious to most people, it's just never something I realized before.

Keep up the good work, Ramit!

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