Ode to The Simple Dollar's "31 Days"

One of my new favorite financial blogs, TheSimpleDollar.com, has a featured post called '31 days to fix your finances' that I wanted to share here. While I realize that many people don't have much of a system to "fix" yet, this can certainly help you start to think critically about how (if at all) you are currently tracking your finances, and set some goals about what you'd like to be doing in the future. Check out the article for the full 31 tips/days. Here's what stands out to me as three areas to start with:

1. Breaking Down Your Expenses - How can you spend less than you earn if you don't first determine what your monthly, recurring expenses are? One strategy that's worked for me is to list every bill (including rent) and subtract it from my paycheck. In its most simple form, the remainder is my "budget" for the month. Note - I also include my automatic savings account contributions as part of my expenses. That way I make sure to save before I spend.

2. Pay for your Dreams First - This is one of the central concepts of Robert Kiyosaki's book, Rich Dad, Poor Dad: pay yourself first. Set aside money (again, helps to automate this process as monthly deductions from your checking or savings account) every month before you have a chance to spend it. I have two accounts in a high-yield bank (EmigrantDirect.com or ING.com are good places to start) - one is called the 'Emergency Fund' and the other is for a frivolous goal I've set (to buy myself a diamond ring in 2008). Both serve a purpose. The former account is pretty obvious - saves money for an unexpected car repair or other emergency. The latter keeps me motivated to save money and gives me something to look forward to.

3. Get Rid of Debts (Slowly but Surely) - Even though I have enough money saved to pay off my student loans, I've made the conscious choice not to pay them all of at once. Why? Because the interest I earn on that money through stocks and index funds is more than the interest I pay on my loans (student loans typically have very low interest rates). I did step up my monthly (automatic, might I add) contribution to my loans so that I don't feel like I'll  still be paying them off when I'm 40. (More on paying off student loans here.) However, the decisions about paying off student loans are VERY different from something like credit card debt, which you should try to avoid and eliminate at all costs (given credit card companies' astronomical interest rates).

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