My First of the Month Finance Rituals
I have to say that January did not go well from a personal spending point of view. Oh, the folly of early January, where I thought to myself, "Wow, Christmas came and went, and I got everything I wanted, which wasn't much. I don't want anything right now. January will be a cheap month." The first half of January was pretty cheap, but then I got it into my head that I needed to buy a bass guitar, and what with my flush personal spend category, it didn't seem like I needed to wait and save up. I could, and did, buy the guitar right away, but when you remember all the accessories--amp, cords, stand, strap, etc. etc.--it adds up to more than I anticipated. Plus, clothes sales!
I had just finished buying some super cheap camisoles at Forever 21 and Levi's jeans when I read some truly crushing stuff about environmental and human rights impact of the "fast fashion" industry. Right… this is why I shouldn't take advantage of sales.
I'm considering a new resolution for February and beyond: no new clothes. I don't mean that I don't buy clothes--hahahaha!--but that I don't buy them new. Only thrift stores and pre-owned stuff from eBay and similar. (Exception: underwear and socks.)
On the one hand, I feel like I truly gained a lot of confidence and professionalism in my wardrobe when I resolved to stop caring about price tag and buy quality stuff--you know how I feel about my $300 blazer--but on the other hand, most of the quality, professional stuff I've gotten has actually been pre-owned, so this resolution doesn't rule out getting nice things. Besides, right now in wardrobe maintenance mode, not building mode. I have what I need, I'm just refreshing every now and again. The thrift store is fine for that. On the third hand, it is a real pain to sort through jeans at Goodwill.
Okay. I'm doing it. I resolved it, right now. Let's see how long I can go without buying any truly new new clothes.
Anyway. As today's post coincides with a first of the month, I thought I'd tell you my first-of-the-month rituals.
Freshen up the budget
My first of the month budgeting ritual is to refill all my virtual "envelopes." This is how I learned to budget from YNAB, but at this point it's part of the way I think about money, so I'd probably continue doing it in a spreadsheet even if the software was discontinued. I live on last month's income, which means I set aside all the paychecks my wife and I earn each month. On the first of a new month, I budget the total money earned in the previous month into categories. There's my mortgage category (that gets drained immediately as our mortgage is auto-paid on the first business day of the month), categories for each of our regular bills, categories for variable spends like groceries and entertainment, and categories for our savings goals, which is where I dump any extra funds.
I give most categories the same amount each month, and cover any overspending within the month by taking from a category where we're under budget. I feel no guilt about doing this for important categories, like Medical. If we have an unanticipated doctor visit, I have no problem grabbing extra cash from somewhere else to cover it.
When I overspend on myself, it's more complicated. Do I cover that overspending, or let it roll over into next month? Trying to make up for a big spender month with an austere month is usually an exercise in futility, but I don't want to absorb money we need for other things just because of my greed. I guess I'm trying austerity this month, though, because of the noted January overspends. I'll let you know how it goes.
Track my net worth
During the course of my interest in personal finance, I've had more and less complicated record-keeping. At my worst, I was entering the details of every pay stub into a massive spreadsheet (that year, I was able to predict all my W2's before I got them). Last year, I copied my monthly total spends and earns into a spreadsheet to calculate my monthly and annual savings rate. At least, I did for a few months… then I kind of dropped off.
This year, I'm going for a more relaxed, hands-off style. The habits that stick are easy and no-frills. I'll continue to track my spending on my personal categories, for accountability to you, dear readers. Other than that, my only tracking will be a first-of-the-month sum-up of my net worth.
Net worth is my favorite financial indicator because it's simple and clear: how much is the dollar value of all my assets, minus all my liabilities? It's usually not helpful to compare my net worth with anyone else's, but I like comparing it to myself at different points in time. I started tracking it on January 1 of last year. At first, it didn't seem to mean much, but as the months ticked by, I could really see momentum. That was really motivating.
My net worth tracking spreadsheet has a row for each month, and the following columns:
- Cash - This is actually the total balance of my bank accounts. I don't include actual cash, like, dollars in my wallet, because I usually don't have much.
- Credit - The balance of my credit cards. A negative number.
- Mortgage - The balance of my mortgage loan. A negative number.
- Home value - An estimate of my home's current value. I used to use Zillow Zestimate for this, but I feel like their prices might be on the inflated side, and I want to be conservative. My home was recently reassessed, which I didn't love since it means my taxes went up, but I feel like I can tentatively trust that number as a lower estimate of what I could sell my condo for. It does mean that the value won't change for a year or more, but that's fine with me. I don't want track minor ups and downs in the housing market. It's all fiction anyway until I actually want to sell my home.
- Investments - The total balance of my and my wife's Roth IRAs and work 401(k)s.
- Loans - Any outstanding loans other than credit card balance and mortgage. This would include any student loans, medical loans, and so forth. It's $0.00 right now, yay! (If we owed anything, this would be a negative number.)
The total of these numbers is our net worth. For the most part, an increase in net worth means we did some positive things in the previous month, and a decrease means we did negative things. The major exception is that our investment balances can go up and down without us doing anything at all, due to fluctuations in the market. The more we save for retirement, the more of our net worth is invested, and the more we are exposed to that volatility. I think that at a certain point, when most of our money is investments, net worth may cease to be a particularly useful metric to track on a month-by-month basis. For now, it's my favorite all-around financial metric.
What's your favorite metric, data nerds?