One Week Workout for Your Wallet

I believe in small steps. It’s small steps that get us started walking when we’re young.  It’s small steps that are manageable when we begin building a new habit. Starting a workout program, a diet, a project, anything that takes hard work and discipline is difficult. That’s because they seem daunting. Begin with small steps, and you get there.

That’s why I have a one-week challenge for you to begin improving your financial situation. They are small steps in the right direction.  Each day of this week is a stone added to your path. Each day is a small step in a larger process.

Day 1 – Calculate your Net Worth

Day one Today’s assignment is to figure out your net worth. Your net worth is your total assets subtracted by any liabilities. It’s a vital statistic in tracking your overall progress.

How to do this:

  1. Add together any liquid items of value. This means, cash, easy to sell possessions or property that is free and clear. Things like funds in bank accounts, bonds, and the face value of any retirement accounts.
  2. Add together any liabilities (i.e. debts).
  3. Subtract your liabilities (step 2) from your assets (step 1). This is your net worth.

Spend no more than one hour on this. Write this number down, negative or positive. Keep it somewhere (like a mirror) where you can see it the rest of the week.

Day 2 – Add more money to your retirement account

Know that every cent you do not use today, you will thank yourself for later. Make it small if you have to, but make sure to increase your contribution. Compound interest is a remarkable tool for young adults. Take full advantage of this.  This is a simple, small step to positively increase your net worth.  Even if it is just by ten dollars each paycheck that’s an extra $260 a year earning you interest, and (bonus!) it may also decrease  your taxable income.

Day 3 – Calculate your Expenditures Over One Year

Simple budgeting dictates spend less than you earn to build positive net worth. Today, calculate everything you spend in a year. Aim for an estimate.

It might be easiest to think in terms of monthly expenses, using the last twelve months as a template. If any major expenses changed, like, housing for example, on what you spent each month over the last year, make that adjustment in your estimate.

 For example, think about all you spend on:

  1. Fixed (unchanging), regular expenses: housing, fixed-rate loan payments, insurance payments.
  2. Flexible (variable), regular expenses: Groceries, gas, vacations, gifts, transportation costs
  3. Fixed and flexible, irregular expenses: If you pay insurance every six months, hair cuts, gifts, vehicle maintenance and repairs, etc.

 By estimating your annual expenses, you can plan.

Day 4 – You are a Business

You want liquidity, solvency. You want growth. At the end of the year, you want more money, not less.

Many businesses have different accounts for their money. They have a plan for their money. Different funding streams for specific purposes. For example, a specific account may have payroll expenses. The Maintenance Manager may only have access to the Operations Director’s line of funds to pay an invoice for door locks. Run your personal budget like a business.

Using day three’s figures, you’ve already predicted your yearly expenses for three categories. Factor in your income. If you don’t make enough to cover what you plan to spend the next year, you have only two options: make more or spend less. Doing both at the same time is an even better option.

Think about your next year using those three categories.

  • Fixed, regular
  • Flexible, regular
  • Irregular (some may call this emergency, or non-monthly expenses)

Compartmentalize your money to have more control and increase your ability to track how you’re using it.

Day 5 – Find New places for specific purposes

There are many good reasons to separate your money. As soon as you get paid, your money should have a purpose; to serve its purpose, it makes it easiest if it is in the right place.

Spend this day shopping around to find a FDIC insured credit unions and/or banks. Think about putting your money in three different places.

  1. Fixed, regular expenses (student loans, rent, insurance, or other predictable and unchanging payments) come out of one account detached from any cards you may use on a night out with friends.
  2. Flexible, regular this account shouldn’t be attached to any overdraft or savings accounts to discourage impulsive overspending.
  3. Irregular use account should be someplace where it can be dipped into for emergencies or planned, but not overly accessible. It should also be somewhere with a higher rate of guaranteed interest return.

Day 6 – Make sure you put more money in Account three (Irregular use)

Figure out how much per paycheck you will need to place into each account to be within the limits of your annual expenses from day three.  Whatever figure you have calculated you need in your irregular use account, put more in then you expect using. This will boost your savings –leaving extra money to use for investing at the end of a year or paying down on a loan you may have.


Day 7 – Mark your calendar to check your net worth three months from today

Businesses are often required to generate reports on a quarterly basis. You should do the same to make sure you are on track for the year. There is no better way to motivate yourself then to see positive progress; to watch the small steps you are taking work.

Post your net worth number, positive or negative, next to your number from day one in this exercise.

Let me know your thoughts, challenges, or progress below!

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