Monday, December 19, 2005

Personal finance resolution:

The new year is quickly approaching which means it is time for everyone to make resolutions that they will keep for a month and then give up. People will buy a gym membership and go to the gym for a week and stop going. Others will give up cigarettes for a week and then get over-stressed and need one to take the edge.

Well here's a resolution that will only take a week. Get a small notebook and a pen, or if you have a PDA that works too. Write down every cent that you spend that week, if you pay a phone bill or cable bill, write it down! If you buy a coffee every morning, write it down every morning. It doesn't matter how you pay for it either, whether it be cash, check, debit, or credit, write it down! Make a note of which source you are using for each purchase (again cash, check, debit or credit). At the end of the week add up the total amount of money that you spend, I bet it is a lot more than you thought you did each week. Buying a $1.37 coffee each morning doesn't seem like much, buy 5 days a week means that you are spending $6.85 on coffee each week. Again that still doesn't seem like much, but it means $27.40 a month and 328.80 a year. If you are currently a junior in college, that means you have about 45 years until you retire, that means you will spend $14796.00 dollars on coffee.

Remember also that most people don't just buy a coffee, they buy a doughnut, or a muffin, or bagel. They also probably buy an afternoon snack as well. So lets say you spend as little as 5 dollars a day on coffee and snacks including the weekends. That means $35 a week, $140 a month, and $1680 each year. If instead you invest $1680 a year into an account that has an 11% return and leave it until you retire you will have over $1.6 million. (This assumes you are currently 20 years old and invest that amount into the account every year until you retire at the age of 65)

As for now, don't worry about investing your money into a retirement account, just figure out how much money you are spending each week. I would strongly suggest you get your hands on a copy of either Microsoft Money or Quicken. This makes it much easier to track all of your expenses. Almost every bank and credit card company will let you download your records into these programs so you don't even have to make the effort to type each transaction in. When they make it this easy you might actually enjoy tracking your money.

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