Friday, February 1, 2008

January 2008 Financial Report: How I Became Rich in One Month!

Ok, so I lied - I didn't really become rich in a month. But I did make the changes necessary in my financial life to eventually become rich. Here I'm defining rich as having achieved financial independence - when my passive income meets or exceeds my expenses. This would allow for a level of comfort and freedom that I would consider "rich" as I get into my golden years. (Of course I would love to become rich according to the traditional connotation of the word. Here's hoping!) Starting with the initial deposit into my ING Orange Savings Account on 12/31/07, my outlook and philosophy on money has changed entirely. Here's what I've done to establish a foundation for future financial independence in January:

  1. Opened a high-yield online savings account
  2. Opened a high-yield online checking account
  3. Opened a Roth IRA
  4. Set up automatic monthly contributions to both my savings and IRA
  5. Recorded my income and expenditures for January in order to establish a monthly budget
  6. Outlined financial goals for 2008

The impact of these actions after only one month has been amazing, from both a practical and psychological standpoint. For one - I have assets now! I went from literally zero assets to just over $1,000 in a month. Granted, in such a short time this was mainly due to some very generous Xmas gifts, but also I was able to not carry a negative balance on my Citizens Bank checking account for the first time in a while, and with a little self-evaluation and discipline I was able to sock away a nice little portion of cash to get me started along the road to financial independence.

But, as important and absolutely necessary as these actions were, it was almost as important to change the way in which I thought about money on a daily basis. I no longer see money as a burden. Ever since I graduated college, money has been a constant negative in my life. In large part this has been due to my being severely underemployed and underpaid for the most part, but it was more my behavior that was responsible for the position I put myself in. Late payments, owing money to friends, overdraft fees - all these contributed to not only a negative financial bottom line but a debilitating psychological mindset. Simply being conscious of how much money flows in and out of my possession has entirely changed my financial situation.

I now realize that money is a tool, and I view it as such. My money is no longer in control of me; I am the one calling the shots. My money can be frittered away but it can also go toward paying down my debt, contributing to my savings, investing, and planning for retirement. As I continue to educate myself on personal finance and get used to managing my money on a daily basis, as opposed to just spending it, I become increasingly aware of opportunity and effective strategies to maximize the earning potential of my money. I'm off to a great start this month, and I look forward to continuing and hopefully improving my money management over the coming months. This is actually turning into an enjoyable, as well as profitable, pastime!

"Ok," you say, "All this feel-good fluff is great, but show us the numbers!" Fair enough. So how did I do in this first month on my journey to financial independence?

Well my current net worth stands at a robust -$25,926! Unimpressed? Check the breakdown:

Assets: $1,089.54
Savings: $730.88
Checking: $155.50
Roth IRA: $200.16

Debts: $27,015.71
Student Loan: $14,734.30
Credit Card: $3226.28
Misc: $9,055.13

Total Net Worth: -$25,926

Again, what impresses me is the asset acquisition. I've gone from literally nothing to just over a grand. If I can pair regular savings with debt payments, my net worth will hit $0 before you know it! If you're interested you can also click on my Net Worth progress graph to the right, courtesy of NetWorthIQ. It's a cool site that allows you to keep track of your net worth on a monthly basis - and it's free! I'm excited to watch my progress as that line starts on the slow climb to positive numbers.

I'm in a great place right now mentally regarding my finances. I feel in control for the first time, and I am eager to maintain the necessary discipline. The sense of security that I feel with money in the bank, earning interest, while I finish the month with a positive checking account balance, is thrilling!

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