Happy New Year!

Can you believe this blog survived 2018? Of course you can’t; you don’t exist because there is no one reading this. That’s all right. Did you have a good New Year’s? I know I did! For a few years running now, my celebration is always great. No, I don’t leave home for it. As wonderful as crowds of increasingly drunken fools, cover charges at bars that don’t normally charge them, and cops everywhere (seriously, it’s their damn super bowl) may be, I manage to resist. Why? I can go out and have a good time literally any of 364 days a year; I will leave this one for the amateurs. And there are always more than enough of them out there to make paying a huge premium over any other night a huge waste. Today I want to talk about what I do on New Year’s Eve because whether you like to take the night off or not, these are very important activities that can really help kickstart (that term didn’t used to mean online panhandling, sigh) your financial goals in the new year.

Throughout the year, I record my expenses, investments, and any other transactions. This can be done very simply using Mint or one of what I’m sure are many available apps. Or it can be done with somewhat more of a hassle but also the advantage of not connecting many financial accounts to a single online source if you’re like me and trust no one. Whatever method you choose, New Year’s Eve, or whatever day you do this, is the day it all comes together. So you want to be thinking about that end goal when you set this all up in the first place.

Anyway, while many people are out having one last hurrah before they swear off everything fun for at least the week or two their resolutions survive, I’m at home reviewing what I did over the course of the outgoing year and setting new goals for the new one. All those transactions get aggregated into a handful of spreadsheets, which I use for both direct analysis and creating financial statements – at least my lazy man’s set of financial statements – an income statement and a balance sheet. Screw you, cashflow statement and statement of owner’s (or stockholders’) equity!

The income statement puts all my income sources and expense categories in one place, making it very easy to see where I did well and where I didn’t. This year, there was plenty in both categories. My balance sheet shows me where I stand with everything right now – all my assets and any debts I would have if I were someone who did. These statements are especially useful when comparing them to last year’s versions so this exercise really needs to be done for at least two years to see the full value.

Why do I do this? Sure, part of it is because there is something wrong with my brain. I’d be lying if I said I don’t write a little executive summary and then read it to myself in a poor imitation of a CEO on an earnings call at the end. I do. But it amuses me. And I believe that at least a basic version of this process will help anyone. Not only do you get to see exactly where you stand financially, but if there are any concerns, you can go back and see the exact transactions that got you here. I can’t imagine a more effective way to look back at your year, set goals for the next one, and have a great picture in mind of exactly what it will take to meet them while doing it.

After all, fail to plan, plan to fail. And the information gathering stage is a vital part of planning. If your life is a ship, you’re the captain. How crazy would it be for a captain to care neither where he intends to go or even where he is now? If you want to improve your finances over the next year, and I think we all do, my New Year’s process is a great way to start moving in that direction. And no, you don’t have to do it on New Year’s. After all, if you do it a couple months later, you won’t have to go back and make updates when you have your final tax figures in hand like I do. But then again, your year will also be less fresh in your mind and I think you will lose some of the effect of punctuating one year and outlining the next. Everything is a trade off.

If you don’t know how to create an income statement or a balance sheet, I will outline the process – although before I do that, I will recommend that you learn the basics of accounting. It is a horrible field to work in. Horrible. I know because I did it for a while. But it is a very valuable skillset whether you want to gain insight into a publicly traded company you’re considering investing in or simply trying to understand why things are the way they are at work and how you can get ahead. With all the ways we waste time, I think it’s a crime not to invest some in educating ourselves on an ongoing basis. And accounting is a highly recommended area to do that.  

A balance sheet is simply an expansion of the basic accounting equation: assets minus liabilities equals equity. This equation really is the key to life. Think about it. It could just as easily be calories taken in minus calories expended equals live or die and then it literally applies to everything alive. So first you list your assets –  bank accounts, investments, vehicles, real estate, etc. These are the total values mind you – not the equity you have in them. Then you list your liabilities – any loans, credit card balances (hopefully not!) IOUs to your Mom, anything you owe anyone. Finally, you subtract total liabilities from total assets and you have your net worth. Some folks think you shouldn’t include your primary residence in that but let’s not split hairs. The point is to have a big picture view of your financial life and a basis for comparing one year to another. Oh. Every balance should be as of a specific date – December 31 in this case.

An income statement is a whole year statement as opposed to a snapshot at a specific point in time like a balance sheet. It looks a lot like a balance sheet but instead of assets, you start with income sources – employment income, business income, investment income, credit cards (yes, that’s in my income section ONLY; I’ll post a guide to doing that soon), and so on. Then you list your expense categories – housing, gas, food, insurance, taxes, everything, however you want to break it all up. Total income minus total expenses gives you your net income for the year. Bonus points if that amount for 2018 equals the difference between the 2017 net worth and your 2018 net worth from your balance sheets. Full disclosure: mine was off this year and I don’t care. It was by less than $1000 and even my insanity has limits.

Questions? Leave a comment or shoot me an email. Oh, that’s right. No one is reading this. Oh well. My net worth is soaring, even in a bad year which 2018 certainly was for a handful of reasons (but now I know the how and why and I can work on making the necessary adjustments), and my New Year’s exercise not only contributes to that indirectly by getting me in the right mindset, but it documents the whole thing for me. Here’s to a happy and prosperous 2019 for everyone!

Take Advantage of the Easy Opportunities

About a week ago at the grocery store, the cashier handed me three coupons. Most of the time coupons are worthless to me. Some have too many contingencies, others are for something I would never buy, and still others are for stores or service providers that aren’t the best options in the first place. But I always take a quick look anyway and it turned out these coupons were amazing. One was $5 off a $30 total purchase, one was $3 off a $5 purchase of produce, and one was for a free pound of ground beef. I could use each one of these and they were for HEB, the best and cheapest grocery store in my area. Not only that, there were zero restrictions of any kind meaning they could all be used together. I barely had to modify my next shopping trip at all to take advantage of the more than $10 HEB had decided to hand me.

That opportunity fell into my lap but not all of them will. Sometimes it takes just a little bit of hunting. For example, when I set up this website earlier this week, I took one extra step before checking out. I googled “wordpress coupon code.” After trying a couple that didn’t work, I happened upon one that did and it saved me around $15. And just today, I got the notice that it’s time to renew the registration on my car. Here in Texas, an inspection is required as part of the process. The state sets the price of this inspection at $25.50 but just for the hell of it, I gave Google a shot at helping out again. Within seconds, I found a coupon for 25% off, saving me over $6 on this useless but mandatory service.

For those who are keeping score, that’s over $30 I’ve saved just this week – all on things I would have paid for anyway. Since I invested a total of no more than five minutes of extra effort in making this happen, that means I was paid more than $360 an hour for my “trouble.” As a bonus, our friends at the IRS haven’t found a way to tax money that isn’t spent yet, although I’m sure they’re working diligently on it. So that brings my hourly pay up to over $600 for these activities.

Taking advantage of opportunities like these may seem obvious and absolutely everyone has them but it’s amazing how many people don’t do so. I bet over half of the people who were handed those same coupons threw them out without even looking at them. I bet the same percentage or more don’t do a quick google check for coupon codes when they’re shopping online. And furthermore, I bet that many of these are the same people who claim they can’t afford to save for retirement or even for a rainy day.

I can easily afford those things and more. But a huge part of what got me here was taking advantage of the opportunities that were either in front of me or easy to find from where I was. I’m not talking about working my ass off to find more customers or to hammer out a deal that is both attractive to someone and profitable for me. I’m not even talking about spending ten minutes gathering up coupons and planning a shopping trip. That is more of a time investment than I am willing to make on that even though I do know people who make an excellent hourly rate doing it. I’m not talking about taking a girl out with a promotion that I have to use right in front of her or something else potentially embarrassing. I’m talking about the six-inch putt, the extra point (before they moved them back in the NFL), the gift that is available to anyone willing to simply unwrap it. I’m still taking advantage of these today and still will long after my net worth crosses from six figures to seven.

Folks, life is hard and sometimes opportunities are scarce or difficult to take advantage of. I’m not saying you shouldn’t fight hard because you are very unlikely to succeed if you don’t. I simply want to remind you not to neglect the easy stuff because it is there for the taking and often more profitable than you might expect.