Another year gone by! It’s time to reevaluate savings goals, take a fresh look at my financial picture, and yes… maybe even make a few of those "resolution" things people keep talking about. But before we move on, it’s time to recap the last month of 2008:

Change: -$6 or -0.02 %

Not too shabby, considering I had severely crippled income in December: two of my jobs ended in November, and the one that’s starting up again doesn’t do so until next week. Also, Christmas!

The key to December was really just hoarding away money during November to make sure that I could last my barren winter month and the holidays.

Also, December was the first time since "that time that I dropped out of school for 9 months" that my student loan balance went down. I took a large portion of my earnings from my fall job, and paid off all the interest that’s accumulated since September of 2007. Feels good!

Over the next few days, I’ll look at what’s happened during these last few years, and what I want to happen in 2009. Happy New Year!

For a look at my assets and liabilities, check out my NetworthIQ for December. For an explanation of the categories I use, check out the bottom of my entry about February’s net worth balance.

Each December, people get themselves into a tizzy, making some last minute moves to reduce their upcoming tax bill or increase their refund. This little game is called "tax avoidance" and it is the legal, wholesome brother of "tax evasion." (Avoidance good! Evasion bad!)

But those of us that are young and bright-eyed don’t have a lot we can do in the name of tax avoidance. There’s the time-honored idea of throwing money at our favorite charity, which I definitely recommend. But if you’ve got student loans, they provide you another opportunity to (legally) hack your tax bill.

(Apologies to my readers outside the United States - this article’s probably not for you.)

Why It’s Legal

Before I get started, there’s always someone who jumps at the idea of tax avoidance and claiming deductions on tax returns. Taxes can be tricky business, and some people avoid claiming anything at all, just to make doubly-sure that they’re on the up-and-up.

Don’t be that guy. Tax avoidance is legal, or there wouldn’t be a section for deductions on your tax forms. It’s all about incentives - there are certain actions that the government wants us to take (such as buying houses, paying off student loans, and giving to charity), so the government puts a little cash-back program into the tax system to reward us. Hurray!

It would seem that Uncle Sam wants us to go to school, even if we can’t quite afford it, so there’s a deduction for student loan interest built into the taxes. You don’t even have to do that crazy "itemizing" thing to take advantage of it.

What’s a deduction? Tax deductions and tax credits are easy to mix up. It goes like this: a deduction reduces the amount of income that counts for tax purposes. A tax credit actually takes money straight out of your tax bill (or adds it directly to your refund). Credits are much more rare than deductions, so it’s no surprise that this is a deduction, not a credit.

Student Loan Interest

Some things to pay attention to when trying to harvest your student loan interest tax deduction:

Interest, Interest, Interest! Be careful! This is a tax deduction on interest paid off only, not principal. If your loans aren’t in repayment yet, and you don’t have any loans that build up interest while you’re in school (unsubsidized loans), you don’t have any interest to pay off!

If your loans aren’t in repayment yet, check to make sure you actually have interest before you make payments toward it.

Who gets it? Oh, hey, are you still being claimed as a dependent on someone else’s taxes? Sorry, you don’t get to claim the deduction, the person claiming you does. Apparently the government assumes that if you’re a dependent, you’re not paying your own student loan interest yet.

If you want to use this to your advantage, you can try asking your parents/whoever to pay something toward your student loans in order to get the deduction. It’s worth asking!

What year to do it in? This relates to the last bit, for some people. If you’re in your senior year, you might be claimed as a dependent this year, and not next year. So it may be to your advantage to wait to do it.

Limits. The amount you can deduct will be reduced if you make too much money. From the IRS website:

For 2008, the amount of the student loan interest deduction is phased out (gradually reduced) if your filing status is married filing jointly and your modified adjusted gross income (MAGI) is between $115,000 and $145,000. You cannot take the deduction if your MAGI is $145,000 or more.
For all other filing statuses, your student loan interest deduction is phased out if MAGI is between $55,000 and $70,000. You cannot take a deduction if your MAGI is $70,000 or more.

Also, you can only deduct up to $2,500, even if you pay more interest than that. Thanks to reader Angie for the info on limits!

Tax Avoidance In Action!

If this has been at all confusing, or if you just like to see how this stuff actually works, here’s how I did it:

I have a combination of subsidized and unsubsidized federal student loans, so some of my loans have been building up interest while I’ve been in school. There are some complications because of the fact that I dropped out of school and went back nine months later, but what it basically boils down to is that we’re only dealing with the interest that’s accumulated since the time I went back to school, in September of 2007.

Because I’m a senior, I’ll be a dependent on my mom’s 2008 taxes, and I’ll likely be independent when it comes to 2009 taxes. I’ve been building up money to pay off my accumulated student loan interest, so the only question was:

Pay it now, and give my mom the tax deduction, or wait until January 1st and save the tax deduction for myself?

After some debating and asking people what they think, I decided to make the payment last week, and give the deduction to my mom. Here’s why:

• She has more income, so the deduction will probably have more impact for her.
• I’ll have the opportunity to pay lots (and lots) of student loan interest for many years to come, and get the deduction for myself. This is the last year I could possibly give it to her.
• I’m a wonderful, sweet daughter. And I’m counting this as part of her Christmas present.
• I got itchy fingers and couldn’t wait to pay off that damn money any longer!

So, I sent $1,323.69 to my student loans - all the money I had saved up. $1,157.88 of it paid off all my accumulated interest, and the rest of it went toward the principal. That last bit didn’t give my mom any tax advantage - I just wanted to pay down my principal a bit before graduation.

Depending on my mom’s tax bracket, this will save her between $165 and $275 on her taxes. Nice Christmas present, don’t you think?

Get a high-yield online savings account and put some money in it.

Real short and sweet, huh? Well, that’s the point, because it’s fairly simple. You already know you should be trying to save, so we’ll skip the lecture on that, and just go straight into the where.

You see, the problem with savings accounts at regular, "brick-and-mortar" banks is that their interest rates tend to suck. As I write this, Bankrate puts the national average at an abysmal 0.46%. That means for every $100 you put in a regular savings account, you get 46 cents per year.

Rates at any bank aren’t particularly high right now, thank to recent economic happenings, but you can certainly do better than 0.46% by going online - 2.75% or higher. You can check out current rates by visiting the sites that offer high-yield savings accounts:

• ING Direct
• E*TRADE
• Citibank
• Emigrant Direct
• HSBC Direct

There are others - leave a comment if you want to add your favorite! All of these accounts have something in common, though: no minimum and no fees. That’s something you might have trouble getting from a brick-and-mortar bank, as well.

My personal favorite? ING Direct. I have four online savings accounts (the other three being at E*TRADE, Citibank, and Emigrant), and ING has given me the best experience so far. They don’t always have the highest rate, but their interface and customer service are top-notch. And you can’t beat their referral program!

Truly Frequently Asked Questions About Online Savings Accounts:

Are they safe?
Yeah. These are real banks and real accounts, and the accounts are FDIC insured, just like your accounts at brick-and-mortar banks.

Why is the rate so much higher than regular savings accounts?
Brick-and-mortar type banks have to employ tellers, security people, rent the property, build the building… there’s a lot more overheard to running actual locations. Online banks can set up just one or two office buildings for the whole country. Their lower costs add up to bigger rewards for you.

How do I get money in and out of them?
These accounts electronically link up to your current checking account. The process is easy, and you’ll be walked through it when you open the account. Once they’re linked up, you can do transfers between the savings account and your checking account. Warning: Federal law prevents you from making more than 6 transfers per month out of any savings account. This includes non-online accounts! You can make as many transfers in as you like, however.

By this time of year, your wallet is probably feeling quite light indeed. Whether it was emptied by tuition and textbooks or by beer and video games makes no difference - you’re broke. But now that you’re an "adult," your family expects you to partake in holiday gift-giving, just like everyone else.

Now you could try getting crafty and reliving your childhood, but macaroni necklaces probably won’t go over as well as when you were five. And ornaments made from maxi pads? My mom may find them funny, but she’s probably an exception rather than the rule.

Never fear! There are gifts you can give that are tasteful, cheap, and will even be appreciated! All you have to do is give the gift of what you know.

Giving Away Experience

In your time on this planet, you’ve surely managed to pick up a few skills, maybe even some skillz! Through careful study, or trail by fire, you’ve learned to accomplish at least a few tasks more complicated than tying your shoes. But did you ever think you could use your talents as free/cheap presents?

This concept is best communicated with examples:

Computer Knowledge

We college students have learned how to navigate the web (and Web 2.0), bother people on Facebook, move all of our contacts between different email providers and software, and do a ton of other things that we just take for granted. A lot of this stuff can be foreign and difficult to older members of your family. Even my mother, an early adopter who was programming in Basic in the 80s (yeah, really), hasn’t really gotten the hang of things like RSS yet.

Write up an I.O.U for a computer session and give it as your gift. You can sit down and teach someone how to accomplish a task that you know would make their life easier. Or, you can gather the feeds for the sites they like into Google Reader. And, for the sake of all of us, install Firefox and make them stop using Internet Explorer!

Gettin’ Crafty

Again - no macaroni necklaces! But maybe you have picked up some craft skills that you can use. Knitting and crochet are quite popular among my friends, even some of the male ones! But we knitters have learned that knitting presents for your whole family is both expensive AND time consuming, which pretty much knocks it out of the "frugal gifts" category.

Instead, teach the craft that you’ve learned. Wrap up some yarn and needles (or a crochet hook), or maybe a beginners needle-point set. Some people, upon receiving this gift, will demand that you start teaching them right then and there! That’s one way to get out of the holiday small talk for a few hours: "Sorry Uncle Phil, I’d love to talk fishing with you, but I’m trying to teach your daughter to knit. It’s her Christmas present!"

Bonus: people love to have good stories about how they learned a craft. Mine is kind of boring (I taught myself, from books), but it’s nice to be able to say "Someone really close to me taught me as a Christmas present!"

Juggling

I can juggle! Barely. But I can certainly juggle better than my brother, and that’s the point, isn’t it? Fun skills like this are great gifts for the children in your family. In a few years I hope to teach my niece how to juggle (she’s 4), although I’ll probably have to wait a while to teach her infant brother. And yes, maybe I can teach my own brother a thing or two at the same time!

Installation and Assembly

Every family has that thing. You know that thing? That thing that’s in the basement! It was given to the family a few years ago, and it would be totally sweet to get it out and use it, but no one has taken the time to put it together or install it yet. (In my family, it was a jungle gym.)

If you’re capable, go down into the basement or out into the storage shed, find The Thing, and put to together so that people can finally get some use out of it. It might seem too hard, but maybe you can wrangle some siblings into helping you. And remember, most Things come with instructions! (If not, you could also Google it.)

The Key to Making This Work

There are hundreds of ways you can turn your expertise into a gift. But what you really need to do is make sure the gift will be appreciated by the recipient. Find and need, and fill it. Computer help probably won’t be wanted or needed by a teenage sibling or cousin. Listen to your friends and family talk for clue about what you could help them with.
"That darn computer never seems to work right!"
"Wow, that’s a great scarf, did you make that yourself?"
"I always wished I could juggle…"
"If only we had That Thing from the basement put together, I could really use it!"

Even when they don’t mean to, people will tell you what they need.

This post is a part of the College Money Network’s Frugal Holiday Ideas series. Check out these other posts in the series:
Holiday Gifts: Thoughtful is > Expensive
The Best Frugal Christmas Gift Ever
Frugal Gift Ideas

The College Money Network is helping you celebrate the holiday season with a giveaway! With the economy in a recession, many of us are cutting back on our holiday spending this year, but we still want to have just as much fun. Share your frugal holiday ideas (gifts, party plans, etc.) and earn chances to win one of the awesome prizes we’re giving away just in time for the holidays.

Later this week, I’ll be posting some of my frugal holiday ideas, and so will other CMN members. But for today, I’m sure you just want to hear about the giveaway!

Prizes

• 2 GB iPod Shuffle
• $50 Photofiddle.com Gift Certificate
• $25 Amazon.com Gift Certificate
• One-year magazine subscriptions
  • Kiplinger’s
  • Money Magazine
• A copy of The Millionaire Next Door

How to Enter

There are multiple ways to earn entries into the CMN Frugal Holiday giveaway. Complete as many as you can to increase your chances of winning a prize! You may enter each way once.

• Leave a comment on this post sharing your frugal holiday ideas. (1 entry)

• Subscribe to my feed via RSS or email. Then send me the secret phrase that appears at the end of each post in my feed. (2 entries)

• Write a post on your own blog about your frugal holiday ideas and link back to this post. Email me to let me know. (Posts you’ve already written count, as long as they were written in 2008.) (3 entries)

• Visit individual College Money Network member sites for opportunities to earn additional entries, similar to the ones you see here. Copying and pasting your comment on multiple blogs will NOT count. (Maximum of 6 extra entries)

  • Broke Grad Student
  • College Finance 101
  • MFA or Bust
  • Spilling Buckets
  • This Writer’s Wallet

How To Win

All valid entries will be assigned a unique number. We will use a random number generator to select the winning numbers. Odds of winning depend on the number of entries received.

All entries must be received by December 15, 2008 at 11:59 PM PST.

Winners will be notified the following day. After all the prizes have been claimed, we will release an official announcement listing the winners.

Rules and Restrictions

• All winners must be 18 years of age or older and live in the United States.
• No purchase is necessary to participate in this giveaway.
• We will choose the winners from the qualified participants. We are the sole judges of adding entries to the list. Plagiarized content, trackback from splogs, spam, and comments containing abusive or inappropriate languages will not be considered.
• To award the prizes, we must be able to contact you. Please leave a valid email address with your comment, or make sure we can contact you through your web site. Your contact information will not be shared with anyone else.
• For certain prizes, winners will be required to submit a physical address to ship the prize. Again, your contact information will never be shared with anyone.
• Prizes are provided as-is, and substitutions may be made at our discretion.
• Winners must reply within 1 week from the time we notify them to claim their prize. Otherwise, they forfeit their prize, and it will be awarded to an alternate.

A $2,000 balance may sound teeny-tiny to others drowning in debt, but my credit card balance was just the high-interest tip of the iceberg when I dropped out of school and finally faced my financial mess. And while I’ve still got student loans to worry on, I made my credit card balance disappear.

And I used some cool little tricks to help me pay it off.

Pay the Bill When You Get It

Credit card bills come by mail or by email, and they come about 20 days before they’re due. So you start calculating in your head, "How much can I drum up before the due date?"

Changing that train of thought could be the key to paying your debt off faster, and paying less interest along the way! Instead, think "How much can I put toward this bill right now?"

Here’s why it works:

1. Interest on credit cards is calculated based on the average daily balance for the statement.* Paying at the beginning of the statement means your average balance will be lower for the next bill, meaning less interest to pay!
2. You pretty much guarantee you won’t get hit with a late fee if you pay at the absolute first second instead of the last second. Late fees suck - this is a great way to completely avoid them.
3. You save yourself from forgetting - this can be incredibly powerful for some of us! Instead of having to remember to pay your bill, it’s already done.
4. Credit card companies can get sneaky, and move your due date to try and trip you up, and squeeze a late fee out of you. That won’t work on you if you’re paying the bill as soon as you get it!

*If you have double-cycle billing, interest is calculated based on the average daily balance for the last two months. Ew! That means even if you pay off your balance one month, you’ll still pay interest on it the next month - or two! Transfer your balance to a credit card that doesn’t have double-cycle billing. Quick!

If You Find More Money, Throw It At The Card

Many people don’t realize that you can make multiple payments toward your card each month. (Some cards charge a penalty for this, but most do not.) This can work to your advantage in several ways.

• Pay weekly instead of monthly. Make the minimum payment the first week after you get the bill, and then each week pay as much as you can.
• Or, pay as much as you can when you get the bill (ala the hint above), then pay more when you get it. Like, if you get an unexpected bonus, or find $20 in your coat. This process is called "snowflaking," and it’s great!
• Set up automatic payments from your checking account for the day you get your paycheck. Or the day after.

Track Your Progress

It may seem silly, but my insane spreadsheet motivated me more than anything else. It turned it into a game! "Hmm, if I can find $30 more to pay this month, I’ll pay off those plane tickets that I never should have bought in the first place!" Find a cool graphic online (there’s a ton - do a search for "countdown ticker"), keep a spreadsheet, or grab some paper and draw one of those red thermometer graphs!

Having some way to actually see the progress you’re making can truly make a difference. This requires that you know exactly how much you owe, so if you don’t, you really need to sit down and tally it up.

Snowball It

If you have more than one credit card that you owe money on, there are a few schools of thought on which one to pay off first. Followers of Dave Ramsey’s Baby Steps philosophy say to pay off whichever one has the smallest balance first. This will give you a physiological boost, and you’ll feel good enough to stick with it.

Or, there’s the school of thought that you should pay off whichever one has the higher interest rate, first. This makes more "math sense," as it will likely save you more money in the long run, and more money saved is more money to put toward the other cards.

Choose what works for you. Either way, list your cards (either by balance, smallest to largest; or by interest rate, highest to lowest), make the minimum payment on all of them, and throw all the extra money you can at the card on the top of the list. Once it’s paid off, you can start throwing the old minimum payment from the now-paid-off-card, as well as all that extra money you drum up each month, at card #2. And so on, it snowballs down until you’ve paid them all off.

Balance Transfer

If your credit score is good enough, you may be able to get a new credit card with an intro balance transfer rate of 0% for a period of time. Transfer your balance, and use the money you’re saving in interest to pay down the card faster. However, this only works if you follow some rules with it:

1. Do not drum up new debt, either on the old card or the new one. This is rule #1 for a reason! If you go out on a spending spree with your now-empty old card, none of these tricks matter, because you’ve dug yourself into the same hole again.
2. Watch out for "balance transfer fees." Usually they’re around 3% of the balance that you’re transferring. Try to get a card that doesn’t have this fee. If you can’t find one, do the math - make sure you’re saving more in interest than the fee, or else it’s not worth it.
3. Make on-time payments! If you’re late even once, you’ll lose that intro rate, and you’ll be paying interest again.
4. Try, as hard as you can, to pay off the whole thing before the intro rate expires. This is why I waited about a year to get a new card and transfer the balance - I wanted to make sure I could pay it off during the 12-month intro period. (And I did!)

Super ninja balance transfer hack: This tip is not for the faint of heart. It’s for those of us who are incredibly anal, and stay right on top of things. After you do the balance transfer, just pay the minimum payment on the new card. Then, take all the extra money you can sacrifice each month, and put it into a savings account. Then, less than one month before your intro rate expires, use the savings account money to pay off the card.

This will drum up some savings account interest to help you pay off the card. Not a lot of interest, especially with rates as low as they are now. But every little bit helps. This only works if you pay off the card before the rate expires, though! Even one day’s worth of credit card interest could wipe out all the money your savings account earned!

Further Inspiration

Want to see how some other people got out of credit card debt? Here are some of the stories that I really enjoyed reading:

JLP at All Financial Matters: How We Got Out of Credit Card Debt
How JD Roth at Get Rich Slowly began to see The Light at the End of the Tunnel
Trent at The Simple Dollar talks about how he made the debt snowball method work for him.

I can scarcely wait to share this month’s update. Seriously, I’m rocking in my boots trying to write this intro. LET’S DO IT!

Change: -$1,887 or -5.17 %

Woohoo! Wait, why am I excited when I lose money? Well…

This month’s drop is due to, as usual, student loans. I took out about $3,300 to pay for my last quarter of school. But, yes, it’s my last quarter! Which means this is it - the last big drop due to student loans. Hurray!

Also, I managed to put away a whopping $1,505 in savings this month! I was able to do this due to a short-term, time-consuming, but lucrative job I worked from the end of September until mid November. I directed the fall play for my former high school, and got a nice stipend for it. Although, that’s not really why I did it - I was mostly attempting to relive my high school drama club days!

Thanks to that job, I was able to meet one of my savings goals - I now have enough sitting in my account to pay off the interest that’s accumulated on my Unsubsidized student loans. I’m not sure if I’ll do this now, or what until the end of the quarter (March), but that’s a big enough decision to warrant its own post!

I can wait - with my last batch of student loans out, maybe my graph will stop looking like a serious of painful cliffs!

For a look at my assets and liabilities, check out my NetworthIQ for November. For an explanation of the categories I use, check out the bottom of my entry about February’s net worth balance.

I’m a big, big fan of Randy Pausch. He was a Carnegie Mellon professor who rocked the world with his Last Lecture, just about one year ago. He passed away this July, which is what brought him to my attention. Even though I’ve watched the Last Lecture (and read the same-named book that he published before he died), I actually prefer his Time Management lecture.

Now, this tip isn’t about time management, although that’s not a bad financial tip. The more productive you can be, the more you’ll earn and keep your money. But I don’t need to tell you that - you already know that. No, the nugget that I want to highlight from Randy’s time management lecture is this:

Planning is very important. One of the time management cliches is ‘Failing to plan is planning to fail.’ And planning has to be done at multiple levels. I have a plan every morning when I wake up, and I say ‘What do I need to get done today, what do I need to get done this week, what do I need to get done each semester?’ That’s sorta the time quanta cause I’m an academic. And that doesn’t mean you’re locked into it!

People say, ‘Yeah, but, things are so fluid - you know, I’m going to have to change the plan!’ And I’m like ‘Yes! You are gonna have to change the plan. But you can’t change it unless you have it.’"

Make a Plan

Any plan. Any plan at all. Take out a piece of paper and draw your ideal life 5 years from now, 10 years from now, 20, 30, 40. Make a list. Do it in Photoshop. But don’t do it on a whiteboard or carve it into a stone tablet - the plan will change, but you want it to be semi-permanent enough to reference.

Come up with some goals for yourself. They don’t have to be financial goals. In fact, they shouldn’t be. This isn’t a time for numbers - it’s a time for dreams. "I want to get married on a tropical island in 10 years." "I want to own my own home." "I want to swim with dolphins." "I want to be able to retire comfortably when I’m old."

Your dreams are the most important thing. Get them down on paper, and each day, make sure you’re working toward them. If you’re doing something that doesn’t get you closer to one of your dreams, then why are you doing it?

Now, though, it’s time for a hard truth.

Dreams Cost Money

The average wedding: $28,000
Owning a home: Depends. Let’s just call it, "A mortgage and a down payment of at least 20%."
Swimming with dolphins: I confess, I don’t even know. Several thousand, at least, or a career in marine biology.
Retiring comfortably 40 years from now: $2,000,000+

It’s important to, once you have a dream, figure out how much it costs. Just like you should focus your time on your dreams, you also need to focus your money. Just because you’re in college doesn’t mean you’re off the hook. A dollar you make now is no different than a dollar you make when you’ve graduated. Except for one big difference:

A dollar today has a bigger advantage in compound interest.

Assign a dollar amount to each one of your goals. If you can’t figure it out, ask someone what they think. Once you have a dollar amount, you can figure out how much you need to save each month to get there. If it’s far off, you have the advantage of compound interest.

To get $2,000,000 40 years from now, you need to save $7,720.32 per year (assuming 8% interest compounded annually, which is pretty average for the stock market). To get a $28,000 wedding 10 years from now, you need $2,442.45 per year (getting 3% in a high-yield savings account).

Likely, the numbers will seem too high for you while you’re still in college. But think like Randy - you can always change the plan later, and you’ll probably have to! If nothing else, this will give you a ratio for what you should be saving. If I want the retirement and the wedding, I should save $2.44 for the wedding for every $7.72 I save for retirement.

So make a plan. Run the numbers. Sock away what money you can. Because these are your dreams we’re talking about here. Just like your time - if you’re not spending your money on your dreams, what are you spending it on?

Every month here on Poorer Than You, I take a snapshot of my finances and update my Net Worth numbers. Did it go up? Did it go down? Doing the math is one of my favorite activities! (Sadly.)

Change: $77 or 0.21 %

Ok, let’s face it. October was pretty plain-vanilla as far as money goes. I made a little more than I spent, and I saved it. I started a new job, but I haven’t received any  paychecks for that yet, so it won’t show up until I do November’s net worth update. So, November might be a big jump up. But December will be another slide down as I take out my last batch of student loans.

So, sorry so boring! You’ll just have to look forward to November with me.

For a look at my assets and liabilities, check out my NetworthIQ for October. For an explanation of the categories I use, check out the bottom of my entry about February’s net worth balance.

This tip is so simple and so dumb. Not dumb as in "you’re dumb if you do it," but dumb as in "Seriously? Why is this even a tip?" But don’t run away yet, because I stand by this fact: this is the most important and most helpful tip I could possibly share in this series.

That seems kinda silly, doesn’t it? Releasing the best tip right off the bat! Shouldn’t I save the good stuff for later, to keep you reading? Ha! Come on guys, I’m not that crafty. I’m way more concerned about you guys getting a running start, right now. So here we go.

Track What You Spend.

That’s it. That’s the secret. It’s hugely simple, and hugely effective. And everything else builds on top of it. Maybe it’s that old "knowledge is power" thing. Actually, it’s probably more like this:

For anything else to work, you need to know where the %@$# your money is going.

Too lazy? Bah! No one in the world is lazier than me, except maybe LazyMan, and even he seems to use Wesabe to track his spending. Which brings me to my next point - there are a ton of tools to make this task easier:

Old fashioned, dirt cheap: Small memo pad from the dollar store, and a pencil. Keep these two things in your purse or pocket, and every time you spend money, write down what you bought, where you bought it (maybe), and how much it cost.

*Bonus tip* I highly suggest that if you don’t use pencil and paper (I don’t), you at least keep a piece of paper in your wallet for tracking cash purchases that you don’t get a reciept for. If you’re anything like me, cash is incredibly hard to keep track of, even when you didn’t mean to be carrying much in the first place!

Free, more high tech: An Excel spreadsheet on your computer. This is what I use, so that I can track how much I make right alongside it. You don’t have to know how to use the math functions in Excel to do this - you can just use the little boxes (cells) as handy columns for the what, where, and how much.

Other computer programs work as well. Notepad, Word, whatever the Mac equivalent of Notepad is… you could even use a Paint program if it gets you to do it. I don’t care, just as long as it’s easy for you to read.

Also free, even more high tech: There are a lot of online sites that will pull the information from your bank accounts and credit cards, and analyze your spending for you. This is good if A) you trust the site and B) you rely on plastic forms of payment much more than cash.

Some examples of this: Wesabe, Mint, and Yodlee. Actually, most of these type of sites use the Yodlee system to do this - Bank of America’s "My Portfolio" feature is just Yodlee dressed up in Bank-of-America-red. To use Yodlee directly, click "Yodlee MoneyCenter login" on the upper right of their page.

I can vouch for the three sites listed above, because I’m a user. Your information will be safe thanks to their privacy policies. However, these tools aren’t completely perfect - you will have to keep an eye on them. Since they automatically sort and categorize your purchases, you might run into some weird blips. Like once, I had a textbook purchase show up in the "Health and Beauty" category. But most of these services are smart enough to "learn" after you correct them once.

The Power of Tracking

Not sold on tracking your spending? How about a story.

There was once a girl so broke and bad with money, she had to drop out of college and face the real world. But, when she dropped out of college, she also started tracking her spending. Over just nine months, she was able to go back to school. One year after that, her credit card was paid off, while she was still in school. Two months after that, she had $1600 in savings.

If you’ve read any other part of this blog, you’ll know that girl is me. It all started with tracking my spending. It’s the crux of all I was able to do.

You won’t have to do it forever. And you can automate it, now or later, using online tools. But you simply have to have some way to tell if you’re making progress. This is where it all begins.

We’ll get into how to use this information later. The important part is that you start immediately, if you aren’t already doing this. Start with the next thing you buy, or the next bill you pay. It won’t kill you.