Anyone familiar with this blog knows that I’m fond of saying, “your habits are your destiny.” And ever since I read the book, The Checklist Manifesto, by Atul Gawande, I’m fond of checklists. So for this post, I’d like to combine these two beloved things—an adage and a tool—and gear them toward personal finance. In other words, I want a list of ten things you should do daily in order to give yourself a fighting chance of achieving financial independence.
Now before I unveil my checklist, I need to insert an important qualification. The things on my checklist are different from the things you see on a typical financial checklist. Latoya over at lifeandabudget.com, for instance, has an excellent financial checklist geared toward millennials that includes such things as “keep tabs on your credit report,” “get life insurance,” and “start a side hustle.” Now, as important as these things are, you’re not going to check your credit report, get life insurance, and start a side hustle every day. Latoya’s financial checklist, like ever other financial checklist out there, is more about mechanics, about building a financial operating system to grow and protect your wealth. My financial checklist, on the other hand, is strictly about habits—the daily actions that will either bolster or confound your financial operating system. It’s a subtle difference, for sure, but an important one.
Okay, enough of my yammering. Here’s my stab at a daily FI checklist.
The Daily FI Checklist
1. Spend at least 15 minutes cleaning something.
Industry begets industry. So get up earlier than you normally would and clean something. It doesn’t matter what it is. A bookcase. A closet. A room. Fifteen minutes of cleaning sets the tone for the day. It’s your first victory, your first defiant slap across the face of idleness. It’s your bold proclamation to the world that for at least one day you won’t succumb to the sinister luxury of sloth.
It’s also a great way to maintain the tidiness of your home and keep your weekend free for more enjoyable activities.
2. Spend at least 15 minutes exercising.
Poor health equals a poor quality of life—regardless of how much money you have in the bank. The veracity of this belief really hit home when Julie, a physician who blogs over at choosebetterlife.com, left a very sobering comment on one of my recent posts on retirement. Here it is.
“If you’re overweight, your body wears out more quickly. In addition to heart disease and diabetes, you’ll have pain in your knees, hips, and back. This will make it more difficult to exercise, to enjoy yourself, and also to work.
We have family members who can only walk from the house to the car, so that rules out hiking (of course) and even museums, window-shopping, grocery shopping, festivals, attending grandkids’ soccer games, etc.
I also know people who have had to turn down jobs because they couldn’t climb or descend the single flight of stairs required to get to their office.
Without decent health, so much of the other stuff becomes out of reach too.”
Don’t let the important stuff in your life become out of reach because you failed to care for your body. Move at least 15 minutes every day. And if you’re not sure what to do, just walk. Walking is great exercise. When you’re ready to do more, there’s no shortage of YouTube fitness enthusiasts who will help you craft a suitable fitness program. Here are links to three such fitness enthusiasts to get you started.
3. Make your breakfast and your lunch.
Don’t buy anything to eat once you leave for work. Eat breakfast at home and brown-bag your lunch. Conservatively,
paying for breakfast and lunch outside the home every workday buying breakfast and lunch every day at work will cost you about $2,400 annually ($10 x 240). If you can’t go completely cold-turkey on the dining out front, limit dining out to paydays only. If you get paid every two weeks, this strategy will save you $2,160 a year ($2,400 – $240).
4. Read at least one personal finance blog post or one page from a personal finance book.
Personal finance isn’t rocket science. But there’s a lot to learn. And the best way to master personal finance is to study it every day.
So every day, do one of two things. Read one personal finance blog, or read a few pages from a personal finance book. That’s it. Give yourself 15 minutes. If you can do more, great.
Not sure where to start? Here are my suggestions.
For personal finance blogs, go to rockstarfinance.com. Rockstar Finance is, in its own words, “a collection of awesome money articles.” And every day it features three or four posts from three or four terrific bloggers. Here, for instance, is a screen shot of the featured posts from 1/3/2017.
For a personal finance book, I have four suggestions. Doesn’t matter which one you start with. They’re all great.
Total Money Makeover, by Dave Ramsey
Automatic Millionaire, by David Bach
One-Page Financial Plan, by Carl Richards
The Simple Path to Wealth, by JL Collins
5. Save the amount necessary to reach your saving goals in five to ten years.
Suppose for the moment that you’re 25 and you’re renting a one-bedroom apartment. Your monthly living expenses are $2,000. Let’s further suppose that you want to buy a one-bedroom condo in the near future. And, finally, let’s suppose that you want to establish a six-month emergency fund ($12,000) and accumulate a down payment for that one-bedroom condo you’ve been eyeing. You figure a 20% down payment will run you about $30K.
Okay, now that you got your saving goal ($12,000 + $30,000 = $42,000), you need to figure out your daily saving amount. To do this, you simply use the following formula.
Saving Goal ÷ (Number of Years x 365) = Daily Saving Amount
Start off by plugging five years into the formula. This shows you will need to save $23.01 a day or $700 a month ($42,000 ÷ 1,825). If that’s too steep, plug in ten years. At ten years, you will need to save $11.51 a day or $350 a month.
Finally, once you know your daily saving requirement, times it by 30, and then automate the monthly transfer of that result from your checking account into your saving or brokerage account. Do this and voilà, you’re saving what you need to save every day to meet your saving goals.
6. Invest the amount necessary to have a million dollars by the time you’re 65.
Again, let’s suppose you’re 25. If you want a million-dollar portfolio by the time you’re 65, you will need to save $13 a day or $381 a month (see table below). If you want a million-dollar portfolio by the time you’re 55, you will need to save $27 a day or $820 a month.
Once you know your daily investment target, you do the same thing you did to finalize your saving goals in Step 5 above. Only this time, you make sure the result is diverted into an IRA or a 401(k).
If you’re not sure what to invest in, keep it simple. Put your money in a target date fund that comes closest to matching the year you hope to have a million-dollar portfolio. If you’re currently 25 and hope to have a million-dollar portfolio by 55, choose a target date fund that has a retirement year of 2045 or 2050.
7. Keep track of your spending.
In order to check #5 and #6 off your FI checklist every day, you need a sizable gap between what you earn and what you spend. Creating that gap, in turn, requires one of three things: 1) you need to increase your income, 2) you need to decrease your spending, or 3) you need to do a combination of both. If you’re like most people, the surest way to achieve the gap is to choose option 2. You need to attack the spending side of the equation.
And how do you attack the spending side?
You track your spending. You can use a free online tool such as Mint or Personal Capital. Or you can use a boring spreadsheet. I prefer the boring spreadsheet, and if you want to see what I use, you can go here. But how you track your spending is immaterial. The point is that tracking your spending is crucial to your financial health and with today’s technology there’s really no excuse for not tracking it.
Okay, once you see where your money is going, you attack your spending with a series of tactical retreats. Say for instance you’re currently spending $400 per month on groceries. If you can get that down to $350 a month, you now have an additional $50 a month to throw at your retirement account. That doesn’t sound like much. But $50 invested every month at a 7% would turn into $26,319 in 20 years. Imagine what you could have in your 401(k) if you performed a tactical retreat on big ticket items such as housing and transportation? Living in a 1,500 sf house rather than a 2,000 sf house would easily save you $500 a month in reduced mortgage, property tax, and utility expenses. Buying a three-year-old car every 10 years rather than a brand-spanking new one every 10 years would easily lower your overall transportation expenses by $100 a month. Put those savings in your 401(k) and your 401(k) will have an additional $315,829 in it after 20 years.
Remember this key insight: Over several years, one small retreat in lifestyle amounts to one giant advance toward financial independence (thank you Neil Armstrong). And if you want to secure a bunch of small retreats, you need to track your spending.
8. Spend at least 15 minutes learning something that will make you a better worker/earner.
The machines are coming. The algorithms are coming. Every day your job becomes a little less secure. Every day your skills become a little less relevant. So don’t stand still. Spend 15 minutes a day improving your skills.
When I was employed, for instance, I worked a lot with relational databases. So every night I would open one of my SQL Server books and work on my SQL language skills. I would also work on a new kind of database that was gaining traction called No SQL. Was it fun? Hell no. Who wants to go home and be humbled every night by esoteric SQL queries? But I was ready if my company ever decided to outsource my job or migrate to No SQL databases.
“Don’t look back. Something might be gaining on you.”
9. Do something silly.
Don’t take yourself too seriously. You’re not a celebrity. You’re not a tech titan. You’re not a Master of The Universe. You’re a well-manicured ape whose death will go completely unnoticed by all but a small sliver of humanity. So have a little fun. Spread some joy. Sing a diddy, make a funny face, or, if you’re in a real silly mood, do the Hucklebuck.
10. Do something nice.
Presidents aren’t the only ones who have a legacy. How do you want to be remembered? Do you want to be remembered as a miserable cur? Or do you want to be remembered as a good egg? Well, if it’s the latter, do at least one kind thing every day. And it doesn’t have to be anything earth shattering. Penny over at shepicksuppennies.com just completed a 31-Day Kindness Challenge. Here’s her verbatim list of some of the kindness she dished out during the challenge:
- Donated two winter coats I could have sold.
- Donated gently used scarves and gloves.
- Shopped for the food pantry each time I grocery shopped.
- Bought materials and made a no-sew blanket with my students.
- Made our usual monthly donations.
- Let someone go in front of me at the grocery store.
- Turned in a pair of lost gloves in the Target parking lot.
- Called an out-of-town relative every week.
- Shoveled in front of our neighbor’s house.
- Paid our cleaning lady double for the holidays.
- Decorated the cemetery for my nana.
- Helped my neighbors track down a lost package.
- Bought some treats for Mr. P at the grocery store.
- Hooked up my parents’ wireless printer and taught my dad how to print from his phone. By the grace of a technology god somewhere.
- Tossed spare change in every bell ringer bucket I passed.
Notice how most of these acts of kindness require little or no money? So don’t let your financial struggles, whether real or imagined, tarnish your legacy. The world is cold enough as is. Use what power you do have to make it a little less so.
Okay, groovy freedomists, that’s all I got. Is this a worthwhile checklist? If you followed it faithfully for, say, ten years, would you find yourself closer to the dream of financial independence? Or is my FI Checklist total flapdoodle? Let me know what you think when you get a chance. Peace.