For three years I've had a single goal directing my actions: I wanted to get out of debt. Now that my consumer debt is nearly gone, I've spent a lot of time wondering what to do next. I was worried that I'd lose focus, lose direction. That's not going to be the case. I've set three major financial goals for 2008. After I pay off the last of my final loan next Tuesday, I intend to:

• Max out my retirement plan for 2007 and 2008.
• Pay taxes.
• Bolster my savings.

These goals are ambitious, but I think I can achieve them. In fact, I hope to do even more.

Retirement
I got a late start on my retirement savings. The box company has been setting aside a pension for me, but I only began my self-directed retirement savings last year. I managed to make the full contribution to my 2006 Roth IRA. I've contributed $2,000 so far this year, and intend to max out my plan by the middle of December. In 2008, the contribution limits on Roth IRAs increase to $5,000/year — I hope to invest this amount. Continue reading...

David Bach is perhaps best known for coining the term the latte factor, a phrase that has almost become a joke in personal finance circles. That's too bad, really, because Bach has some good ideas. And the latte factor is a marvelous concept, applicable to many people who casually spend their future a few dollars at a time. Bach's most popular book is The Automatic Millionaire. I've referred to it often, but never reviewed it until today.

The Automatic Millionaire is based on sound financial concepts. The author encourages readers to eliminate debt, to live frugally, and to pay themselves first. But the core of his book is unique: rather than develop will power and self-discipline, Bach says, why not bypass the human element altogether? Why not make your path to wealth automatic?

I've never been able to keep a budget. They're a great tool for many people, but for me a budget is a recipe for failure. It's too fussy. I can't stick to it. When I don't stick to it, I feel guilty. When I feel guilty, I want to spend more money. Still, I've found it's helpful to have some sort of written financial plan. Over the past few years I've developed what I call a "spending plan".

To me, a budget is a detailed itinerary. A spending plan, on the other hand, is just a list of places I'd like to go. It doesn't have the same sort of rigidity that I associate with a budget. When I create a spending plan, I tally upcoming income and expenses, and then use these numbers as a guideline for determining my financial direction.

My Spending Plan

I suppose it would be easiest to just show you an actual spending plan I drew up three years ago. (This document is an important piece of financial archaeology. It's the first spending plan I ever made, and it's the first sign that I was ready to start getting rid of my $35,196 in debt.)

I met some friends at a local restaurant Monday night. While chatting, we found ourselves bopping to the music playing on the radio. For more than hour, great song followed great song: U2, Eurythmics, The Police, Elvis Costello, The Clash, New Order. But the ambient noise made it impossible to know what station we were hearing. "I have to know what this is," I said at last. "This could be my new favorite radio station."

I tracked down the manager. He told me we were listening to Fred on 44, a channel on XM Satellite Radio. I'd heard of satellite radio, but didn't know much about it. When I got home, I did some research.

As expected, there's an upfront cost to obtain a receiver that can de-scramble the satellite signal. Unfortunately, that's not the only cost. There's also a subscription fee of around $10/month.

Comic books have always been one of my money demons. Geeky, but true. I used to buy the actual comic magazines: Superman, Spider-Man, X-Men. As an adult, however, I graduated from spending just a buck or two for a comic to buying hardbound compilations and trade paperbacks costing $20, $50, or more.

No matter how smart my money choices, I've made it a priority to keep detailed records of my finances. Tonight I dug through four years of Quicken data to see if my comic book spending habits have changed. (They feel like they have, but I wasn't sure.) Here's what I found:

• In 2004, I spent $1640.10 on comic books. That fall, I decided I wanted to eliminate my debt.
• Apparently my finances weren't a big priority, though. In 2005, I spent $2810.52 on comics.
• My spending peaked in 2006, during which I spent $3,202.91 on my beloved DC Archives and Marvel Masterworks.
• This year, however, I've only spent $807.89 on comics!

My worst period of comic book spending came just before I started Get Rich Slowly. From October 2005 to March 2006, I spent $3519.34 on comics — almost $600 a month. (That money would nearly have been enough to fully fund a Roth IRA!) During this time, I was spending everything I had freed from paying off debts — and my Christmas bonus! — to buy comics.

Many of you wrote last week to say that I was too harsh on my friend Gillian, the woman with the "I can't" attitude. Perhaps you're right — I may have given up too early. I used to live like she does, and if I can turn it around, anyone can.

For a decade I was a deficit spender. I spent more than I earned. I used credit cards to fund a lifestyle that was beyond my means. Eventually I wised up — I destroyed my credit cards and cancelled my accounts, but my worries weren't over yet. I wasn't digging any deeper, but I was still stuck at the bottom of a hole: I was living paycheck-to-paycheck.

Twice a month I would deposit my paycheck, pay my bills, and then look to see how much was left. Whether the surplus was $20 or $200, I made plans for it: comic books, video games, clothes, whatever. I used to joke that I was an expert at spending every penny I had. Except that it was no joke. Late at night, when I couldn't sleep, I would wonder why I could never get ahead.

My friend Gillian called the other day — she's been having money trouble and was looking for help. "I'm not really a financial advisor," I told her. "I write about money, and I try to help people at my website, but I'm not qualified to coach you one-on-one." Still, she's a friend, so I resolved to at least give her some advice. I asked her to explain the situation.

"Tom and I are working all the time, but we're always broke. He just wrecked his car, but we don't have money to get it repaired. We'll have to use the credit cards again. We don't have any other choice. There's never anything left at the end of the month," she said. "I need some help budgeting so that we don't keep having this problem."

"Well, let's see what we can do. I guess the best place to start is with your monthly income and your monthly expenses. How much do you and Tom bring home each month?" I asked. Continue reading...

Last month Stephen Popick shared his home-grown budget spreadsheet with GRS readers. He listened to your suggestions and went back to the drawing board. Here is an updated version.

Growing up, I was taught the importance of having a budget.  It wasn't until I finished college that I understood it.  I started reading and listening to financial experts such as John Bogle, Clarke Howard, and a lot of folks in between.  Their recurring themes were simply to save as much as you could, live below your means, and choose wisely how you spend your money.

Before I started with my Budget Sheet, which has evolved over the years (and which has been greatly enhanced for GRS), I always thought I budgeted well.  Making an actual budget showed that, in fact, I did not.  It's amazing how far $50 can be stretched when you're aware of it.

Jonathan at My Money Blog has been writing about personal finance for two years now. Here's some excellent advice on the standard-of-living trap.

One thing I worry about is lifestyle inflation. No matter how little or how much someone earns, their spending tends to match their income. When you're living the student life, your friends are also broke, and it's easy to eat frozen pizza for dinner and manage without a car. That was probably one of the funnest periods in your life! But when you have more money, you start looking to upgrade: a nicer car, a bigger house, brand name clothes, cooler gadgets. Call it peer pressure, entitlement, or simply money burning a hole in your pocket.

As we progress along our career paths, here are a couple of things that my wife and I are trying to do in order to try and inflation-proof our spending:

In the very early days of 2002, I realized I needed to change a few things about my life.

My girlfriend and I returned from a vacation in Phoenix, Sedona, and the Grand Canyon in the middle of December 2001, having had an excellent time despite some nervousness about flying so soon after 9/11. Upon returning, four things happened to me that forced me to change my outlook. I suppose the older, more rational me can look back and say on some level I caused them to happen.

1. My girlfriend left me.
2. I lost my low-paying non-profit job in the arts — a job for which I had just moved to a horrible apartment in northern New Jersey.
3. My car was impounded by police. Unbeknownst to me, I had been driving with a suspended license due to my failure to pay a years-old speeding ticket I don't remember receiving.
4. My landlady somehow got the impression that I was moving out at the end of December (although no such decision was ever communicated). While I was out one night, she removed my belongings from the apartment so someone else could move in.

I moved in with my father so I could take some time to look for a new job and to contemplate my existence for just a couple of months. It was during this time I realized that I was losing money every month while working at that non-profit. It cost me more to travel to the job and pay rent and other necessary expenses than I was earning. I decided to start focusing on my financial situation (among other things). Continue reading...