Simple Pound

December has been a busy month and I have not found the time to post much as a result. I also accumulated a massive amount of receipts that I needed to enter into my spreadsheet in order to track my spending and not abandon my good efforts this close to the end of the year.

After all the paperwork was done, I am pleased to see that my net worth increased by 4.46% from November to December which translates into 33.8% of my next goal. The increase in net worth can be fully attributed to my decision to throw all my available funds at the credit card and hence pay down the entire balance in one go. All that remains now is the last interest payment of £41 which was only debited this morning.

Now that a full year is over, it’s also time to draw some conclusions which will go hand in hand with new goals for 2008. I started keeping track of my net worth in May 2007 when I first came across the NetWorthIQ website. Based on that, I would like to see my assets grow at a steady rate of 0.5% a month at least, ideally closer to 1% a month. Liabilities should ideally be reduced to zero, unless they are subject to 0.00% APR - I am thinking of taking out a 9-month interest-free loan in order to purchase a digital piano, but I consider this good debt as long as it remains interest-free.

After tracking my expenses for a full year now, it’s time to draw up a (hopefully realistic) budget. In doing so I have mainly focused on the expenses I incurred over the last four months (since moving to London, starting my job…) as I believe they best represent my new lifestyle and hence actual spending. I have slightly underestimated my income as I don’t know what January’s bonus round will bring yet. Moreover, since I can live off my current salary quite comfortably I’m hoping to put any extra money that might come my way straight into a savings account in the hope of ever being able to purchase my first London home

As a result of now “being on a budget” I have made a few changes to my original spreadsheet so that I can monitor whether I’m sticking to it or not. I will review the budget in 3 months’ time to see whether my estimates are still feasible. After all, for me the whole point of having a budget is to get a good picture of my living expenses while also ensuring I don’t spend more than I have…

Finally, there will be a slight shift in focus with regards to my savings goals (see Progress page): I have decided to abandon my pursuit of a car as well as the eye laser surgery in favour of aggressively saving towards a deposit on a flat or house in London. While everyone is afraid of a housing crash and recession (dare I say the word…), I’m absolutely optimistic as this means that both property prices and mortgage interest rates will hopefully become a little more affordable than they are at the moment.

Thus, in a nutshell my (financial) goals for 2008:

1. Increase assets by at least 0.5% a month

2. Stay on budget

3. Deposit, deposit, deposit

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Blame the miserable weather in the UK or my recent trip to New York, but I have been thinking a lot about travelling recently and when I reviewed my savings a few days ago I realised that I had totally neglected my travel goals.

Yet I have already made a few cautious plans for the remaining year and next year. First of all - and no matter how silly it sounds - I want to go back to New York before the end of the year, ideally around Christmas time. I imagine the city being very festive and the gigantic Christmas tree that will go up near the Rockefeller Center should certainly help.

Further, I might be going on a short trip to Milan with an old friend of mine that I don’t see very often since I’ve moved to the UK. The trip is planned for February and will likely be very budget - she has apparently found two return flights to Milan for only €76. Yet, I will still need some spending money bearing in mind we’ll be visiting one of the fashion capitals in the world!!

On top of that, another trip to Italy might be happening around Easter - this time to visit Rome and Venice. While all of the above won’t necessarily involve exorbitant expenses in themselves, combining them might lead to a bit of financial distress if not planned properly. And so far I haven’t even mentioned the regular trips to Germany my family expects me to undertake. These currently add around £150 for flights and a further £50 for trains and petrol while I’m home.

All of the expenses that can be expected to follow from the plans I just outlined above have only been made worse when I decided it was a good idea to pick up the “Travel Book” published by Lonely Planet. Looking through pages and pages of breathtaking photos, intriguing information and facts about the most remote countries and travel advice for actually visiting these countries made it quite hard to be happy and content with where I am at the moment. Hence I might have to plan some extra budget for a slightly more extravagant vacation in summer or autumn next year. Tibet or Argentina are among the favourites at the moment.

Thus, here’s what I think I’ll need in travel money until the end of next year:

• Weekend in New York: £300
• 5 days in Milan: £300
• 5 days in Rome & Venice: £500
• summer holiday - country to be confirmed : £1,000

A whopping total of £2,100. Wish me luck in restraining my shopping trips and Starbucks afternoons!

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Trent @ The Simple Dollar has recently dedicated many posts on how to set and reach goals. Especially when you’re just starting the whole “money business” there is hardly anything that is more important than having clearly defined goals in order to track your progress and ultimately reach your goals - one of the reasons I’m writing this blog!

The article lays out three major reasons why people not reach their goals, and surprise, surprise - it’s not really much to do with not having enough will power to keep focussed on a particular goal. The reasons for failure have their roots very early on, namely in the phase the goals are defined. Trent argues that any goals that are unclear, overly optimistic or too distant have a high chance of under-achieving or failing (depends on how you put it…).

Trent’s post reminded me of an acronym that’s commonly used in business and that you might have come across - SMART. SMART goals have the following characteristics:

• S - specific, significant (you don’t micro-manage…)
• M - measurable, meaningful
• A - achievable, action-oriented (you can influence the outcome)
• R - realistic, relevant
• T - timely, tangible, trackable

I’m not usually a big fan of “miracle cures” but I think it’s at least worth checking your goals against the above to make sure you stand a chance at actually achieving them.

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While I’ve simply been talking about my own personal goals, Trent @ The Simple Dollar gives you step-by-step instructions on how to go from “I need to save some money” to “I want to save 10% of my salary until the end of the month, because…”

Personally, I like his idea of setting yourself reminders of your goals to help you visualise what you’re aiming for. Just like the model of the Aston Martin DB9 I intend to have on my desk… Incidentally, if any of you feel like giving me a present, you can find it here. But please only in Midnight Blue

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Warren Buffett is possibly one of the most successful investors - ever, and with a personal net worth of roughly 30 billion dollars he is certainly among the world’s richest.

While one would expect complex technical analysis dominating his mind from the moment he wakes up in the morning, his investment philosophy boils down to something rather simple:

“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards - so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.” (source)

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Yesterday I rambled on about how I had all these financial goals and wanted to track them and so forth. Scott Adams, the brain behind the Dilbert comic, has a slightly different if not very amusing take on this: “My Plan for Sainthood”. If you’re not reading his blog yet, then start now…

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