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During the month of January, The Simple Dollar has been running a series entitled “31 Days To Fix Your Finances,” a series of activities that can enable anyone to improve their financial status by centering your financial life around your own core values. Instead of supplying a bunch of budgeting sheets and asking you to commit yourself to a program, this series is about figuring out what you want out of life and reorganizing your finances so that you can have it.

What follows is a summary of the entire month’s activities, with links to each individual day. If you’re at all concerned about your personal finances or find yourself often feeling strangely guilty about the money you spend, you’ll find some value in the activities of the month.

Let’s get started.

Stage 1: Figuring Out Your Goals And Values

Day 1: Your Five Main Values
Day 2: Defining Your Goals From Your Values
Day 3: Create A Plan For Each Goal

The underlying challenge that most people have with their finances is that they see money as distinctly separate from the rest of their life. Money is an antagonist, an enemy that keeps you from doing what you want to be doing. The truth is that money is merely a tool, and when you find yourself feeling as though money is an antagonist, it is no different than a person attempting to learn how to use a heavy sword; it’s unwieldy and dangerous.

The first step for learning how to integrate money into your life and use it successfully as a tool is to figure out what exactly you wish to build with that tool. Without underlying values, goals, and plans, money is no different than swinging a hammer around without building something. Thus, this first stage is crucial: what exactly is most important to you, and what will it take to adequately support those values?

Stage 2: Evaluating Your Situation

Day 4: How Much Did You Earn Last Year?
Day 5: How Much Did You Work Last Year?
Day 6: Your True Hourly Wage

Once you’ve figured out what is central in your life, it’s time to take a serious look at what you have to work with. How much do you make, and how much time do you spend making it? This seems like an easy question, but it’s not. How much of your income do you spend maintaining your job, via transportation, career development, clothing, and so forth? And how much time do you spend doing things devoted to your job, such as going to work, coming home from work, attending work-related functions, and so on?

When you calculate these new numbers, you might be shocked both at how much time you actually spend working in an average week, as well as how little you actually earn. You can drive this point home especially clearly by calculating a number that we’ll use throughout the month, your true hourly wage. How much do you really make for each hour that you spend devoted to your job? It’s not nearly what you might think, and that alone might shock you into considering some different avenues.

Stage 3: Building Your Own Life Budget, Not Following Someone Else’s Prescription

Day 7: Work For Your Dreams, Not Your Money
Day 8: Breaking Down Your Expenses
Day 9: Cleaning Up Your Expenses
Day 10: Fitting Your Expenses Into The Bigger Picture
Day 11: Dividing Up The Rest and Finishing Our Time Budget
Day 12: A Flexible “Budget” That Reflects Your Reality

Once you’ve taken a hard look at what you actually earn, you can begin to set up the basic framework of how to spend that money that is in line with your personal goals. This isn’t about printing out worksheets and trying to jam your life into the pigeonholes that someone else has created for you; instead, this is about defining how you spend money and working from there.

It’s almost unfair to refer to this as “budgeting,” because budgeting carries with it some very bad connotations, much like putting on an uncomfortable suit. This process is much more like going to a tailor, who uses you as the basis to construct a custom suit that fits you. This process will create a custom budget that fits your life with your values and goals as a basis. We’re not talking about restricting you to spending $20 a month on “dining expenses,” but instead creating a structure where you can decide what’s appropriate because you can see how it relates directly to your dreams.

Stage 4: Looking At Your Life, Piece By Piece

Day 13: Pay For Your Dreams First
Day 14: Get Rid Of Debts (Slowly But Surely)
Day 15: Coming In Under Budget and An Emergency Fund
Day 16: Evaluating Your Expenses – Home and Auto Insurance
Day 17: Evaluating Your Expenses – Life Insurance
Day 18: Evaluating Your Expenses – Energy
Day 19: Evaluating Your Expenses – Automobiles
Day 20: Evaluating Your Expenses – Food
Day 21: Evaluating Your Expenses – Housing
Day 22: Evaluating Your Expenses – Monthly Services
Day 23: Evaluating Your Expenses – Bank Fees
Day 24: Evaluating Your Expenses – Entertainment and Hobbies
Day 25: Evaluating Your Expenses – Credit Cards

Once you’ve got a basic budget in place, it’s well worth spending some time carefully evaluating those numbers that represent you and see if there are any places where there is excess fat – and simply trimming it away. Is your electricity bill pretty high? Maybe there are a few simple ways to reduce it. Getting tired of paying that life insurance bill? Maybe you don’t need it at all – or can utilize something less expensive. Getting dinged over and over again with bank charges? Look at what they’re charging and do something about it. Credit card finance charges eating you alive? There are some easy ways to reduce them.

We’re looking for ways to trim away fat (things that make you uncomfortable when you look at them) so that the meat (your goals, dreams, and values) have room to thrive. You don’t have to eliminate that daily latte if it brings you joy – just look for the many things you can do without or that you can reduce without significant pain and you’ll have the money to chase your dreams.

Stage 5: Setting The Stage For Lifelong Success

Day 26: Refining Your Budget
Day 27: Keeping Good Records
Day 28: Preparing For The Inevitable
Day 29: Paying Cash
Day 30: Live What You Love
Day 31: Keeping It Up

Now that the complete package is coming together, there are some basic methods for keeping the momentum going. What do you do with the fat you’ve trimmed away? How do you keep track of all of your financial information so that it’s not chaotic and incomprehensible? How do you ensure that you’re not ensnared in loan debt over and over again? How do you keep this good thing going?

If you follow this plan and keep these principles in mind, you can easily live your dream. It’s all up to you, and it takes just an hour a day for a month to get things going.

For many young people, one of the biggest fears of financial independence revolves around what happens in the event of a disaster. Should you expect to be able to move back in if something goes awry? Will they provide financial assistance? Or are you on your own? Although it is best to expect no assistance at all and plan accordingly, it is often better for everyone to understand what others are thinking and expecting of them, so that when a crisis comes, there are no damaged expectation and damaged relationships.

Here are some ways to handle a financial crisis with regards to your parents, both before and during the crisis.

Don’t expect anything. Being independent means that you’re not depending on anyone for anything. Remember that in your independence, your parents are setting you up to be their equal, not their child. They don’t rely on their parents for support (well, if they do, there are bigger familial problems than this post can address), so if you wish to be considered an equal, why should you expect the same?

Talk to your parents about these “what ifs.” If you’re considering a move with some risk, simply find out what your parachute is like. Don’t assume anything at all; simply have a healthy conversation where everyone’s beliefs and expectations are laid out on the table. Quite often, your parents will be able to offer you assistance in nonfinancial ways that you might not even imagine.

Don’t hold a grudge if you don’t hear what you hope to hear. If you believe that your parents would help you no matter what and you hear otherwise, don’t hold a grudge against them. A healthy relationship with parents can be an invaluable thing to have through thick and thin; just because they don’t provide financial support to you any more is a poor reason to abandon that relationship.

When a crisis occurs, be open about it. Once it is clear that there is no financial expectation, you should be open with your parents about financial crises. They can provide emotional support, counseling, and perhaps other invaluable nonfinancial assistance.

Ask for their assistance in planning in advance for a crisis. This is a very useful step for protecting yourself from future mistakes. Suggest that your parents set up a savings account with you that can only be withdrawn upon with both of your signatures, then make deposits into this account as an emergency fund. Your parents may be willing to make some deposits as well. Then, if you face a financial crisis, you’ve got several things in your corner: great counselors who can provide advice and financial resources to draw upon if there is no other way out. Plus, setting up such a fund and sticking to it is perhaps the clearest sign of all to your parents that you are being successfully independent. Even better, this measure prevents you from dipping into that emergency fund for unnecessary things.

The Simple Dollar offers a month-long plan for fixing your finances. All you need is an open mind and an hour each day.

Now that the end of the month has come, one final challenge remains: how does one keep up the momentum once you start with it? The day to day challenges of life are difficult and uncertain, so how can this plan ever deal with an ever-changing life?

Unlike most financial plans, this one has something intimately familiar at its core: you. Because you’re at the core of this plan and not some form that you fill in and try to constrain your life to match, this plan can easily grow and change with you with just a few simple steps.

Once a week, make sure you’re making some sort of progress towards your short term goals. You don’t have to accomplish something every week, but keep them in mind – and regularly take the time to make forward progress towards your dreams.

Once a month, diligently update your life budget. You can do it with just money, but it’s often useful to re-calculate the hours of your life spent working for each item each month, as it is a healthy reminder of where your time goes.

Once every few months, evaluate your progress towards your long term goals. I like to do this on the first day of each season – not only does this keep me on an “every three months” pace, it keeps me in mind that time is passing and the seasons are changing, so I’d better keep up with it. This usually results in a flurry of new activities for a short period with a gradual slowing down – but it does keep me always moving towards my goals while many others stay stuck in place.

Once a year, reevaluate each of your life’s values and ask yourself whether they match your life now. When I first looked into my child’s eyes, the values of my life changed quite a bit, and thus my goals changed substantially as well. From that, unsurprisingly, my budget changed, too: I suddenly found great value in buying diapers, but also great value in buying books and educational toys for infants and toddlers. My values used to be such that buying software was in line with my life goals; now, buying wooden alphabet blocks for stacking is much more in line with what I want to be doing.

Even if you fall off, there is never a day where it’s too late to get back on. Even if you find yourself starting to fall back into your old ways, that doesn’t mean it’s time to abandon the plan. Old habits are hard to break. Try going through this entire process again to remind yourself where your values lie and what your goals are.

Good luck.

As a parent, there is a strong likelihood that at some point, your child will fail at their goals during young adulthood. Their situation may even become dire, and as a loving parent, you may feel a very strong desire to jump in and rescue your child. Before you do that, consider the following advice:

What will they learn from being rescued? A failure is first and foremost a learning experience. What will your child learn if you step in and provide immediate rescuing? Will they experience the needed pain that one needs to feel after a failure, a tempering that in the end makes one stronger? Even if you plan to offer support, it might be worthwhile to not jump in immediately with help.

First and foremost, offer counseling. Offer them an ear to talk to, not just cash to solve the problem. Rather than letting money fix things, help them to discover the resources they have inside themselves to solve their problems.

If you offer financial support, make it a one-time gift or a clearly delineated series of gifts. Never give the impression that they can get more at any time, or else they won’t learn how to pick themselves up and fix their own problems. As a parent, part of your job is to teach them life skills. Think of it this way: when they fell off of a bike when they were little, you didn’t offer to ride the bike for them. You picked them up, dusted them off, gave some encouragement, and put them back on the bike. The same principle applies here.

Offer nonfinancial assistance. You can also offer similar support as to what a nonparental friend or relative might offer: assistance in locating new work, connecting with potentially useful contacts, and so forth. This is the kind of assistance that is useful to any professional, and may be particularly useful in this case.

If the situation is truly apocalyptic, offer shelter and food. If your child has actually lost their home, you can again offer indirect aid such as housing and food, but this situation should be clearly defined as temporary, contingent on your child making continual effort to improve his or her situation and eventually fly on his or her own again. Indefinite relationships where children move back in after independence can be very, very uncomfortable for both the children and the parents.

Don’t force it. Some children are simply too fiercely independent to want to accept help, so don’t force help upon someone who does not wish to accept it. This is not an indication of a lack of appreciation or love, just a desire to be able to walk strongly on their own two feet, no matter what – an attribute that you should be proud to see in your child.

This week, The Simple Dollar takes a look at David Bach’s The Automatic Millionaire. I enjoyed Bach’s earlier book, Smart Couples Finish Rich, but will I like this one, too? Let’s find out.

Yesterday, we discussed Bach’s “pay yourself first” concept, in which an individual should put money away for their future before considering any sort of living expenses. This presents a problem for many people, however, as their living expenses often match (or even exceed) their income.

To solve this quandary, Bach introduces something he calls the “latte factor,” and uses a lengthy story to explain the concept. Basically, the “latte factor” refers to the tiny expenditures that you make each day without scarcely thinking about it. The name, thus, refers to the daily purchase of a latte.

Here’s an example from my own life that demonstrates the latte factor quite well:

When I was first starting out in professional life, I would start off each day with a latte and a bagel, costing together about $5. I would also hit the vending machine a couple of times each day at a cost of about $2 a visit. On my way home, I often would stop for a snack of some sort, adding up to about $3, and about two days a week would stop at the bookstore, averaging $10 a visit. Little expenditures, right? In a single seven day week, that added up to $80. Over a year, that comes out to $4,160. Investing that amount each year at 10% annual return until I was sixty five came out to $1.92 million dollars.

In other words, that morning coffee and that occasional new book was stopping me from becoming a multimillionaire.

So, if you cut out the latte factor (even partially) and invest that money each month, you can wind up quite rich in the end thanks to the power of compound interest.

Obviously, there are a few minor caveats here: inflation will reduce the actual value of that $1.92 million (meaning that a dollar then won’t be worth what it is today), and you’re anticipating always being able to put that amount away every single month, no matter what. On the other hand, even with some strong inflation, two million dollars is a nice nest egg.

Tomorrow, we’ll look at some applications of making this automatic.

The Automatic Millionaire is the thirteenth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

My fifteen month old son has taken to referring to himself in the third person as Joe Joe. He enters a room, spreads his arms wide, and shouts “JOE JOE!” Amusing? Narcissistic? You be the judge. On with the personal finance posts.

The Psychology Of Money I don’t believe the psychology, as described in this article, has much to do with money at all. It has to do with feelings of inadequacy in a consumerist society. The “demonstration” of people’s greed was merely a set-up to make them feel inadequate and less prone to be altruistic. (@ cognitive daily)

Why I Don’t Use Debit Cards With A Visa/Mastercard Logo An excellent analysis of why debit cards aren’t necessarily a good solution: they don’t afford the same protections that a credit card can deliver. (@ get rich slick)

If you haven’t entered yet, you might want to check out this week’s giveaway, a copy of Jim Cramer’s latest book, Mad Money. Entering is easy – just leave a comment on that post listing your stock of the year for 2007, and you’re entered! The contest ends Friday night, so get clicking!

Also, don’t miss this week’s Festival of Frugality over at Money, Matter, and More Musings.

I usually don’t wax ecstatic over nifty websites, but this one has become not only a tremendous timesaver for me, but has also managed to help me save a good deal of money. It’s called Remember the Milk and it’s basically just an online list manager – but it does that list management so well that it’s simply wormed its way into becoming a part of my life. I’ve found seemingly endless uses for the fact that you can keep any number of lists you wish and combine them together in views however you want, and you can also set due dates for particular items and thus have a constant to-do list. Even better, it’s still in beta so it’s completely free to use, so click over there and give it a whirl.

Here are five examples of how I use it to manage personal finance and lifestyle tasks.

Grocery lists
This is the task that the service is named for, so it’s not surprising that Remember The Milk works really well for grocery lists. As I assemble my grocery list throughout the week, I just enter items on there in a list specifically for groceries, which I can do from any web-accessible computer. I usually copy down the list in my own handwriting before going to the store for familiarity’s sake, but if I forget to do this or am in a rush, I can just load up Remember The Milk Mobile on my cell phone and I have my grocery list right there. This feature alone has saved me a lot of money – instead of turning around and going home to get the list, or just braving it without a list and buying some frivolous stuff, I just snag the list on my phone and get down to business.

Online offer management
Quite often, I’ll see an online offer that I want to think about over time (like a $25 off coupon on a KitchenAid stand mixer over at Amazon). I used to try to keep track of these in various ways using email reminders and such, but quite often I’d just miss out. Now I just pop that offer into Remember The Milk and I have it stored for future reference.

Bill reminders
I also use another list on Remember The Milk to keep myself up to date on bill due dates. Whenever I receive a new bill, if I don’t want to deal with it immediately, I enter it into Remember The Milk along with the due date. As it approaches, I use different views within Remember The Milk to see it coming and then plan appropriately to get it paid. In this way, Remember The Milk nearly functions like a calendar.

Long-term project management
Right now, I have several long-term projects that mostly relate to self-improvement. Using a list for each project, I can break these items down into several smaller items, place due dates on them, and thus use the overall “to-do” list to keep all of these projects going. Without this feature, many of them would fall along the wayside.

Blog management
Though I’ve basically abstained from discussing blogging since my blogging series last month, I should mention that Remember The Milk is the tool I use to plan and schedule upcoming post ideas that I’ve not written yet. This enables me to sit down anywhere in the world when I have an hour or two, fire up a web browser and a text editor (which I don’t even really need, but I’m a big fan of TextEdit on a Mac and Notepad on Windows), and begin drafting entries for The Simple Dollar. With Remember The Milk, it becomes really easy to manage these ideas, set approximate posting dates when appropriate, check off ones I use and delete ones that don’t pan out, and keep them all sorted for later.

As a final aside, in the past I have mentioned my usage of GTD as a way to keep all of my tasks in place; I use two notebooks for this process. In the last few weeks, I have been migrating to using Remember the Milk for GTD, which has been a big help in keeping my life organized.

That moment when you are left without financial support for the first time can be a scary one, and it can lead to a lot of complex emotions (fear, resentment, anger, sadness) that can lead directly into irrational behavior. This is a time of independence and freedom, a time to step forward and walk on your own two feet. Where you go is up to you, but don’t go forward carrying a lot of baggage.

Here’s some advice for dealing with that first full taste of financial independence.

Resentment is a waste of time. If your parents inform you that they are cutting ties, a feeling of resentment towards them is useless. In fact, harboring such resentment is usually a clear indication that some maturity needs to happen, and the cutting of financial ties is often an event that requires people to become more mature.

Accept it as a challenge. No matter the age at which financial ties are cut, there are going to be challenges and lifestyle changes. Rather than complaining, look for ways to accept the challenge. Spend some time learning how to budget. Challenge yourself to live more frugally every day and perhaps start building up your own financial backbone.

Don’t continue to spend as though nothing has changed. The result of this is debt, and a lot of it. It’s so easy to just keep buying and use those credit cards to purchase things you don’t need, but eventually those bills will have to be repaid with interest. Now is the time to learn how to live a little leaner; buying stuff not only prolongs things, it makes the process of actually learning to walk on your own that much worse.

Keep the channels of communication open. If you’re feeling a strong sense of resentment towards your parents, you might be feeling as though you should completely cut ties with them. Think about this for a moment. They have been giving you money that they’ve earned for your entire life, since even before you were born. All they’re asking now is that you fly on your own now that you’ve transitioned into being an adult. Is this truly cause for resentment and anger?

Rather than cutting yourself off from them completely, now is the time to keep those channels of communication open wide. Tell them about the challenges you’re facing and ask for advice, not money. Think about it this way: they once went through what you went through and eventually wound up in good enough financial shape to support not only themselves, but also you (and perhaps other siblings) for your entire life, so they probably have at least some idea of how to do things.

Re-evaluate what you’re doing with your life. The cusp of financial independence is a great time to sit down, figure out your values and your goals, and determine how to work towards those goals. This process can help you really understand why you are spending money now and make you reconsider much of what you do with money.