It isn’t the clever use of big data in the story that caught my eye though (even though I’m always saying big data will be the trend of 2012) but the explanation of how habits are formed and how to make new ones. This has been a very strong focus for me lately as I try to build new habits of exercise, healthy eating and sensible money management. I have a plan to make a healthy habit every month, and sometimes this will mean breaking a bad habit I have been doing for decades. In January I worked on creating a habit of regular exercise which I did with great success, even while travelling, right up until I got sick last week. I am almost better and intend to use the break, and the slight change in sleeping patterns, to my own advantage by switching to morning walks from tomorrow.

Now that I am in the habit of walking 4 to 5 kilometers a day and enjoying it greatly I am going to try to use my motivation to walk, and the reward of feeling good afterward, to break my early morning internet habit. This could be a bit more challenging than just starting a new habit. I don’t own a radio or television set but have five internet capable devices in my bedroom right now, three of them highly mobile ones that almost never leave my side. I use one of them as an alarm clock (my HTC Desire Android phone) and am in the habit of switching it off and immediately reaching for my iPad to do some early morning reading in bed. Reading that seems to have expanded to take up at least an hour, sometimes more, every morning. I blame Zite, and FlipBoard, and Twitter, and YouTube, and Google Reader etc, etc, etc. Of course I can blame them all I want but its pretty clear that the real source of the problem is me.

Flipboard (Photo credit: netzkobold)

I need to move more if I want to lose weight and the best way to do that is to spend less time lying in bed or sitting around elsewhere surfing the net. So from tomorrow I will start a new habit of getting up first thing and going for a walk. I am going to do this by both removing the enablers of the internet habit and by putting cues to my new habit close to hand. I intend to leave my laptop, MacBook Air and iPad in the cupboard of the spare room tonight and switch off the modem at the wall. That way there will be no WiFi when I wake up so I won’t be tempted to fire up the PC or go dig out the mobile devices. I will leave my walking clothes and shoes on the clothes basket in my ensuite so I see them the minute I get up and they are ready for me to put on. I have printed out a picture of the early morning sun shining through the trees on my usual walking path by the creek and stuck it on the wall opposite the toilet. I’ve written up my plan using the principles I learned from Change Anything, which I’ve mentioned before, and I feel pretty confident that I can do this.

I did buy some of the chocolate as gifts but not all of it and what I did get has not lasted long. This really brought home to me how much I used to spend without thinking before I started my budgeting. My trip has depleted my savings by $200 more than I planned and most of that money will have to come out of my “Shameless Extravagance” fund for the next month. That means no more iTunes credit or DVD box sets from JB HiFi till I get back on track

The good news is that I actually do know how much I spent on chocolates and other things in Melbourne. Just a few months ago I would have spent even more on my trip and had no idea how much money I had spent on anything. The budget has at least helped me put some boundaries around what I feel is an acceptable amount to spend on different things and given me the ability to judge when I have spent more or less than I want to.

Spending without thinking used to be the norm with me as it probably is for many people. It is one of the bad habits I am trying to break now and replace with good money habits like tracking expenses, budgeting and planning for my purchases and financial goals. I have been fairly successful at stopping myself from spending without thinking to date but clearly being away at a conference, and in close proximity to a high concentration of chocolate shops, is one of the times when I am in danger of slipping back into my old bad money habits. If I had so much trouble in Melbourne where I was very busy at a conference then I will probably also have trouble when I am on holidays in Tasmania. I will work out some strategies to keep me on track before I leave, just in case.

Apart from the budget I have also really found it helpful to have worked out what my real hourly wage is so that I can stop and think before buying something and ask myself if it is worth that many hours of work. Whenever I see something worth $20 or more I now think “that is one hour of work, is it worth it?”. This really changes my shopping: I’m no longer comparing prices, I’m now comparing value and that helps me stop and think whenever I am tempted to spend money on unplanned purchases. Once I worked out my financial goals I made sure I put a list of them into Evernote and made it my default folder. As I have Evernote on all my mobile devices any time I am really tempted to spend money over my budget limit I can look first at my list of financial priorities and compare the value of  each of them to the value of the thing I am tempted to buy. Stops me dead in my wasteful little tracks every time! Well, except when I get to Haigh’s. Apparently nothing stops me there

Image via Wikipedia

As I’ve mentioned in previous posts I’ve never really sustained a savings account at any time in my adult life. I now think that I had three major problems with money that led to my lack of savings:

• My attitude to credit cards, which I treated as my emergency fund;
• A lack of clear financial goals, wich meant I only saved for short term goals; and
• A failure to prioritise saving ahead of spending, which meant I only put savings aside after I had paid my living expenses.

Over the years I have paid out thousands of dollars interest to credit providers because I lacked savings I could use for both genuine emergencies and larger planned purchases. I’ve also paid tens of thousands of dollars in rent over the last thirty years. But my lack of savings not only cost me more it also prevented me from living as I really wanted to. Despite years of daydreaming and vague plans I never did get to take an overseas holiday or buy myself a campervan for weekends away.

Thanks to my recent reading I have changed my attitude to money now and am making saving money a new habit and a financial priority. Each payday I logon to my bank and transfer money into my savings account before I pay any of my bills or withdraw cash for living expenses. I have a list of short term and long term savings goals and I’ve started tracking my progress toward these in an online spreadsheet. This makes it easy for me to know how much I need to save each payday and helps me recalculate easily if I have unexpected expenses or my goals change.

It has been much easier to do this since I changed to St. George Bank and started a Sense everyday account and a savings account that work together. The savings account is only accessible online so I can’t be tempted to use my savings for an impulse purchase as I need to transfer savings back into my everyday account to use the money. There is a fantastic little extra savings trick to this account too. Whenever I use my Visa Debit card to buy something with my everyday account the amount is rounded up to the nearest dollar and the extra cents are transferred to my savings account.

I can see my savings increasing each week, which is incredibly encouraging, and I’ve already been able to use my savings for quite a few unexpected expenses as well as for prepaying flights and accommodation for an upcoming holiday. So far my balance is relatively small as I am still focussing most of my available discretionary funds to paying off my consumer debt but I expect to have my debt paid out entirely by September and then I will be able to allocate all my discretionary funds to my savings goals.

If all goes to plan I will be able to take my overseas holiday next year, buy a home for myself within ten years with little or no mortgage and retire on a relatively comfortable income in about fourteen years. Of course this plan requires me to continue to earn as much as I do now and to allocate about 40% of my income to savings as well as 9% (pre-tax) to my superannuation. It also relies on me continuing to work for an employer who pays over 14% into my super. Saving up to 50% of my income each and every pay is going to be fairly challenging to say the least. I also like to change jobs every three or four years so it may be difficult to maintain this level of contribution to my super.

At least I have some plans now, even if they are going to be challenging to meet. But I can see myself meeting them simply by making my savings a higher priority than spending money buying new gadgets or eating takeaway every night. It has been incredibly satisfying being able to meet unexpected expenses from my own cash savings rather than using credit. There is far less stress and no ongoing commitment to paying off a debt. No wonder so many other people are so keen on saving their money, it makes for such a calm, stress-free life!

I’d really like to regain my fitness and walk up that hill without puffing and sweating for half an hour afterwards. In fact that is another of my goals for this year: to increase my fitness so that, by the end of this year, I can walk up the hill to work at a normal pace and not get badly out of breath. And I’m going to do this by budgeting. I know a typical weight loss/fitness goal is achieved by dieting and exercise but I have worked out that my problem is not my diet and exercise. The poor diet and lack of exercise are the symptoms of my problem and my real, underlying problem is over-consumption. The poor diet is enabled by not controlling my money and the lack of exercise is a side-effect of too much internet, movie and book time and not enough nature time.

I always buy good quality, healthy food in my weekly grocery shopping but later in the week, when I get home from work late and tired and I don’t feel like cooking, I go out to the takeaway shop and buy something unhealthy to eat. I end up having a high intake of calories, fat and sugar and throwing away really healthy ingredients because they have gone off after languishing ignored and unloved in the crisper of my fridge for far too long. When I was a single parent and quite poor I had to eat healthy food I prepared at home as I could only afford takeaway meals once every month or two. Now that my income is so much higher I no longer have external restrictions on what I can buy and I have gradually fallen into the habit of spending money on food unthinkingly and uncontrollably.

Likewise, I don’t restrict the amount of time I spend on the net, reading or watching movies. I will usually start reading news feeds and social feeds shortly after I wake up and usually spend hours every day with a screen in front of me passively consuming content rather than having a life. I haven’t owned a television set for years and have always thought that people who organised their routines around the broadcast of their favourite series were mindless slaves of the broadcast network but when I consider my own internet habits I can’t see much difference except that I am enslaved to a few apps and websites.

Both these bad effects of over-consumption create a vicious cycle and breaking this is going to be a challenge. I am looking to my budget to help by forcing me to menu plan, buy only what I need, prepare it at home and resist the temptations of the takeaways shops. If I only go to the supermarket once a week I will spend less than if I shop every day. If I go with a list and stick to it I will not buy too much. If I pay all my spare money off my debts and restrict my food spending to a sensible amount I will not be able to afford unhealthy food choices. It is proving a bit challenging re-learning my old recipes and limiting what I buy, when and how often I shop.

It is proving easy to relearn my old habits of regular exercise. I have always been quite active and used to love my daily cycle to and from work along the Upfield Bike Path. I always found it improved my mood to be outside in the fresh air, even if it was walking home listening to my lectures on my iPod. This month I have been walking five days a week or more for between 40 and 50 minutes around Herston and along the Enoggera Creek Bikepath. The photo at the top of my blog is a shot from my phone of part of this beautiful pathway. Once I got started exercising at a regular time again I quickly became addicted and have really missed it when the weather has prevented me from walking. The regular hour a day of time after work away from all distractions has stopped me from brooding about things that get on my nerves at work and helped to improve my mood enormously.

Japanese Garden at Mt Coot-tha Botanic Gardens

Today the creek path was in danger of flooding so I went for a short stroll in the Mt Coot-tha Botanic Gardens instead. The Japanese garden looked beautiful and I was the only one out there in the rain.

I have a wall chart up in my bedroom where I record my weight every morning and the exercise I have done every evening. In the first 28 days of this year I have lost 2.1 kilos and exercised on 22 days. So far the plan is working, hopefully I can keep this up and at the end of the year I will be a shadow of my former self.

I made this mistake at first and kept trying to make a budget that had no room for any kind of extravagance. No takeaways, movies or books this pay, Carol is on a budget! Well those budgets last about as long as a snowflake in Queensland. Take my advice and don’t even try it. Restricting how many movies/books/games you buy a month is ok, but cutting out all extravagance entirely is only for truly desperate straits, not for a normal budget. In fact I think it is just as bad as those fad diets that tell you to live on only rockmelon for a week. If you can’t live on the budget forever it is just a fad like the rockmelon diet and you are doomed to breaking it eventually just in order to survive.

So my budget now has categories for entertainment, takeaways and one special fund which I have labelled “Shameless Extravagance”. The amounts I have budgeted in these categories are actually way less than I used to spend on these things, but by using real cash for them I really notice, and appreciate, when I have spent $20 on shameless extravagance. It is really amazing how much more emotionally satisfying it is to use real cash for these things. I find that I don’t feel deprived because I can see the cash, separated out in its own envelope and clearly marked as just for takeaways or whatever. Then when I hand over real cash the things I am buying seem more permanent somehow and I find I remember spending the money more than I would if I had used a credit card and usually enjoy the thing more or for longer.

Another of the mistakes I made with my budget initially was to think it was fixed in stone and couldn’t be changed as I went along. This is utterly unrealistic. Accidents and unexpected expenses happen all the time and you have to have enough flexibility to change your budget as you go along to cope with these things. For example this month I have had an unexpected baby present to buy and a phone bill that was $60 higher than I expected. I have reallocated funds from a few of my other budget categories to cover these expenses and have also been prompted to review my phone and internet contracts to see if I can get a better deal. It was initially difficult when these expenses came up because I am used to thinking of changing a budget as some kind of failure, as though I have to get it perfectly right the first time. No one is perfect of course and no budget can be perfect either because no budget can take every conceivable contingency into account.

The process of budgeting is not about setting up an inflexible plan, rather it is about identifying your priorities for your money and making sure you allocate your available funds to your highest priorities. Since your priorities change throughout the year and you have both short term and long term priorities this means that each week or month your priorities will be slightly different and you may be allocating more or less than you initially expect to particular funds. Once I had worked out that reallocating funds to cover unexpected expenses was a normal budget activity that I was supposed to do and not some massive failure on my part I actually started to enjoy the budgeting process far more and to think about my budget tools more critically.

I’ve tried a few different tools to calculate my budget now but have settled on a Google Docs spreadsheet by Cory Hopper which is based on Dave Ramsey‘s approach. This lets me easily edit my categories as I go through the month but the best thing about it is the automated reports for my envelopes of cash and tracking my multiple little savings goals as I go along. I really like being able to see my progress toward all my little savings goals and be able to see the effects on my savings immediately if I have unexpected expenses that impact on my budget. I’m enjoying the process of budgeting my money and knowing where it is all going at last. But best of all I’m enjoying watching some of it stay right here with me!

I tried out a few different apps on my iPad and finally settled on Home Budget ($5.49 for the full app) as it let me budget as well as tracking my expenses. It is a fairly full featured app actually, you can even enter all your bills as they come in and it shows you reminders to pay them. It also allows you to track payees for your expenses which was quite illuminating to me. It turns out that a large proportion of my money (ten to twenty percent) was going to family for gifts, loans and emergencies and needless to say little to none of it was coming back. Clearly I need to toughen up and be more selfish or I’ll have to go live with my daughter even before I retire!

Every time I have paid a bill or bought anything at all I entered the details into my app. At the end of the month I had some figures for how much I had spent on each of my budget categories. This was incredibly helpful for my budgeting. I’m not really very accurate in my estimates of how much I need for particular things (like utility bills or petrol) so this gave me a base and something to measure my goals against.

I am now trying to cut down my spending in particular categories and can measure my progress by comparing this month to last month and to last August (my baseline month). In fact by expense tracking this way I have turned my budget into a game of sorts and I have a small amount of cash I set aside each pay as a reward for under spending on any of my discretionary budget categories. If I am underspent I can spend my cash reward on anything I like (generally this means chocolate) but if I am not underspent then I have to use it for bills or the overspent categories.

At first it was difficult to remember to put all my expenses down but after a few weeks I got into a routine of doing this each afternoon when I came home. It’s been much easier lately as I have switched over to envelope budgeting and using cash for my daily expenses. This has probably had the biggest impact of all on my money awareness. It is amazing how much closer you watch your cash when it is a finite sum, especially if you have deliberately reduced the amount by ten percent of what you previously spent. I no longer go to the supermarket daily, now I try to go once a week, or twice at most, and shop with a list I stick to exactly. No more impulse purchases of chips or cheesecake even if they are on special!

After thinking about my financial situation, my weight and fitness and all the other parts of my life I am not happy with I have come to the conclusion that most of these issues are caused by over-consumption. Although I have always tried to do “green” things like not owning a car, minimising the plastic in my house and recycling I had not ever really examined what I spend my money on and thought about what value I am getting from that.

Over the Christmas break I listened to an audio book version of “Your Money or Your Life” by Vicki Robin and had a little light bulb moment. Taking Vicki’s advice I calculated how much I had earned in my life and was amazed to realise this was just over one million dollars! Admittedly these are Australian dollars which have until recently been the milk-bottle caps of the world economy, but still, $1,000,000!!! What the heck do I have to show for that? Less than $200k in my super and all seven seasons of Buffy boxed DVD sets. No house, no fancy car, no fabulous overseas holidays. I have wasted a lot of that money, and most of it on things which had no enduring value to me or my daughter.

After doing this little exercise I continued on with Vicki’s advice to calculate my actual hourly wage. I am in a well paying job now and my payslip says I earn over $50 an hour for a 36.25 hour week but when you factor in unpaid overtime, work clothes, lunches with colleagues, professional association fees, self education (including all the time spent reading blogs and tweets) and taxes it turns out that I only earn just over $20 an hour for every hour I spend earning my salary. Think about how many hours it takes me to earn the rent money for this nice apartment ($400 a week or 20 hours) or even how long I have to work to buy a hard back book ($50 or 2.5 hours).

So from now on I am going to question the worth of everything I pay out my money for and ask myself “how many hours of my time will have to go into paying for this?” and more importantly “is this thing really worth so much of my life energy?”. This should help me to work out what is really important to me and what things will move me toward my real goals, instead of just keeping me current with the Joneses or satisfying a vague urge brought on by clever marketing and lack of self awareness.

Image by alancleaver_2000 via Flickr

Since my big goal for this year financially is to pay out all my consumer debts I needed to set some specific milestones to help me measure my performance through the year. This is not too hard as I have only three debts to consider:

1. A personal loan worth $13,594.67 as at 1 January 2012;
2. The new MacBook Air, $1,849.00 as at 1January 2012; and
3. A holiday to Tasmania in early March which I need about $2000 for.

OK, I know that last one is not a consumer credit debt but it is a debt none the less: I am taking my recently widowed mother on the holiday Dad never took her on. There really isn’t any way out of this and we have paid for the airfares already so I am thinking of it as a debt I owe Dad. I am going to use a debt snowball on the smallest debt first once I have this holiday out of the way.

For the next four of my fortnightly pays I will pay:

1. $403 toward the personal loan (the minimum payment)
2. $150 toward the MacBook Air (the minimum to pay it out in the interest free period)
3. $500 toward the holiday.

This will see me take the holiday with $2000 and meet my other minimum obligations. The minimum monthly payment on the MacBook Air is only $40 but if I only pay that much I will not pay the loan out within the 6 month interest free period and then I will have to pay almost 19% interest on the balance. Not such a bargain if that happens.

Once the holiday is over I will pay $650 per fortnight on the MacBook until it is paid out on 21 March and still making the minimum loan repayments of $403. Then I will have only one debbt and I can pay $1053 on the loan each fortnight until it is paid out on 5 September.

This plan sees me paying $1053 each fortnight on my debts and despite my high salary that is only going to be possible if I am incredibly diligent about budgeting and planning for my other expenses. This is not a description that has ever been applied to me before so I am now on a steep learning curve about budgets, savings accounts and expense tracking. Guess I’ll be writing up something about those in the next few days too!

If it was easy to get out of debt and stay out of debt everyone would do it, but according to the statistics I’ve seen over 70% of Australians are in debt right now. It’s good to know I’m not alone but somewhat disappointing to discover I’m not so out-of-the-ordinary after all. One big difference between me and many other people my age is that I don’t own my own home, my debt is all consumer credit. If I want to live in comfort when I retire I need to buy a home for myself within the next fifteen years. As I don’t have any savings that’s looking a bit tricky.

So my long term plan is to do what all the other personal finance bloggers did and:

1. Pay out all my consumer credit ASAP
2. Build up an emergency fund of six months expenses ASAP
3. Save at least 40% of my income each and every pay until I can buy own home.

I have some pretty bad habits around credit and spending I will need to break and some new habits around saving and goal setting I need to make (these will be other blog posts soon). This year I am going to concentrate on paying out all my consumer credit (which I expect to do by September) and building up those vital new behaviors. Last year I got rid of all my credit cards and have been successfully using a debit card instead, until I slipped up and applied for a new line of credit to get that MacBook Air. I’ve had a good think about how and why that happened (which I will write up later) and am pretty confident I can avoid behaving so foolishly again if I stick to my plan.

The short-term actions I am taking now to make sure I can meet my long term plan are based on the principles in Change Anything: the new science of personal success cause I’m a big sucker for anything based on scientific evidence. This book looks at the six sources of influence that affect your behavior and helps you work out how to get them to work for you and your goals instead of against you. There are two things in this book that really hooked me on the idea this could work for me: The authors state right up front that success doesn’t require willpower; and they believe in seeing failure as an opportunity to learn. I’ve been secretly convinced for some time that I used up all my willpower putting myself through uni on the sole parents pension and anyone who has heard me speak about change and innovation at work knows that I rabbit on endlessly about how you need to fail lots of times before you can innovate.  Its not just that the authors agree with me though, I’ve learnt a great deal from this book and it has really opened my eyes to the way my life is influenced by things I could not see or recognize.

Future posts will go into this in more detail but in short I have identified what I hope are my most common crucial moments (where I may be influenced to act against my goals) and planned some new vital behaviors I can use to avoid these moments or deal with them in a positive way. Failure is likely (in fact it already happened) but I am willing and prepared to learn from it. I’ll be using this blog to document the gruesome details of how I made myself a victim subject of my own science experiment and I hope to be able to report success well before the end of 2012.

Let the experiment begin!

Last year after a few years of trying to pay my credit out and not really getting anywhere I accepted that I simply cannot be trusted with a credit card. I got a personal loan (from St. George who are a fantastic bank), paid out my existing cards, cut them up and closed the accounts. It was exciting and a bit scary at the same time knowing I didn’t have a card to fall back on but I managed to put aside $2000 over two months to pay for upcoming dental work and still pay all my bills, including the new loan payments, on time.

Then I went out three days before Christmas and bought a top-of-the-range MacBook Air on credit from the Apple store. Obviously this counts as a big fail in the get-out-of-debt plan. I had all these justifications for why I needed to get this now – there was a zero interest offer which was about to expire, I could use it for work and claim it as a tax deduction, I was eligible for a discount as I work for a university, it would make me more productive and greener when I didn’t have to print things out as much. All these things are true, but all these things are excuses for bad behaviour, not reasons for a sound financial decision.

Luckily, the same day I got the MacBook Air I also picked up a copy of Change Anything from the library. With the help of this book I hope intend to change my attitude to consumer credit and never make this mistake again! In my next blog post I will write up my plan for change, including milestones, so I can track my progress here.