FINANCIAL HOUSEKEEPING | Track your spending
If you finished 2006 wondering not only where the time went but where the money went, it’s time to follow the money. Spending records are simple and easy to keep; just capture every dollar you spend for a representative period of time, typically anywhere from two weeks to a month.
A small notebook is easiest for the task, but some people prefer using a debit card that builds a record they can review when the statement comes. It is crucial to catch “the small stuff,” the dollar here or there that leaks out of your pocket and into, say, a candy machine. Be sure to include all monthly bills too.
Armed with the results, you can review your spending habits to see where you have waste – memberships or subscriptions you don’t use, for example – where you have excess (shopping when you have a closet full of clothes), what you can cut out, and the bare minimum you must earn to make ends meet and have something left for savings.
SHORT COURSE | Laddering a portfolio
Laddering is a specific way of structuring a portfolio of bonds or certificates of deposit that have different maturities. The concept – sometimes called “staggering maturities” or “liquidity diversification” – builds a portfolio that mixes short- and longer-term interest rates.
For example, say an investor has $30,000 to invest in bonds. The money can be divided into three equal portions invested in, say, one-year, two-year and three-year Treasury securities. The income is either reinvested or spent; each time a bond matures, it is rolled over into the longest time frame in the ladder, in this case three years.
The result is a portfolio that hedges interest rates, offering both short-term liquidity and longer-term stability.
