Physical hibernation is simple – your body stores food over the summer so that it can sustain itself through the winter when food supplies are sparse.
If you spend at least a year tracking your spending, you’ll find that you go through “financial hibernations” as well. Even if you have a steady paycheck, I’m sure there are times throughout the year where you get additional income, like tax refunds, bonuses, and extra paydays. There’s also times where your spending is higher, like months with holidays, vacations, insurance premiums (if you pay every 6 months), and large one-time expenses.
When you track your finances for at least a year you see a pattern, a cycle. At the end of the year when you run the numbers it all balances out, but some months can seem pretty lopsided.
I remember the first year I used a budget and as a result recorded a record of my spending. The year started off great – I was making a ton of progress and saving money almost felt easy. By the time June rolled around I had become pretty discouraged. I was in a slump. My income stayed pretty level, and besides a vacation and something else here or there my expenses were flat too. I was still making progress but it felt painstakingly slow.
Year 2 rolled around and again the same thing happened, although I was a little more prepared for what was happening I still couldn’t shake the feeling that I was treading water. But at the end of the year I saw that I had made a pretty large leap in terms of Net Worth than the year before.
Now, in Year 3 I’m trying to look at things a little differently. For one, I’m focusing on my overall savings rate for the year as well as my Net Worth. My savings rate tells me that what I’m doing month to month is either helping or hurting my progress. When you only look at Net Worth, any number of things outside of your control can influence your progress.
By Year 3 I’ve learned that I have two months of the year where things really align – March and either August or September. In these months I get a quarterly bonus from work and 3 paychecks, which greatly increases my income for the month. March is a little better because I usually get my tax refund by then, which is added to the pot. I like to think of it as Financial March Madness – It’s like being a kid in the candy store if the kid loves investing and the candy store sells Vanguard funds. The rest of the year feels like hibernation – I save as much as I can these months, and for the rest of the year I buckle down and stay focused on maintaining expenses.
So this time I’m ready for hibernation. At the end of March I have a yearly savings rate over 60% (my goal for the year is 50%) and made more Net Worth progress than I did in 6 months last year. I know the next few months won’t have many extras, and any progress I make will be slow and steady. I’ve built up my stash and will spend the summer financially hibernating – buckling down, doing the work, and focusing on a sustainable balance.
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