While most people would like to get on top of their personal finances and budgets many people don’t have the time or the want to spend the time on this every week. Sure there are those who love to nerd out with their finances, delving deep into their budgets and investments, however the majority of people who don’t want to dramatically overhaul their finances, they want something smooth, automatic and relatively easy to track and follow.
Tracking your personal finances can be as easy or as hard as you want it to be. You have the choice as to what level of detail you wish to subscribe to. Even if personal finance isn’t a big part of your life, there is no reason why you can’t get on top and stay on top of your personal finances and you definitely don’t need a fancy degree to take control of and stay on top of your finances.
You can also do this monitoring at your own pace. If you want to go deep and map out all savings and investing aspects, go right ahead. If you want to have a more nuanced approach, one where you don’t check your budgeting or investing apps every 15 minutes this is also fine.
The main point here is find what works for you, but make sure you do something about monitoring your personal finances and investing.
The same can be said with setting financial goals. There are some who take these very, very seriously and their life is planned around these goals. There are others who aren’t too fussed about financial goals and are just looking to save more than they spend.
Again choose the approach that suits you thought we would suggest even if you aren’t a big goals person to look (as best as you can) into the future and try to determine what retirement would look like for you, what income are you living on, what date is your retirement goal, where are you living, just to name a few thoughts.
How can these people come up with a system that is rather minimal yet they can still stay on track with their financial goals? Below we go through an easy approach to personal budgeting.
Do your initial personal finance prep work
To have a personal finance system that doesn’t take many hours of the week from your schedule you will need to do a bit of initial prep work. You’ll want a full review of your financial situation (essentially performing a full personal financial audit) to find out exactly where you are currently financially which you can then build your system from.
For some this won’t take long at all, for others it may take some time however at the end of this you’ll have the information to mold together the best personal finance method for you.
A personal financial audit will entail getting a full list of your debts (if applicable) including interest rate, monthly repayments, name of debtors, a full list of your assets (even including the small parcel of bonds your grandmother gave to you as a youngster), the total income that you receive each year and a list of your expenses or where you spent your money the last year or so.
List everything you can about your debts, how much you owe, repayment period (i.e. monthly), interest rate, final repayment date, name of lender.
Also add any money you owe to friends or family members and if you have student loans or any government debts.
List all assets that you have, all your bank savings, shares, property investments, any collectible assets (such as sports memorabilia or coins) that have value or even your alternative assets or crypto or NFT holdings (assuming these have some value).
List all the income that you earn Including any secondary you (or your partner) may earn no matter how small it may be. This should include any dividends you receive from any holdings you own as well as any government assistance that you may receive.
List all your expenses preferably over a longer term such as one year. Go through your bank accounts and your credit/debit card statements (and estimate any missing expenses such as cash) and note what this was for a 12 month period (either through a whole 12 months of data or extrapolating 3 or 6 months worth of data to a 12 month period.
Another important part of this process is to set financial goals. You can take this as far as you want to however at a basic level we suggest you look at what retirement (or financial independence) looks like for you.
The reason why we suggest this is to build sufficient assets or income streams to fund your retirement will likely take many years and the sooner you start working towards this asset building the more likely you can hit your retirement goal.
Many people let retirement creep up on them before they’ve put time and effort to plan and build retirement assets. The quicker you get ready for this the more likely you will be sufficiently prepared when retirement comes.
Variables to take into account when looking at your retirement planning is what age would you look to retire, is it retirement from full time work and moving to a part time role, or is it complete retirement and living off your assets and income streams?
Once you’ve got an idea of timing and approximate income you’ll need in retirement (in today’s dollars) you can then do some planning around how you need to allocate to building your savings and investments and some modeling to determine what a sufficient end goal would be needed.
Other points to note when looking at your retirement goals include where you will be living? Will you be debt free or looking to downsize your current place of residence? Will you be renting in retirement or even traveling the world with no fixed address?
Looking at shorter term goals, these could include getting on top of your bills and debt repayments, paying down smaller debts such as credit cards or looking to build a sufficient emergency savings account (start with 3 months of basic lifestyle expenses if you need help setting a goal for this).
Once you’ve gone through your goals let’s move onto setting your budget.
After you’ve gathered all the above information, it’s time to put together a personal budget. As with everything in this article you can go as light or as deep with this as you want.
By choice or by circumstances everyone is currently on a budget. So ask yourself are you in control of your budget (and finances) or is this in control of you? For those who actively budget (or at least stick to a prepared budget) you are in charge of allocating money towards lifestyle expenses, debt repayment and saving/investing, basically living within your means.
For those who currently use a personal budget and it is working for you, great keep using this. If it isn’t working for you or you are new to this, choose a version of a personal budget that you think will work for you. We’ve outlined various types of personal budgets in our Ultimate Guide To Personal Budgets for some pointers.
If you are selecting your budget, choose an option such as a percentage personal budget like the 50/30/20 personal budget and start to estimate what you think you’ll spend with a new budget (keeping in mind your income constraints and savings and investment plans).
Alternatively you can go deeper into planning your new budget by taking a more deeper dive, reviewing every single expense you have recently made then map out your new budget (along with planned savings and investment plans).
A couple of tips when reviewing your previous expenses and putting together your new budget:
- Review all long term expenses for a cheaper suitable alternative – If for example you have expenses such as a mortgage
- Review all subscriptions and memberships – Review all of these to determine whether you use these and whether you are getting value for money. For example you might be on a higher tier gym membership paying for services you never use.
- For those in a tight money situation, are there cheaper options available for your regular expenses such as grocery brands?
When putting together a new budget you will very likely be off by about 5-10 percent, so take this into account in the early stages of tracking your expenses.
In the early stages we recommend you review your budget at least weekly to make sure you are on track and haven’t missed anything and once this is bedded down you can move to a monthly review.
The way to a simpler personal finance situation is to automate as much of this as you can. From your large bills to your monthly subscriptions, if these are automated and coming from the same transaction account (ideally linked to your debit card that you make in person purchases with) the whole process will be a lot easier to track.
While automating your finances is the goal, this doesn’t mean you have no ongoing involvement nor is this a process of set and forget, planning (and reviewing) still needs to be done and check-ins should be made at regular intervals.
Think of it like you are delegating the day to day role of your personal finances, the automation handles this for you, your new role is to manage or supervise this automation.
From this transaction account hub you can link a savings account as well as an investment platform or account which you can use for your regular investing. You may also choose to add/link a budgeting app (such as Mint or YNAB) or a budget offering that your financial institution offers. These are essentially the main pieces needed to build your savings and investments for financial independence.
Building Your Personal Financial Hub
Streamline your current process and find a suitable transaction account
For many people, their current process is like a piecemeal approach where add-on add -ons have been made to your personal finances without really reviewing this to find a more efficient method.
This could be having regular expenses coming from several different credit cards or debit cards, using several checking or transaction accounts for their expenses or having money deposited into accounts that you don’t use except for receiving income.
Review what you are currently using and find one main checking or transaction account that will act as the hub where you will get your income deposited into and where the majority of your expenses will be debited from.
When choosing this account look to find one that has unlimited or a high amount of transactions, no fees, allows direct debits and if possible pays an interest rate on any balances. If your current financial institution doesn’t offer this, find one that does.
If you have several credit cards, pick one that is the most flexible and offers the better rewards. If you have credit card debts that aren’t getting paid off then we suggest you revert to a debit card linked to your transaction account and as part of your new financial regime allocate money towards credit card debt and DON’T add to this debt.
Another tip is to organize your repayment to align as close as they can. For example you might have 10 different regular expenses coming out of your account each month, reach out to these providers and see if you can have these coming out of your account the same day, i.e. the first of each month or the 15th of each month.
This makes it a lot easier to keep on top of due dates and reduces the need to juggle money. Setting up alerts can also help (as a backup) with the tracking process should you wish to have this additional level.
Ideally your financial institution has an easy to use app or website that you can log in easily to view your current accounts and check that everything is on track. If you are using a budgeting app such as Mint or YNAB these should also be able to access your accounts for ease of tracking.
Once you’ve found your ideal transaction or debit account look to find a suitable savings account (a higher interest account), emergency fund account as well as an investment platform where you can start building your investments plus your retirement accounts or 401K.
Putting it all together
Once all of the above accounts, cards and platforms have been selected it’s time to automate this.
Firstly make sure your employer has the correct account your pay is now to be directed to. Once there is income (plus a small buffer to make sure it never goes into a negative balance) in this account, start to add all of your direct debits to come from this account. For all your monthly or regular subscriptions make sure these are to come from the one credit or debit card.
Once you’ve started to build up sufficient savings, have this automated to transfer to your relevant emergency fund and savings accounts. Once you have started investing or adding money to your retirement accounts automate this as well.
In the beginning check in regularly to make sure that no bills payments are missed and that the automation is working as it should. Once this is bedded down you can look to check in less regularly say monthly to check everything is as it should be and that you are on track with your savings and investment goals.
Find a suitable investment and retirement plan
As you hit your debt repayment, emergency fund and savings goals you will be looking to boost your investment and retirement accounts. For some of you this is right up your alley, reviewing company financials, trying to find undervalued investments and some underrated gems.
For a lot of people this seems a lot of work and not appealing however they also realize they need to invest and plan for retirement.
Going through your financial goals above you would have addressed your investment and retirement goals and likely the amount of time you want to spend on analyzing investments. Now that it’s come to look at investing surplus savings into investment and retirement plan options, stick to investments that reflect not just the style of investor you are but also to the type of risk profile that you prefer with your investments.
This is important, you have to be able to sleep at night and for some people investing in an asset that can fluctuate by 20-25% in value can be hard to deal with. Know who you are and what you are comfortable with.
Further to this work on building your education around finances and investments. Someone with limited financial education may be a little less tolerant of investment risk however with some serious financial education and a more detailed understanding of investing they may improve their risk tolerance.
Find a suitable investment option that suits your goals, suits the time and effort you can put to this. This may mean reaching out to finance professionals and using their services to build your investments and retirement portfolios. There are some great investment professionals that you can use however do your research before you meet with them to find out if they are a suitable match for you.
Alternatively you may choose to select your own investments however these may be more passive such as an index fund or a more broad exchange traded fund (ETF) such as the offerings from Vanguard. Check the fees on the platform you are using, check the fees on the investments you are looking at and most importantly do they fit your risk profile and investment timeframe?
When looking at your retirement plan, is your current plan suitable for you? If you are lucky enough where your employer has a quality plan and matches contributions, maximize this where you can. Select investment options in these plans that suit your investment and risk profile and your timeline. Even if you are self employed make sure you look at retirement accounts to see if they are suitable for your situation.
Aside from the traditional investments such as property and shares there are other potentially lucrative investment options available. Ideally these would revolve around building passive income such as a small business, an online business or even a money making website.
Even if you have no experience in small business or even with the online equivalent this is no reason to ignore this. As we discussed above, commit to building your investment and financial knowledge even in areas you have no experience with. This could lead you to an investment option that could boost your net worth and take years off your retirement planning if done correctly.
Just because you don’t have a lot of time or don’t want to spend a lot of time on your finances doesn’t mean you need to fall behind others. Putting in some solid preparation work can put you on the right track financially while leaving you with plenty of time to live your life. Pick the strategy that works for you the best and work with this for a while and make any changes over the next few months.
Remember automating your finances doesn’t mean set and forget. It’s set and managed and you will need to at least check in on a monthly basis with a more serious check in or review every 6-12 months as your situation may change and your time frame and risk profile will likely evolve particularly as you get older and look to transition to retirement.
To get to this level and reach a suitable retirement level, you need to start and if you are having trouble beginning your savings and investment journey, then our easy approach to personal budgeting is a good place to start.