The Systemic Approach

Last week I posted a breakdown of where my money goes, this week I decided to look at how it gets there.  I have come a long way and learned a lot about personal finance.  While I will never teach a class or write a book I think it is important for people to see how easy it can be to get your finances into shape.  Having a budget is great, but having or sticking to a budget isn’t the goal. Building savings, paying off debt, or buying something that you want is the goal, the budget is just the tool to get you there.  When you have a system in place it is easy to forget about it an work its magic. Every once in a while you need to step back and evaluate your goals and the methods that you use to reach them. In this post I am going to detail some of the systems that I have and the tools that I use to make them work.

Systems–

• The Magic of Automation- Automation is one of the biggest things in the personal finance world. The internet has given us a chance to do everything quick and easy. Every one of us has access to direct deposit, in fact I have worked at jobs where you got paid by direct deposit up to a full day before you got a paper check.  Using these kinds of tools to handle our income and expenditures we can ensure that everything can get taken care of.  We all forget something sometime, using automated systems you can help reduce your stress and assure that things are getting done. I automate most of my bills, simply because I have more important things to worry about than questioning if I paid my internet bill last week or by what day do I have to pay my heat or rent. Most companies have a way to automatically remove the payment from your account on a set day of the month, if they don’t then your bank does. In some cases, specifically student loans, having an automatic payment can even help reduce your interest rate. Twice a month money is taken out of my bank accounts and sent to my post tax retirement accounts and my house fund so that I make sure that I save for the important things rather than just spending the money on day to day stuff. While there may not be butler robots yet we certainly can harness the power of technology to lift the burden of worry and free ourselves up to accomplish other things.
• If You Don’t See It You Can’t Spend It- On payday four things happen before my alarm goes off, I get paid, I pay myself back, I pay what I owe, and I save for what I want.  I get my check through direct deposit, a chunk of my pre tax income gets put into my 403b to save for retirement, I automatically make payments on my car and my rent is sent to my landlord, and a few dollars are put aside for my travel fund.  By not ever seeing this money then there is no way that I can convince myself that I have better uses for it.  Budgeting is like buying a large pizza by yourself, you start off with a plan to eat some now and save the rest for later, but sometimes the slices that you have planned to save for tomorrow never make it to the fridge.  You have an immediate need, whether it is eating that slice of pizza because you are hungry, or buying something that you saw and wanted.  We all slip up sometimes, and it is easy to see a full bank account and trick yourself into over spending, the best way is to have a system in place to take care of it for you without even knowing that it happened.
• Emergency Fund: I spoke briefly about an emergency fund in my previous post. I am a firm believer that shit happens and it is better to be prepared and buy yourself some time than to need to react immediately. Having an emergency fund gives you a little leeway, but you also need to dictate what an actual emergency is. Christmas is not an emergency, neither is having your car insurance come due, that really cool pair of boots that you need need NEED and it is ok because you need new boots because your other ones wore out and you might as well get these really cool ones is not an emergency. These are expenses that you should have seen coming, and as my good friend always says “poor planning on your part does not constitute an emergency on mine.” You should budget for these things, tapping your emergency fund for stuff that you about knew 6 months or a year beforehand is going to leave you high and dry if you do have an actual emergency.  If you have an actual emergency, your car dies, you lose your job, you need to fly out for a family emergency then don’t feel guilty about your emergency fund, just build it back up ASAP, Murphy’s Law is a bitch.  In order to help prevent tapping into my emergency cash I have even set it up in a separate online savings account, where I actually earn a much higher interest rate than I could have gotten from my local bank.  I cannot stress this enough, you need an emergency fund, start saving for one now.

If you are interested in systems I recommend simply doing a google search for personal finance systems. There are plenty of personal finance gurus out there who will gladly preach to you what you should and shouldnt do. I have found that the best way to set up my own system is to take in a whole lot of information and see what sticks. A lot of things are just fads or they push you to try and live a lifestyle that you don’t choose. I don’t recommend taking everything word for word, or taking exact investing advice (except buy silver) but if you find out what works for you then you can make an amalgamation of different systems and make something unique. If you would like information about the sites or books that helped me the most please reach out.

Tools

• Retirement Calculator- Google retirement calculator, put in your age and how much you are thinking about saving then do your age plus 10 years. The numbers will probably shock you. You can never save enough for retirement, and the earlier you start saving, even $20 per month, the better off you are. People who wait until they are 30 to start contributing to retirement plans have to work so much harder to catch up to someone who started with just minimal contributions during college or shortly after. Our generation doesn’t generally have a chance to work 30 years at the same company to collect a pension, and social security is on pace to run out long before we retire, so we need to invest in our own future, and sooner is better.
• Mint.com Account- Mint is an online account manager. You allow it access to your bank accounts, loans, investments, credit cards and it puts them all in once place. You are able to track your spending, and watch your net worth steadily advance. They also have an easy budget planner that automatically shifts your spending into the budget categories. I also like the goals feature where I can associate certain savings/investment accounts with my saving goals or debts with my payoff goals. Mint also has a pretty good smartphone app, I like being able to check my net worth on the go.
• Personal Finance Books and Blogs- There are plenty of them out there, find what works for you.  If you want recommendations let me know.
• Credit Cards- Credit cards can be a double edged sword.  I love mine and earn all sorts of points and rewards, but I also pay off my balance each month.  If I carried a balance on just one card I would basically negate all the reward points that I earn from my 4 other cards.  Also missing just one payment can drop your credit score like a rock so pay it often and pay it entirely.
• The Interweb- There are a lot of big time finance buzz words that get tossed around. Like any specialization this jargon sounds strange and foreign to any outsiders. Don’t be fooled or discouraged because you don’t understand it, just look it up and pretty soon you will be talking like an expert.
• Pen and Paper- All personal finance is basic math. The most complicated thing that you might have to work with is interest percentage. I enjoy sitting down and running the numbers just to make sure that I know how much I spend and where it goes.Having this hands on experience every few months helps to keep me attached to my money instead of just having it be a bunch of 1s and 0s on a computer screen.
• Youth- Being young has a lot of great advantages.  The most important one when it comes to personal finance is that you have time to fix any mistakes you make, and time to build wealth with slowly over a long period.  I have screwed up a lot, and I still plan on screwing up a lot, but losing a percentage of my savings when I am 28 is better than losing that same percentage when I am 58.  Learn from your mistakes and get better, there is plenty of time.  *this doesn’t mean that you should procrastinate saving until later, start early and you will save more

Personal finance is a journey, one that we have taken since we got our first allowance and that we will take until we are 6 feet under. Less than 5 years ago I didn’t know anything about personal finance. I remember telling someone that I was going to put my money under a mattress and when I got too much I would buy a bigger mattress. I was able to change that by reading a few books and browsing some blog posts. Honestly I don’t even bother checking them anymore because I have heard enough to set up my own system that works and don’t feel the need to waste time reading more things that I am not going to try. By being an active participant in the journey I am able to understand my money and send it to places that fit my needs and my plan. I am also able to understand economics better and though that see how the world works and what makes people tick. I am not perfect, and I make a lot of money mistakes but I try to learn from those mistakes and grow as a person. One of these days my net worth will be positive, and some day I will be able to retire, but until then I am going to grow my cashflow, optimize my savings, minimize my debt and all those other buzzwords. But most of all I am going to enjoy my money and try to better my life because after all you can’t take it with you.