The Simple Way to Stop Worrying About Money

The #1 thing that keeps American's up at night is famine, genocide, their kids' education, and nuclear waste. NOT!

It's money! Good ol' personal finance. Why, with all the world's long-term problems, does your own wallet make you toss and turn at night more than the issues that can rock the foundation of all humanity? Because banking technology sucks! Yep. Technology.

Think about your checking account for a second, what do you see when you login? Most people see an oh-so boring and uninformative line that simply says "Available Balance" aka, what you have right now.

Exhibit A, a traditional bank account...try to stay awake now:

Now, imagine a world where you could login to your bank account and see what is "Safe-to-Spend", that is, what you have right now *minus* what you expect to spend. In other words, your oh-so-boring "Available Balance" may be $1000, but when you deduct your $500 rent and $50 cable bill your "Safe-to-Spend" amount is $450. So, if you spend $450 today you won't go over budget. In other words, how awesome would it be if a bank just budgeted for you!? Think teaching your oh-so-boring bank a lesson. Well imagine no more! Enter, "Simple", the bank that helps budgets for you!

With Simple you have your Available Balance (the same oh-so-boring total of everything that's in your blah checking account), but it also deducts your Scheduled payments (i.e. that recurring bill you know you have to pay), and your Goals (what you're saving for and don't want to touch), and what you have left is your "Safe-to-Spend" balance. Voila, banking geniusness!

And, of course, it gets better...

You can set goals, like Weekend Trip to Coast, set how much you want to save -- say $250 -- and by when -- say Sept 19th -- and Simple will *automatically* (my favorite budgeting word), set that aside daily. That's right ladies and gents, automatic savings.

Simple = one million points, Traditional Banks = negative infinity points.

Not only is Simple awesome (and based out of the most hipster town in America, which adds to its awesomeness) but I have also taken my banking awesomeness to a whole new level by completely automating my personal finances. After reading I Will Teach You to Be Rich's chapter on automating finances and Afford Anything's "How the Anti-Budget Can Save Your Wallet" I knew it was time to stop worrying and calculating on spread sheets, and apps that connect to the very thing I know can be automated.

Here's what I did step-by-step to automate my cashflow (with a time estimate!).

Steps 1-3: Plan 

1. Knowledge is Power (5 mins): Read this awesome article that will change your life: "How the Anti-Budget Can Save Your Wallet"
2. Power I saw! (8 hrs): Read this book - optional but highly recommended: I Will Teach You to Be Rich's
3. Goal Setting (2 hrs): Write down all of your financial goals with a *deadline*. If you don't have a deadline, or at least a target date, then this will be much harder for you. If you need help, I recommend this checklist.
 Here are my goals:
     A. DebtPay off my highest interest student loans in one year...which I'm on track to doing:
       B. Emergency Fund: Save up 3 months of expenses in the bank by end of July. 
       C. Family: Save for an international family trip in September. 
       D. Save: Save for a home purchase for fall of 2015!
       E. Retirement: Put away as much as I can for retirement until I pay off my student loans.
       F. Guilt-Free-Spending: Per "I Will Teacher You to Be Rich", have guilt-free spending! Woo!

Steps 4-7: Act 

Now the fun part! Align, Allocate, Automate!

4. Align (1 hr): Line up your goals in a row so they're all sitting nicely next to one another, like little ducklings in a parade passing a baton...or golden goslings about to lay you some golden eggs...but I digress. What I mean to say is: write down your goals, expenses, and income in the order that your cash will flow through them based on tax-incentives (i.e. pre-tax retirement before taxes), and of course, paying yourself first (your goals are more important than your expenses). Don't worry so much about the amounts at this step, just focus on the order.

Mine lines up like this (click to enlarge):

Note: Necessary Expense, Debt, and Savings all happen at the same time, but are aligned here for simplicity.

5. Allocate (1 hr): Now you'll need to pull out the calculator and a calendar...or just a spreadsheet. I know, I know, this is the non-automated part, but once you set it up, then you're good to go until you either reach a goal, or a big expense (i.e. housing) changes. Calculate your cashflow in this order:

  • Goals: First calculate how much you'll need to reach each of your goals, including retirement, savings, etc.-- i.e. I need to pay $900 to my student loan per paycheck to reach my goal of having it paid off in a year. Pay yourself first!
  • Expenses: Next, add up your expenses including fix costs (rent, cable bill), and variable costs (water bill, etc.). For variable expenses, estimate based on your past spending. 
  • Allocate: Calculate a percentage and hard number based on your goal and expense calculations. If you have variable income (ie. freelance), then the percentages can better guide your cashflow plan.
    • You may have to adjust some of your goal timelines if you can't cover your expenses, but that's okay. I'm not savings a much as I want, but know that when I pay off my student loans I'll be able to. As long as you have a timeline, you're way ahead of where you probably were before you started at step one! 
My cashflow (the amounts are made up for simplicity):

6. Automate (2 weeks - 1 month): Now, put your money where your mouth is -- or where your cashflow goes, and AUTOMATE IT.  Each time your money moves, it need to do so automatically.

Your retirement needs to be deducted automatically, your taxes are deducted automatically so you don't need to worry about this unless you're self-employed (in which case, set up a separate savings account for it), then have your take home paycheck direct deposited into *SEPARATE* accounts. Put your expenses in an account that's separate from the one where your guilt-free spending goes, and very separate from your savings. This way, you won't "dip" into your savings. Don't touch it! It's savings! Just like you shouldn't take off surgical stitches just to "dip" into the wound, don't "dip" into your savings! You'll be infect your financial health with impatience. Don't touch it until you reach that goal!

Here's how my automation shakes out:

  • All of my savings go into one account, but within that I have all of my sub-goals within that savings pool. So a sub-goal for a house, another for a vacation, etc.
  • My necessary expense go into my old checking account, and all of my bills -- including my goals to pay off my student loans -- is deducted from that. So I never have to check it. I do go in for about 5mins whenever I get a paycheck just to make sure all the wheels are turning and my master plan is working...bwa ha ha!
  • My guilt-free spending goes into my new favorite thing on the planet: a Simple checking account. All of my fun money goals get tracked there, like birthday gifts, gym membership, clothes, date night, father's day gift (call your dad on June 15th!), etc. 
    • The only caveat to this is groceries. I have a groceries goal in Simple because it's money I spend regularly and need access to. 

Could I put all of my goals in Simple? Sure. But I want the highest interest possible for my long term goals (~1 year +), so those are in a separate high-interest-yield savings account. This way my long term savings (a) are growing faster than they would in a checking account, and (b) I can't get to them! The best way to not "dip" into your savings pool is to throw away the key! Keep it in a separate account!
It'll take a few weeks to open different accounts, so I'd give yourself a month to open them up and let things iron out over a paycheck or two.

But from step 1 to step 6 it took me about 3.5 weeks. Yes, that's right, in a month from now you too can be sipping a guilt-free paid for smoothie, while wearing your new guilt-free paid for bathing suit...

7. Go to the Beach (every weekend ever!): Just like when you go to the DMV or a doctor's office, and they have you fill out forms on paper that they're gonna have to enter in a database on a computer anyway (inefficient!), and you think "Why isn't this online and automated?" (at least I think that), you can ask yourself the same thing about your life!

"Why aren't my finances automated so I can enjoy smoothies on the beach without feeling guilty?"

Well, you can.

Money is a tool for enabling your highest potential. Not disabling your thoughts, and paralyzing you into a financial corner.

Yes, how much you make matters, but how you spend it matters more. I'm making more than I've ever made right now, but I'm also living on less than I've lived on ever (aka the same as I lived on in college). In other words, I'm making more, but spending smarter. And thus, I don't worry about money as much as I did a year ago, I know I'm on track to my financial goals, and I'm loving the *time* this has bought me so I can go to the beach, take a sewing class just for fun, and stay up reading interesting books in my pinterest inspired diy reading nook, instead of staying up worrying about my financial health.

paying my loans...automatically...from the beach #win

my pinterest inspired diy reading nook and diy wall decor...and my new orchid :)

Even if your personal finances are much more complicated -- i.e. you have dependents -- you can still do this, and is actually even more so a reason to automate your finances. Wouldn't you rather read a bedtime story to junior than budget? Don't let complexity hinder you from having more time and more happiness. Let it rather enable you to be your best self.

And keep in mind, knowledge truly is power. A year ago, I was totally burdened and overwhelmed by debt, and would duck under a table anytime I heard the word retirement, but only a year later I'm totally comfortable with my finances, and take joy in sharing what's I've well as what I still have no clue about (consolidating my retirement accounts, how the heck do I buy a house, etc.). But now, I face these financial challenges without shame, and most importantly seek out the knowledge that'll fill in the gaps. Who would've thought that reading books and blogs could build financial confidence in one year?!

I love books :)

Remember, step 1 in this process is all about knowledge. Never underestimate the power of your own ability to learn and stay curious.

My reads this month (from my public library...aka free books!) are Millionaire Next Door and Millionaire Woman Next Door.

Enter your email below for a free PDF of the complete one-page checklist
designed to help you start controlling your money (so it stops controlling you),
and getting on a path to money peace-of-mind.

Here's a preview:


No comments:

Post a Comment

Related Posts Plugin for WordPress, Blogger...