The most important 2 minutes of my financial day
Below is a copy of a twitter thread I spontaneously wrote recently. There can be a lot of moving parts when managing one’s personal finances. To make matters worse, those parts have an inertia towards complexity as we get older.
Like starting a new hobby, one can be overwhelmed with all things one should be doing. Couple that with the fact we spend a good bit of time remorseful of past financial mistakes, and it is easy to see how people would rather just forget about it and hope that things turn out alright.
I am convinced that one of the most important things I do in my own personal financial life is something I do almost without thinking and it takes me about 2 minutes each day. Would you be willing to exchange two minutes of your day to transform your financial outcomes? If so, give this thread a read and let me know what you think.
Tracking Expenses: A Twitter Thread Love Story 1/21— Scott Cole CFP® AIF® (@ScottDCole) September 27, 2019
I am a financial planner, and I don't budget for my personal family situation. For my business, yes, but for family, no. My family has savings and gifting targets and as long as those are met, we don't care about the rest.
We save because we want to affect our future. We give because we want a future for others. We spend because today is all that we know we have. Those are the three things we do with money. Save, give and spend.
Important to note. Savings and gifting are not negotiable items for my family. Those, along with taxes, obviously, are paid FIRST. They are not discretionary. Because they are paid first, I know pretty much what is left and our lifestyle is built around the remainder.
I don't obsess over a whether I had a latte two times this week or spent more on comics than I "should've" I believe expenses expand to the income allowed. I pretty much know what we have left after taxes, savings and giving, and we spend it. Naturally and without guilt.
The way we "disallow" income is by automating our savings and gifting targets immediately upon receipt. What is left is what we have to spend.
Some months are tighter than others. I don't always know why nor do I really care. What remains in our account is there to spend, and I am not concerned about where it goes. It maybe superfluous and unnecessary, but it doesn't matter to me. Unless....
Unless, I feel my savings and gifting targets are getting squeezed. I know that if I am finding too much month at the end of the money. If I have to repeatedly dip into my cash reserve to pay off the whole credit card bill for example, there is a problem.
Remember you are not really saving if you put it away on the 1st and pull it out on 20th to cover the remaining 10 days. That is not saving, that is a mental accounting shell game. So be honest with yourself.
If I am finding myself pulling money from reserves to pay for the normal living of life and that is making it hard to save and give, something has to change. When that happens, I must look at the data. The data comes from my habitual tracking of expenses. I don't budget but I do track expenses . Tracking expenses is huge for me. I rarely need or use this data, but when I do, it is wildly informative.
Tracking expenses must be habitual. If it is habit, it is actually quite easy with technology these days. If however, you don't tend it, it is a beast that will never be tamed and budgeting may be your only resort if you are having cash flow issues.
It takes me maybe 2 minutes every morning to track my expenses. I simply categorize any expenses transactions downloaded over night and I am done. That is it. It is the first thing I do each morning when I come into the office.
I use @Quicken primarily because I have for so long, but there are loads of great options, some paid, some free. Again this is a habit. I almost never need this data, but I have it available if I need it.
Because I have the data, I see exactly where my money is going and now I can easily may a value choice. If I find I am spending more on subscription services than my child's college saving plan, I get to decide which I value more and fund it accordingly.
I only do this mind you if I continue to find money too tight AFTER savings and giving. AFTER I find myself using my reserve fund for normal monthly expenses. Otherwise I never need these reports other than for curiosity.
But there is one other thing this 2 minutes exercise does. The daily habit of seeing and categorizing my expenses provide subtle nudges along the way informing and changing my spending patterns before a deep dive, corrective is even needed.
The exercise of tracking expenses often eliminates the need to even look at my expenses. I don't want a budget and often I don't need an expense report, but if I do need it it is there with a click of button.
All this to say: Saving must be as non-discretionary as taxes are. If giving is a core value, gifting should be viewed the same.
Automate those two immediately, effectively disallowing it as available for spending. Spend the rest. Every cent of it if you wish or need. It is okay. Finally, create a habit to track expenses. Spend two minutes each day categorizing what you spend.
If your saving and gifting get threatened look at where you money is going. Does it truly reflect you what you value. If not align the expense with your values and you will find freedom from the tyranny of a budget and a life well spent.