"He who fails to plan, plans to fail."
One of the reasons that I've always enjoyed working with money is because the numbers are always right there in front of your face. You can look at your bank accounts down to the penny. You can see where and to whom every penny from your last paycheck went. There's nothing mystical or mysterious about your money. It's a piece of paper, metal, or an electronic number on a computer screen. It's equity in a house or holdings in a company.
If you've known me for any length of time, you know that I'm all about the truth, and numbers don't lie! We can dream all we want of financial freedom and early retirement, but unless we have a plan and are working towards a goal, we will get nowhere. Because of this, there are a few tools that I have learned are the most effective in helping us to achieve our goals.
I was talking to a few friends of mine and was surprised that most of them had not heard of Mint (click to go there). This is probably the most useful and easiest financial tool available on the market right now, and it's FREE. Mint tracks your credit cards, bank accounts, purchases, mortgages, and investment accounts. Basically anything that you do electronically with your money will be automatically recorded once you enter in your account information. Mint even makes graphs of your spending and tells you your net gains and losses. It also will tell you what your current Net Worth is. It allows you to make a budget and sends you reminders when you go over. It's available as an app on iPhones and Androids and also works if you go directly to the link. Once you can see exactly where your money is going, it's easier to see places where you're spending too much money. If you remember, it was when I was on vacation in August and figured out that we had spent over $500 on entertainment in July that helped to wake us up from our wasteful spending and sent us on the path we're on now.
Probably the most effective way to meet your financial goals is by setting up automatic contributions that come directly out of your bank account. After you've figured out a budget for yourself, immediately put into place a direct, monthly (or bi-weekly) transfer to the investment of your choice. I guarantee you won't miss the money, and it's almost scary how easy it is to set up these automatic contributions online. For us, the majority of our investing is going two places right now: my TSP account through the shipyard (which automatically withdraws 29% every paycheck), and our mortgage. We want to move in 2-3 years, and in order to do so we have to put about another $15,000 in equity on our house so that we'll have enough money when we sell it to put 20% down on our next house which will inevitably be more expensive than this one. I don't have automatic payments set up for the mortgage because I normally will put as much extra money on it as we have available every month (But I still figured out that we need to put about $500 extra every month down to reach that goal). I also have $100 that comes out of our account every month and goes directly into our emergency fund so that it is always slowly growing. We've dipped into it a number of times so it's comforting to know that we're always replenishing it to some degree. If you want to dive into the psychological reasons for why automatic investing is the way to succeed, check out Ramit Sethi's book I Will Teach You To Be Rich.
One of the things I've consistently read about investing advice is that the most important thing is to just start investing. The stock market can be such an overwhelming thing, but the most important thing for any investor is just to get started. You're going to lose far more money delaying your investing than you are going to lose by choosing the wrong fund (if you're just starting investing, I would stay away from individual stocks, and instead invest in an index fund that tracks the whole market). A good example of this is that my wife and I opened a Roth IRA when we first got married and even though the funds we ended up buying were a terrible value (high expense ratio), we still only invested about $6,000 and the value right now stands at about $8,500. Even though that isn't a ton of money invested, if we had never set up those automatic contributions that money would never have been saved, and we still have made over $2,000 with our money just sitting there.
I can't stress enough the importance of having some accountability for your spending habits (it really doesn't get any easier than Mint), and setting up automatic contributions for your investing and savings goals. Most people don't want to spend a lot of time on budgets and putting money into savings and investments, so if you're just able to spend a little bit of time up front and automate everything important, you'll be able to have the peace of mind that comes from your financial plan without the headache of having to consistently manage it.
If you've known me for any length of time, you know that I'm all about the truth, and numbers don't lie! We can dream all we want of financial freedom and early retirement, but unless we have a plan and are working towards a goal, we will get nowhere. Because of this, there are a few tools that I have learned are the most effective in helping us to achieve our goals.
I was talking to a few friends of mine and was surprised that most of them had not heard of Mint (click to go there). This is probably the most useful and easiest financial tool available on the market right now, and it's FREE. Mint tracks your credit cards, bank accounts, purchases, mortgages, and investment accounts. Basically anything that you do electronically with your money will be automatically recorded once you enter in your account information. Mint even makes graphs of your spending and tells you your net gains and losses. It also will tell you what your current Net Worth is. It allows you to make a budget and sends you reminders when you go over. It's available as an app on iPhones and Androids and also works if you go directly to the link. Once you can see exactly where your money is going, it's easier to see places where you're spending too much money. If you remember, it was when I was on vacation in August and figured out that we had spent over $500 on entertainment in July that helped to wake us up from our wasteful spending and sent us on the path we're on now.
Probably the most effective way to meet your financial goals is by setting up automatic contributions that come directly out of your bank account. After you've figured out a budget for yourself, immediately put into place a direct, monthly (or bi-weekly) transfer to the investment of your choice. I guarantee you won't miss the money, and it's almost scary how easy it is to set up these automatic contributions online. For us, the majority of our investing is going two places right now: my TSP account through the shipyard (which automatically withdraws 29% every paycheck), and our mortgage. We want to move in 2-3 years, and in order to do so we have to put about another $15,000 in equity on our house so that we'll have enough money when we sell it to put 20% down on our next house which will inevitably be more expensive than this one. I don't have automatic payments set up for the mortgage because I normally will put as much extra money on it as we have available every month (But I still figured out that we need to put about $500 extra every month down to reach that goal). I also have $100 that comes out of our account every month and goes directly into our emergency fund so that it is always slowly growing. We've dipped into it a number of times so it's comforting to know that we're always replenishing it to some degree. If you want to dive into the psychological reasons for why automatic investing is the way to succeed, check out Ramit Sethi's book I Will Teach You To Be Rich.
One of the things I've consistently read about investing advice is that the most important thing is to just start investing. The stock market can be such an overwhelming thing, but the most important thing for any investor is just to get started. You're going to lose far more money delaying your investing than you are going to lose by choosing the wrong fund (if you're just starting investing, I would stay away from individual stocks, and instead invest in an index fund that tracks the whole market). A good example of this is that my wife and I opened a Roth IRA when we first got married and even though the funds we ended up buying were a terrible value (high expense ratio), we still only invested about $6,000 and the value right now stands at about $8,500. Even though that isn't a ton of money invested, if we had never set up those automatic contributions that money would never have been saved, and we still have made over $2,000 with our money just sitting there.
I can't stress enough the importance of having some accountability for your spending habits (it really doesn't get any easier than Mint), and setting up automatic contributions for your investing and savings goals. Most people don't want to spend a lot of time on budgets and putting money into savings and investments, so if you're just able to spend a little bit of time up front and automate everything important, you'll be able to have the peace of mind that comes from your financial plan without the headache of having to consistently manage it.
