What’s Your Money System?

   

What's Your Money System simple money man

We live in time where so many of our financial tasks have become easier and quicker with computers. We can pay our bills online, we can deposit our checks online, we can save our money online, we can invest and then reinvest online, and we can track all of that in one single place online. So why not take advantage of all of these FREE services available to us.

 

The advantage of taking advantage is more time to spend with our friends and family and of course peace of mind in knowing that our money is continuing to work even when we are socializing, sleeping, or watching the latest season of House of Cards 🙂 But in order to start this off, we need to lay the groundwork for our system.

 

How Do You Save?

 

There are countless ways to save. We can take what we have left at the end of the month and transfer it into a savings account. What we have left meaning to maintain a minimum balance in our checking account without being charged a fee. So for example, if your checking account requires you to have a minimum of $1,500 and at the end of the month you have $1,650, and then transfer $150 into your savings or money market account.

 

Or we automate the process by transferring on a weekly, bi-weekly or monthly basis. For this process, we can estimate (with the help of a budget )our income and expenses and the time of month we usually have to pay the bills; a sad sad time indeed 🙁 Then we can set up an automatic transfer to occur and forget about it. Well not totally forget, we want to periodically monitor as well.

 

For many of us, our paycheck can help us save automatically by investing into our retirement account, or we can have a percentage or dollar automatically route to a savings account. As long as we are consistent with saving, then we can gain comfort that our system is working. For me, automation works the best because it’s less work, provides greater accuracy, and is convenient.

 

How Do You Invest?

 

When I first started in the investing game, I was only in a 401k. In my 401k, I was only investing a little bit each pay period because I didn’t understand how it really worked, what the rules were, minimums, maximums, tax benefits, etc. And to be honest, I don’t think I really cared much. Many years later and with the help of reading more personal finance literature and speaking to a couple of advisors, I learned this is the main vehicle I have at my disposal to help me invest and ultimately prepare for retirement. So now I’m investing as much as I can per pay period into my 401k. Apart from this, I have after-tax investments.

 

But my system is automated in a sense that (1) 401k deduction are taken out every pay period as they are for many people who have a plan, (2) I’m enrolled in a flexible-reinvestment program with my broker in my after-tax account so all dividends are reinvested in allocations I have set-up and can change at any time, (3) and a portion of my funds from my checking account are automatically routed to my money market account with Capital One 360 twice a month.

 

I want to have technology do as much of the work for me, but at the same time I perform oversight to gain comfort it is working as intended. Oh I also have an account with Robin Hood, but haven’t automated here much at the moment. The trading is free anyway with the platform I have so reinvesting from dividends earned does not result in any commissions.

 

Then there are software programs out there like Acorns which use a rounding method to take what you have spent near the closest dollar and invest the difference/change. Although I haven’t used Acorns, a couple of my friends do and have positive things to say about this tool. Also, per Investopedia, it’s one of the four best personal finance apps in 2017. Among the others are Mint, You Need a Budget, and Wally.

 

As long as we are consistent with investing, then we can gain comfort that our system is working.

 

How Do You Spend?

 

Maybe we spend only after we have saved the minimum that is required of us. Maybe we spend and then think about saving. Or maybe we are kind of in the middle where we spend on necessities (food, rent or mortgage, utilities, perhaps car insurance if we own a car, cell phone bill – this is like a necessity nowadays; and then save.  I like the first concept – saving first and spending second because it ties back into the automation part of things.

 

The best way to do this is to again have a portion of your earnings allocated to a savings, money market and/or retirement account. Whatever system you have in place, it needs to be effective. You can tell if it’s effective if, overtime, you can see that your overall net worth is growing. If it is not growing, you should be able to trace where the problem lies.

 

This could be that credit card debt is continuing to rise, the market value of your home is plummeting, or you’re simply spending more than you’re earning. Some things you can’t control (like when the stock market falls), but there are many that you can. And if you have a money system in place, that control is really right at your fingertips.

 

So what’s your money system? What do you like best about it and where do you think it can improve?

 

 

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I use Personal Capital because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!

 

 

 

 

Simple Money Man (SMM)

10 Comments

  1. Kinda like the order you have it in. “Don’t save what is left after spending, spend what is left after saving.” And after the emergency account is established, invest to take advantage of compounding and grow your wealth.

    • Yup, a system designed so that it pays yourself first ensures success! Laying the infrastructure of your savings is hard in the beginning but it starts to get easier when the powers of compounding and dividends start to take flight 🙂

  2. great post! I must admit that I made a few financial mistakes. for example, I always saved what’s left. it’s a horrible system because you never save anything. once I switched it around, my savings account is now smiling lol.

    • Thanks! Great adjustment and soon enough you won’t even feel it as much. Saving becomes a habit, way of live, and that’s when you can take it to the next level as to never get too comfortable 🙂

  3. Mine is similar to yours 🙂 I take money out of my regular chequing account and move it to my savings account, and from there I disperse it to retirement/ investing accounts.

  4. I like the set it and forget it method. One important thing for those who have a regular job is to just have a bunch of money taken out up front that flows into your 401k, HSA, ESPP, etc. so that you never miss it since you never see it.

    Afterwards I don’t really do anything, I invest any extra cash after my expenses into whatever asset classes is lagging per my monthly portfolio analysis. Some months it’s more cash, others it’s less depending on how much I spend that month.

    • Absolutely! Have Payroll take out as much as you can let them so that you learn to live with the adjusted net pay. You’re lowering your taxable income at the same time too 🙂
      Then you won’t feel as guilty spending because you know you’ve already saved a large chunk via payroll deductions. 🙂

  5. Automation is key. This is planned investing is key and we have been doing it for years. I love thinking of our investments as an expense. We have to make the Hershey payment!

    • Very nice! Treating as a mandatory expense; tricking your brain into thinking it’s not really your money. In the beginning it will be felt a bit but we can learn to adjust our lifestyle and in the long-run realize there really wasn’t much to adjust.

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