“When I was young I thought money was the most important thing in life. Now that I’m old–I know it is.” – Oscar Wilde
In my post last week on the mental accounting of your common sense budget, we looked at the differences between your fixed and variable costs to help you prioritize your spending plan by focusing on your large, recurring costs to save on a consistent basis.
That was the top down, macro way to view your spending habits to allow yourself to save and invest more. Now we need to look at how you can view your spending plan on a bottoms-up, micro level and actually put this into practice.
A very simple solution to aggregate all of your financial accounts in one place is through a free online program called Mint. I’m sure many of you have heard of Mint before but it’s worth going over some of the benefits to see how it can make your life easier.
To get started, you simply enter all of your financial accounts (checking, savings, credit cards, car loans, mortgage, investment accounts, etc.) into their system and Mint automatically pulls in the information from each source so that you can log in to see your financial picture as a whole.
This gives you the ability to keep an eye on all of your accounts in one place instead of logging into each of them separately. It’s a huge pain to look for all of your passwords and individual log in information for every account or financial institution, so this is helpful.
They have a secure website if you are nervous about that type of thing (it’s similar to your online banking).
They aggregate everything for you which allows you to check out your net worth in real-time, set goals, create a budget based on your average spending habits, get alerts for bill payments and much more.
Mint streamlines the budgeting process that so many of us dread. You could do this easily through a spreadsheet but we all know how easy it is to put off these valuable long-term tactics when we get busy. That’s why automation of good decisions is so important. It requires little action on your part and only a one-time setup
Because mint is linked to all of your accounts, it pulls in all of the data and organizes it for you. All you need to do is log on and see a real-time report of your up-to-date spending habits against your various budget categories.
Since they have your spending history, you can see your average spending in different categories (entertainment, gas, groceries, etc.) to give you an idea of what your budget should be in certain areas based on your spending habits.
Measurement of your spending been shown in study after study to improve performance. If you don’t currently have a budget, you’ll be surprised by your spending habits once you start tracking them. It can be eye opening to see where your money actually goes every month.
One of my favorite features is that you can establish different goals for important life events (saving for college, retirement, vacations, whatever you want).
Mint even recommends how much you should save each month to be able to accomplish these goals. This can be useful to determine the time horizon for each goal which will help you define your risk tolerance to invest your savings accordingly.
Life happens and circumstances change, so this is a great way to track your progress to see if you need to make any course corrections along the way to increase the likelihood of achieving your goals.
According to the Wall Street Journal, last year, the largest banks made in $32 billion in revenue from overdraft fees. This is insane to me. Between these fees and the over $15,000 in average credit card debt for consumers, people are just handing money over to the banks. At an average interest rate of close to 15%, that’s $2,250 per year in interest costs alone.
It boils down to the fact that people aren’t tracking their spending or the timing of their bill payments.
Mint helps you with this problem by sending you an alert when bills come due. It makes sense to auto-pay your bills to cut down on late fees, but this feature can help you know when they are coming out of your account to make sure you have enough money to cover them.
Mint will also send you an alert when you have any purchases that are out of the ordinary. This should help keep your credit card spending in check by giving you a heads up when you spend more than usual.
It would be great if people didn’t need these reminders, but people make irrational decisions with their money, especially when all it takes is a swipe of a plastic card to buy something. This should help.
And finally, Mint offers ideas for saving money based on your spending habits (these partnerships allow them to offer their service free of charge to the consumer). So if Mint sees that you eat out a lot, it will advertise a credit card with good rewards for restaurants.
Or if you have a low interest rate savings account, it will show you ads for an online bank (like Ally Bank or Capital One 360 – both of which I recommend for ease of use and higher than average rates) and calculate how much more money you could earn with them.
One of the main reasons so many people’s finances are in such disarray is the fact that it’s much easier to put out small fires like those “important” tasks that need to be done right this minute. Because of this it’s easy to put aside those long-term tactics that can actually help you and are important, but just not right now.
We spend a lot of time trying to predict the next stock market disaster, which is very hard to do and something we have no control over.
But we do have control over our own finances and determining whether or not they will end up becoming a disaster. I think programs like Mint can help you avoid your next financial panic through simplification, measurement and awareness of your short-term and long-term financial picture.