Personal finance involves more than just money. Good money management knowledge and an understanding of basic economic principles is critical for long-term success, yet personal finance in the day-to-day mostly boils down to how successful you are at ruling your behavior and whether you have systems in place to help you manage important tasks and achieve your goals.
Throughout this past year, we have covered different money topics with an emphasis on basic theory, important cornerstones of personal finance, money management principles, and real, tangible actions you can take to cause positive change. Without getting too abstract, we’ll look at how developing a “system” can make managing your money easier and why it’s critical to long-term success, financially and otherwise.
I created my first monthly budget during my junior year of college. After a brief bout of manually inputting all my receipts and spending into a Microsoft Excel spreadsheet, I switched systems and began to use Mint.com exclusively to manage my monthly budget and track spending, particularly the handy app for iPhone. While Excel is powerful and works for many, I found it too tedious to manually enter everything, and I knew this would keep me from being consistent with my budget. Mint made it easy to stay up-to-date with recent transactions, ensuring I never spent more than I earned. This is our first lesson in life management: make your system as easy, stress-free, and simple as possible, because if it isn’t, you won’t use it.
So far, my system was working decently well. My spending and saving were on track, I put any to-do items on a list and worked to accomplish them during my abundant free time, and all I had to do was show up for work and school. Yet I still didn’t have a calendar, and many of my to-do items were things that would take eons to accomplish with no plan to break them into smaller chunks over time. I ended up completely forgetting several appointments, rarely but occasionally forgetting to show up for a college class or two, and completely forgetting one large and memorable class assignment because I was swamped with full-time college, working 2-3 jobs, and attempting to have a life outside those things – all without having a calendar.
After college, things calmed down. Work time was for flying, and days off were for leisure and chores. Several years went by before I discovered I needed more than a simple ongoing to-do list. While I never spent more money than I earned, I discovered through trial and error I wasn’t “closing out” my budget at the end of the month. Despite my good intentions, life would often get in the way. I would forget to complete online charitable giving I had budgeted for, and I would forget to transfer any leftover money to my savings account at the end of the month, letting it sit dormant in my checking account. Receipts would pile up as I forgot to take the few minutes needed to compare them to my actual bank transactions, ensuring accuracy and checking for any charges I didn’t recognize. Enter lesson two in life management: checklists are your friend.
Yes, I know – checklists may sound boring, maybe at least a bit nerdy. But they work, and they work well. As a pilot, I was already familiar with checklists, having witnessed their importance firsthand. Flying an airplane with a two-person crew involves prescribed tasks and duties, yet real life creates interruptions and irregular operations (think: ice and snow, inoperative equipment, rapidly-changing weather…) Checklists ensure we get everything done right. Sometime during 2013, I created my own on a hotel paper pad. Calling it my “month-end checklist”, I’d pull this page out to ensure I’d completed all my monthly recurring “life stuff” and financial to-do’s before moving on to a new month. And just like that, the errors stopped.
If checklists are your thing, a great read on this idea is “The Checklist Manifesto: How to Get Things Right” by Atul Gawande. In his book, he gives a brief history of aviation checklists; namely, ever-increasing complexity and procedures culminating in an unfortunate accident in 1935 led to the creation of the first aviation checklist by the manufacturer known (at the time) as Boeing Airplane Company. The airplane in question, said by many to be the most complex aircraft ever built up to that point in history, became known as the B-17 bomber, playing a critical role in American air superiority during World War II. Gawande, a surgeon, also details research and experiments he helped conduct in several hospitals. As he told the Harvard Business Review, introducing simple checklists helped these hospitals reduce complications by 36 percent on average, as well as reducing deaths by almost 50 percent. Yes, checklists work for complex airplanes, medical care, and even your money.
By early 2016, with a major career interview approaching along with a likely move halfway across the country, I realized I finally needed a calendar. I also needed to trust any critical tasks I came up with would be “captured” in this planning system, not lost in the shuffle, since ideas and to-do’s often strike me anywhere – at home, airborne somewhere over the Dakotas, or walking to get food in Alaska (or perhaps New York). I now have a paper-based calendar where I write down to-do’s and appointments for the month on a weekly spread. Though I’ve experimented with electronic versions for 20 years, I personally always revert back to paper (the battery life is superb!).
About a year ago, I started keeping a several-page master list of tasks and budget items for each month of the year; it also contains things that happen monthly and don’t change. Sometimes, certain tasks only need to be done once or twice each year, so I’ll add a brief note about how they’re accomplished to help me remember next year how I did it the year previous (e.g., calculating taxes for sales of stock, or doing a direct transfer rollover from one financial account to another). This also helps us plan several months ahead if we need to save for a large bill or expense. At the beginning of each month, I reference this list when we build our budget and plan for running our household and managing our finances. It’s actually quite easy, and it’s a living document, improving with time as we fine-tune.
That ties into lesson three: even if your system is more electronic, develop a place to write things down with a pen and paper you will refer back to regularly; I carry a small notebook along with my calendar. Since I began doing that about five years ago, I’ve become firmly convinced this simple system has allowed us to stay on top of our commitments and important tasks to a very high degree.
Lastly, lesson four (as we discussed in columns past) in making life less-complicated: automate everything you can. A few minutes spent creating electronic, fee-free automatic transfers can make rent or mortgage payments, utilities, internet, savings transfers, cell phone bills, or monthly investments for retirement incredibly easy. Check in regularly, ensure things are running smoothly, and if changes are needed, make them immediately, or put them on your calendar. Never lose reputation, money, or valuable time over a late payment again!
Actions you can take today, right now: When you remember things you need to do, particularly financial tasks (maybe going to the bank, making an important transfer to your savings or retirement account, working on your taxes, etc.), write them down on paper. Physically recording things has been proven time and again to help with recalling them. When you refer regularly to that place you’re writing things down (like a notebook), move those to-do’s onto your calendar to a specific day. If it’s a large project, try putting the different tasks onto multiple days to accomplish big things over time. If you think of a fun idea or something that can wait awhile, consider making a “someday” list to look back over when you have more free time. And if something seems urgent yet doesn’t fit into any of these categories, strongly consider if you should spend your time doing it in the first place.
Personal finance is not overly difficult or super-complex, but there are moving parts, especially when adding home ownership and investing into the equation. Life can get complicated, but your management system doesn’t have to be. Having a plan to keep things organized, even a simple one, allows you to focus on enjoying life and loving and serving others, not constantly pinching pennies and crunching numbers.
