This is the ninth (and final) part of a series on setting up a financial plan.
The beginning of the series is here.
The previous article is “Financial Tools: Budget Tracking/Planning“.

So here we are, all set up with the right tools to build a better financial future. Hooray! But now that the initial hard work is (mostly) over, it’s time to step back for a moment and get some perspective.

All the plans, account setups, expense reductions and general thinking about money I’ve done in the past few months has changed a lot of my perspectives.

I don’t walk into a store and blindly buy things I want right now any more, because every dollar I spend is a dollar that could be working for me elsewhere. And I’m truly grateful for the change, because it will have a marked positive effect in the future.

But like all new interests, obsessions and endeavours, it’s easy to get carried away and become single-minded about them - checking spreadsheets every 30 minutes, and vowing never to spend a red cent on anything ever again - because it could be invested.

Being obsessed has been good for a few months - I’ve put in a lot of spadework and made a lot of decisions which set me on the right path. But now it’s time to let those decisions and tools work for themselves, and think a bit more philosophically about how my life and my finances mesh together.

For me, the quintessential point to base this thinking around is my snowboard.

This is the eighth part of a series on setting up a financial plan.
The beginning of the series is here.
The previous article is “Financial Tools: Net Worth Planner/Tracker“.
The next (final) article is “Finance: A Little Perspective (and some snow)“.

One final financial tool that I’m finding invaluable - a budget tracker.

One of the things I’ve realised over the last couple of months is that I’ve often spent money without really taking note of where it’s going. This was most apparent when I was trying to estimate my weekly expenditure for my Net Worth Planner. I knew pretty much what I spend, but I had no detailed idea of what on.

The only way to find out was to start detailing my spending down to the last cent, in a way which allows me to review it, and trim any unnecessary outlays. You could do this with a spreadsheet, but that quickly became cumbersome, so I turned to dedicated software for the task.

This is the seventh part of a series on setting up a financial plan.
The beginning of the series is here.
The previous article is “5 Accounts, #5 - 401(k)“.
The next article is “Financial Tools: Budget Tracking/Planning“.

Apologies for the slight hiatus - one day I’ll find the “sweet spot” combination of lifestyle, organisation and motivation to write on a regular schedule. Until then… sporadicity rules…

Last time I posted on personal finance, we wrapped up my summary of the 5 types of account I think I’m going to need for my nascent plan.

With that done, it’s time to look at the tools we’ll need to build and execute that plan.

Today, it’s the turn of the Net Worth Tracker and Planner.

What’s a Net Worth Tracker?

Put simply, a Net Worth Tracker is a spreadsheet, website or application that you can use to track your Net Worth. I like to think of it (somewhat macabrely) as the sum total your beneficiaries would get if you accidentally fell off a cliff tomorrow.

Your “Net Worth” includes every major financial balance in your life - the value of any cars, the equity you have in any homes, the sums of your retirement accounts, savings, checking accounts, wallet, investments and so on; as well as your debts - credit cards, loans, mortgages, etc.

A Net Worth Tracker is an invaluable tool in getting a better grip on your finances because it’s a (maybe sunny, maybe brutal) “quick sweep” overview of your current financial health, and a great way, by filling it in week-to-week (or month-to-month) of reviewing progress towards your financial goals, or seeing the effects of missteps.

This is the sixth part of a series on setting up a financial plan.
The beginning of the series is here.
The previous article is “5 Accounts, #4 - Investment“.
The next article is “Financial Tools: Net Worth Tracker/Planner“.

Many times, I’ve heard that “401(k) is free money - you’re mad not to take it!” without really understanding what that meant. After all, a “retirement account” is money that you’re not going to see for 30-50 years… bo-ring. One day, though, you’ll want to retire, and doing so requires a significant investment socked away (current estimates hover around the $1m - $1.5m for true retirement comfort). What does a 401(k) plan get you?

Most plans have some form of employer-matching, so, to take a conservative example (my own company is actually more generous), a 15% employer match means that every dollar you put into your 401(k) immediately becomes $1.15. That means that, even if your 401(k) does nothing at all, you’ve already made a 15% return on your investment on day one. In addition, 401(k) deductions are pre-tax, so a contribution of $500/month works out to appear as a much smaller “dent” in your paychecks (somewhere around $360, depending on your tax situation).

In reality, even a fairly conservative 401(k) portfolio should make 8.5% per year, on average (we’re thinking long-term - 30 years or more here, so individual market ups-and-downs should even out to a good growth rate). This means that in just a year of $500/month contributions, with an employer-match of 10%, your $6000 pre-tax contribution (about $4300 in wages you’re no longer seeing) should be worth in the region of $7150. And the real beauty of this is that the interest you earn is compounded, so as the “capital” in the account grows, every cent is re-invested to begin earning its own percentage gains.

This is the fourth part of a series on setting up a financial plan.
The beginning of the series is here.
The previous article is “5 Accounts, #2 - Online Savings”.
The next article is “5 Accounts, #4 - Investment“.

I think everyone instinctively knows that they should have an emergency fund, but like many other pieces of financial advice and/or common sense, it often gets put off or bypassed. The cause is the same as that of most common financial missteps - the fact that our brains simply aren’t wired to think sensibly about the future - why plan for a financial disaster which may never come, when we can live right now?

There are too many things which might require an immediate financial “bridge” - major car problems (if you commute by car), a sudden medical expense, an unexpected layoff… if any of these things “catch you short” you could be seriously stuck, forced to rely on a credit card or a loan to get by, at which point you end up in a fresh new financial hole full of unwanted interest payments.

So if keeping an “emergency fund” on hand is a good idea, what’s the best way to go about it?

Since this is for emergencies, it needs to be accessible in short order, so we want something like a savings account or a money market account which will allow us to withdraw/transfer money immediately. So why not use our online savings account?

There are two needs an online savings account doesn’t quite meet.

1. We want this money to stay “saved” - mixing it in with all the current account sweeping and discretionary considerations muddies the water, and tempts us to spend “emergency” money on non-emergencies.
2. We should be keeping this money around, unused, for the long term. So we need as good an interest rate as we can get, to protect our money from inflation.

A good alternative is an online-accessible money market or high-interest savings account.

This is the third part of a series on setting up a financial plan.
The beginning of the series is here.
The previous article is “5 Accounts, #1 - Checking“.
The next article is “5 Accounts, #3 - Online Savings“.

Last time, we looked at the checking account, and paring it down so that you’re not storing unnecessary money in there. There’s another very good reason for doing this which I didn’t touch on in the last post - practicing frugality.

With only the money needed for your “day to day living” sitting in your checking account, any sudden impulsive purchases have to be planned for. You can’t wander out to the stores and drop $350 on a “spur of the moment” xbox 360 purchase, because the money isn’t available to your debit card (and if you’re seriously impulsive, you’re sensible enough not to carry a credit card around all the time, right?)

Expensive purchases suddenly have to be thought through, weighed against your other financial priorities and then “budgeted” - before you splurge on plane tickets or games consoles, you’ll need to move that money back into your checking account especially.

This is where an online savings account comes in.

This is the second part of a series on setting up a financial plan.
The beginning of the series is here.
The next article is “5 Accounts, #2 - Online Savings“.

Just about everyone has a checking account, and a lot of people (my former self included) misuse it horribly. In the UK, such accounts are generally known as “Current Accounts”, which is actually a far more useful way of thinking about them.

The upside of a checking account is extremely easy access - through cheques, ATM withdrawals or debit-card purchases, you have a ready flow of money available at all time.

Every dollar you keep in that account, though, is losing value over time. This is because the measly interest rate on checking accounts doesn’t match inflation, which generally runs at 3-4% per year. So $100 kept in a checking account for a year will only be worth the equivalent of $96-$97 in “today’s money” a year from now.

Your checking account should be your primary “monetary interface” with the rest of the world - it’s usually where your paycheck goes, and the account that you’ll use to pay for rent/mortgage payments, groceries, meals out and all the other day-to-day transactions involved in just living. You should constantly pare it down, though.

So I’ve armed myself with a brand-new interest in personal finance, and I’ve got a list of sources to feed that interest. Time to start planning the fundamentals of how I’m going to manage and distribute my money in future.

I’m going to break this up into a series of posts because otherwise it’ll just be a long-assed screed that even I get bored of reading.

First off, there’s two main basics to take care of. Number one, determining the right accounts to keep my financial plan running, and secondly, determining a schedule for distributing money between those accounts.

Once that general framework is sorted out, I’ll need two major tools to keep track of progress:

1. A “net worth” tracker (basically, just a spreadsheet)
2. A way of tracking spending, so that I can pare down unnecessary costs and formulate a workable, sensible budget for day-to-day living.

A lot of what I’m going to cover (how to divide your money up; financial tools) can be found elsewhere on personal finance blogs and other sites, but what I hope to lay out here is a distillation of the best concepts I’ve picked up in my reading so far, from the point of view of someone who (as you may well be) is basically new to this game.