💰 Create a system that takes care of your monthly spend #TonyTries #Finance #TH3
Today's post looks at building a system to manage your finances and become more mindful of your day-to-day spending. This post provides tips and techniques to be more mindful of how you spend money.
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We here are keen on trying new hobbies to increase our repertoire of skills. Whether you’ve stumbled across this for the first time or are a regular, thanks for taking the time to look through what I have created. Read on to start your journey towards mastering skills that you are passionate about.
Today we are looking at ways to understand your finances. This can help you to take control of your finances so that you are more aware of what’s going out of your pocket. So by the end of this, I hope to inspire you to sort out your finances.
In our evolving digital world, using digital tools help us manage money. Photo by Art Rachen
Recently I moved out of my home to study abroad. This meant I no longer had my finances taken care of for me. I had two choices:
Continue living the way I have always lived (by not caring about how much I spent); or
Get a grip on my finances and optimise for maximum happiness.
I chose the latter.
Over the past 2 years, I have been refining and updating my system to work in the least disruptive way possible. A brief summary of each system is given below.
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System 1: Notes app (highly disruptive)
The foundation for all of my systems involves noting down any expense that I incur. It doesn’t matter what medium you use as long as you do it. There’s no point if you spend hundreds of dollars on a system that you only use for less than a day before it’s abandoned. It’s all about finding ways to optimise for you.
After I purchased something or after money was exchanged in any way, I would immediately open a notes document and write down the following information:
Date
Amount
Description
Periodically, I would enter this information into a spreadsheet that contained my budget. I would categorise each expense into categories which helped me understand which categories were the top three highest spend categories. I used apple’s stock budget template for this system.
The only downside was that it took a lot of time to maintain the system. It wasn’t providing much value sitting in the notes app (since it made analysis difficult).
System 2: Enter expenses straight into a spreadsheet (less disruptive)
I used a new template which was slightly easier to use from Google. I made the changes as per this video. I added one extra tab for fixed expenses (bills, subscriptions, etc. that don’t generally vary from one month to the next). Periodically I would have to make sure the expenses are assigned to a category to help analyse the top three categories.
I still use parts of this system as it helps me break down my expenses in greater detail. It also creates a habit of noting every time a transaction occurs.
System 3: Automated system (least disruptive)
This system is a work-in-progress for me as I have yet to fully implement this. This system works on the basis of restricting the amount that you have access to on a given day. It requires having three separate bank accounts (or three separate safes if you prefer using physical cash), one that is easy to access with less money in (day-to-day account), another that is more difficult to access with a fixed amount of money (fixed expense account), and finally one that holds all your excess (reserve account). Extra points if you can also set up a high-yield savings account and an investment account.
A very rough explanation of how the various accounts work
Only a predefined amount is automatically transferred into each account on a specific day. This ensures that your bills don't interfere with your personal expense. This also keeps you on edge every time you pay for anything with your day-to-day expense account as you only have enough to sustain for one week. This makes you more mindful of how you spend money, especially with the convenience of online shopping which encourages impulsive purchases. Now you can’t impulse buy that lucrative Fortnite skin as you may not have enough for groceries the next day.
Any money left over (after a small buffer) goes into a reserve account. You are free to use this reserve money however you please. The money that ends up in this account (especially if you are already saving and investing) is essentially guilt-free money. Feel free to spend this money on all the Fortnite skins your heart desires. You also have the option of reintroducing this money to flow through your system again to increase your investments and your groceries. This doesn’t require a spreadsheet as your budget takes care of itself but if you wish, you can keep track with a spreadsheet.
You can feel empowered by taking control of your finances. It’s important to select a style that works best for you.
I’d love to hear from you. Do you have any improvement notes? Tips or tricks that you use that could benefit others? Your experience could benefit us all! Leave them in the comments below or Tweet at me and be sure to include the hashtag #TonyTries.
That’s all for this week. I hope you enjoyed reading how to manage your finances (TH3). Hope you now feel confident to manage your finances. Thanks for reading and consider subscribing if you want to be inspired to learn new skills on a week-ish basis.
Resources:
YouTube Tutorials: Find every dollar a home; Google Sheet template; Guilt-free money
Definitions: High-Yield savings account; Investment account
Related blog posts: Create your own budget; Guilt-free money
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