2017 was a great year for the stock market. The increase in the market helped significantly in increasing my net worth by 21% last year. However, only about half of this increase was due to market gains. The remaining amount was a result of actively contributing to investment and retirement accounts and paying down the loan principal on my mortgage.
I don’t focus on historical market performance or what the markets are expected to bring in the upcoming new year. I always keep my financial focus on the things that are within my own control. This includes managing my cash flow, monitoring my progress toward long-term goals and diversifying my investments.
Following are the main tools I’ve used that have helped me to keep that focus and achieve financial freedom, essentially not having to make choices in my life solely based on money.
1. You Need a Budget (YNAB)
It’s no secret around here that YNAB is my favorite money tool. I use it to budget, but it also provides so much more value than just that.
The difference between YNAB and other budgeting software is that it forces me to keep sight of my goals and directly see the consequences of overspending. It’s based on the concept of zero-based budgeting, which means that every single dollar is accounted for. Overspending on groceries forces me to take money out of my savings buckets to cover it. And I’d much rather save my money than eat it.
In addition, YNAB also focuses on planning for your “true expenses.” These are things like annual insurance premiums, car repairs, and medical bills. Essentially, the irregular bills that can really throw off your budget.
According to YNAB, new budgeters save over $6,000 the first year. If this is even close to being an accurate number, this is a strong case for creating a zero-based budget. The key is to finally start tracking your expenses. You won’t make lasting changes to your spending habits unless you know exactly where your money is going.
I’ve tried and considered Mint, Tiller, Quicken and Personal Capital to manage my budget and cash flow, but came back to YNAB as the best solution for the way I personally like to manage money. Use what works for you. The best budgeting software is the one that you will actually use.
You can find more tutorials and download a printable of the exact way I set up YNAB (including all the accounts I track and my exact category setup) here. YNAB has a monthly subscription that is around $7/month, but it’s totally worth it.
2. Personal Capital
While I don’t use Personal Capital for my budget (#ynabforever), I do use it to look at my investments.
I’ve found Personal Capital to be really helpful with a few things:
- Track fees being paid in accounts
- Provide an aggregate view of investment allocations across all accounts
- Provide an overview of progress related to saving for retirement
- Run Monte Carlo simulations for retirement
Low-cost index investing has gained in popularity in recent years for good reason. The main predictor of investment performance has been shown to be expense ratios on those investments. Passively managed index funds help keep those expenses low.
But, it can be extremely difficult to pinpoint what fees you’re actually paying in your accounts, especially in retirement accounts through employers.
I personally had no idea what specific fees we were paying. So, when I heard this could be done easily and for free in Personal Capital (nearly every single person in the personal finance community uses it), I figured it was worth a try (and by the way, this is just an example…not my own numbers!).
What YNAB lacks in tracking investments, Personal Capital makes up for. It’s essential that your investments are diversified and Personal Capital will aggregate all of your investments to determine your current asset allocation. If you diversify each account on an individual basis, you’re likely not optimizing for taxes. For example, interest-earning bonds are best kept in tax-preferred accounts (such as an IRA). Growth stocks can be kept in a taxable account without incurring significant income for tax purposes.
The retirement tools in Personal Capital are also amazing. I don’t know of any other free options that will run Monte Carlo simulations (essentially, it runs thousands of calculations to calculate the probabilities of success in retirement).
At the beginning of 2017, I didn’t have any of my investments in taxable brokerage accounts. I’ve worked hard to optimize my taxes (after all, being a CPA makes me hyper-focused on taxes). I’ve instead contributed as much as possible to tax-advantaged accounts like my 401k and IRAs.
Realistically, I also didn’t want to have to manage another investment account when I already have so many!
However, I wanted the benefits and flexibility of having a taxable brokerage account so that I can save for the long term but have access to money penalty-free well before I’m 59 1/2. So, I knew it was time to open up a brokerage account.
After researching my options, I decided to go with a Robo-advisor. Based on my research, Wealthfront looked like the best option for me.
There are a ton of benefits to using Wealthfront:
- the first $10,000 is managed free (or $15,000 if you use my link)
- it’s easy to set up and get started without any knowledge of investing (only a few questions more than opening up a bank account!)
- they provide tax-harvesting as part of the service, and
- they automatically rebalance the portfolio
All I’ve had to do is automate my savings directly into the account and everything else is done for me. I love it!
The simple truths of investing should help you to take that first step if you’re nervous about investing. But, ultimately you can simplify the investing process even more, without knowing basically anything about investing, if you use a Robo-advisor.
After the first $15,000, there is an annual advisory fee of 0.25%, paid on a monthly basis. If you’re just beginning to invest, though, it may take you a while to reach that threshold. You’ll have plenty of time to learn more about investing and decide if you want to go the DIY approach and transfer your account.
I’m a firm believer in having a full financial plan that goes well above and beyond simple budgeting and investing. For these purposes, I have an extensive financial planning spreadsheet that includes everything from my current and future financial goals, insurance policies, and how much I project my net worth to be in 10 years.
Excel allows me to adjust every single input and completely customize everything (see those tabs on the bottom? there are at least 20 more that you can’t even see!).
My financial spreadsheet includes:
- Financial goals, quantified with my total goal and my current progress
- An annual budget and actual cash flow (copied from YNAB) with an analysis of my current saving rate, etc.
- An ongoing projection of my taxes owed for the year based on my cash flow categories
- Historical, current and projected net worth
- Summaries of my insurance coverage including homeowners, auto, and umbrella policies
- Needs calculations for my life and disability insurance policies
- Projected retirement spending calculations and 401k/IRA account tracking
- An aggregation of all my investment account holdings
- A summary of my estate documents currently in place
The great thing about Excel is that I can constantly change and add things whenever I discover something else that I want to track. If I had to pick one and only one tool to use, it would be it. I’d give up everything else (and my firstborn child as well, okay…just kidding!).
This spreadsheet is a combination of the ones I share in the (free) MYMM Classes that have been updated and expanded. Update: you can find a complete personal finance bundle spreadsheet as well as individual solutions in my shop here!
In the past, I tried approximately a million times to institute a cash allowance system with my kids. Once I discovered FamZoo though, I never looked back. My kids actually get paid each week because it’s completely automated.
For those not yet familiar with FamZoo, it’s an educational finance tool that encompasses many areas of teaching kids about money, including spending, saving and giving. The real benefit of using FamZoo comes from using their prepaid cards, but you can also set it up with simple IOU accounts instead.
I set allowances for my kids and they are automatically distributed each week from my family master account (which I call the “Hanna Family Bank”. I personally give my kids a weekly allowance of half their age, but you could also give them a smaller or larger amount either based on age, or a fixed amount that you specify. It’s completely customizable.
In addition to just allowances, FamZoo also allows you to:
- Assign payments for chores
- Set up a separate savings bucket and pay your kids a specified interest rate (the earlier the better to learn about compounding!)
- Give your kids separate logins to give them responsibility for tracking their money
There are a couple other similar prepaid card systems out there, but the reasons I chose Famzoo are similar to the reasons I use YNAB: it provides the most customization options, is goal-based, and simple to use.
Basically, I’ve stopped buying all discretionary items for my kids and made them use their own money instead. This has saved me and helped them learn at the same time. Okay, so maybe it didn’t grow my personal own net worth, but it did help us both save money.
Because my kids are young and don’t have their own smart devices (all under 10), there are lots of features that I don’t even use it. It’s an awesome program that will grow with your kids! FamZoo is $2.50-$6/month depending on how long you pay in advance. There are no other fees associated with using the prepaid cards, etc. (as long as you load them from a bank account).
My goal for this year is to increase my net worth another 20% using the same tried and true methods I list here. And while that will partially depend on the market (I know it can’t strictly go up forever!), I’m taking a long-term view.
I’m planning to use each of these tools again in the new year and improve my process even more.
Nice net worth growth! I’m using Personal Capital and Excel. FamZoo would be great if I still had any kids at home. I also use various banking apps that have made it easy to track spending, plan bill paying, and quickly send additional money to savings. Looking forward to your master spreadsheet!
I love all the amazing apps they have these days. My banking app I use all the time also!
Wow an app for kids’ allowance, I feel so old!
It’s amazing, I tell you!
Hi Kathryn, Great list – I love Personal Capital 🙂
I’m thinking about developing an accounting system similar to Mint or YNAB, but with more focus on purely bookkeeping and less so on budgeting.
I have my personal spreadsheet now which pulls from Mint. I think setting up something that is similar to Mint, but with much greater reporting and flexibility would be the goal. At the end of the day, I would also provide bookkeeping services if people are interested in having the work done for them.
Does this sound like a decent idea?
I love this idea Erik. There’s so much more benefit to tracking expenses than strict budgeting. And there’s so many more aspects to getting your money under control than just the budget as well. I know tons of people that would benefit from having a bookkeeper for their personal finances. The big obstacle is the trust factor of course.
YNAB doesn’t directly connect to my main bank, so I’m using PocketSmith. I’m loving like the forecasting and calendar views!
PocketSmith looks like it has a really nice layout and is easy to use. It’s really important (in my opinion!) to have something that connects to your bank so you stick with it.
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