“Setting a goal is not the main thing. It is deciding how you will go about achieving it and staying with that plan.” –Tom Landry
“It takes as much energy to wish as it does to plan.” –Eleanor Roosevelt
INTRO
Okay, so you’ve decided you want to pursue financial independence or, at a minimum, a stronger monetary position. Now what? One of the very first steps is to ensure that you have a comprehensive understanding of your current financial situation. To gain such an understanding, you need to analyze every account, investment and loan currently tied to your name to determine your assets and your liabilities–you need to create your scoreboard. Luckily, we’re at a point in time where this has never been easier. There are a number of apps and online tools, some paid and some free, that can easily help with the aggregation of this information. These tools are largely automated with little time and effort needed on a go-forward basis once the initial setup is complete. We use and highly recommend Monarch Money. You can also download one of the many free net worth and budgeting spreadsheets that are available online, or create your own personalized tracker.
The specific tool you use is entirely personal preference—what’s key is that you take the first step to compile all of your financial information into one centralized location so that you can start tracking your income, expenses and net worth. In doing so your understanding of your current financial situation will grow, you’ll gain confidence and feel empowered, and you’ll have created a powerful tool that you can utilize to plan out your path to, and help you achieve, financial independence.
THE FI SCOREBOARD
Creating Your Tracker: Compiling all of the necessary information and figures and getting all of your accounts in order to start tracking your income, expenses and net worth can seem like an overwhelming challenge at the outset, but by committing just a few hours to doing so will put you in an exponentially better position when it comes to pursuing and achieving your financial goals. In many ways, the steps necessary to preparing your initial income, expenses and net worth tracker are similar to those necessary when preparing your year-end tax filings. After picking which tool you are going to use, you first need to think through (and we suggest writing out) every account that you (and your spouse if you’re consolidating) currently have open. There are many different buckets you need to think about, including but not limited to checking and savings accounts, 401(k) or similar retirement accounts, IRAs, and brokerage accounts. Next, think about all of your outstanding indebtedness. Link up your student loans and every credit card you have, even if there is currently a zero balance. Include your primary residence and any investment properties you may own, as well as the outstanding balance owed on the property. You can also add in other items such as your vehicles, but when you get to the “extras” category we suggest only including items that are truly valuable and liquid—yes, you could sell all of the clothes in your closet or the golf clubs in the garage and pocket the cash, but unless you’re about to have a fire sale and move off the grid, you’ll just be artificially inflating your net worth figure by doing so. Stick to the big ticket, material items.
~Side Suggestion: Most apps, including Monarch, allow you to sync accounts. To do so you’ll have to log in. If you’re like us, you have 10+ variations of the same password—this is the perfect time to write down each login email and password so you have all information in a central location.
The Benefits of Keeping Score:
- Automation: After you put in the initial work to link all of your accounts and consolidate your financial information, minimum efforts are typically required on a go-forward basis absent material life and/or financial changes. Additionally, the auto-balancing functionality is great for tracking various items, including your debt-to-equity ratio on any real property.
- Consolidation: Before we consolidated all of our financial information, we’d have to separately log into 10+ accounts, write down balances for each, and pray that our middle school math skills didn’t fail us. By utilizing a tracker, all of your financial information is in one place, and you can easily see both your overall position (e.g., your net worth) and a breakdown of the balance of each linked account. In one login, you can see up-to-date balances and information for every single account in one place, including bank accounts, credit cards, retirement accounts, home loans and equity positions, and brokerage accounts. That’s the definition of efficiency.
- Categorization & Budgeting: The vast majority of the budgeting and tracking apps out there will auto-categorize your spending and assist with budgeting. This categorization helps provide a visual showing exactly what you are spending your money on. Doing a bunch of quick “buy now” swipes on Amazon may not feel like they amount to much, but I’m willing to bet it’ll be a slap in the face when you pull up the app and see a well-summarized list of all Amazon purchases you’ve made over the past few months. Certain apps, including Monarch, also have an auto-budget function that sends you a notification when your spending in a specified category exceeds the suggested cap. This can range from food and entertainment to insurance and childcare.
- Trim the Fat: One of our favorite aspects of the Monarch Money app is the Recurring tab, which lists out every single payee to whom you are paying on a repeated basis. This list alone will enable you to review and analyze your monthly subscriptions and decide where you can reduce expenses. We were personally shocked to find that our Sirius XM subscriptions had collectively increased to the tune of $55/month (up from the original combined $10/month between our two vehicles). That was a shocking and frustrating realization, which led to us sending a barrage of emails to Sirius’s customer service department at 1 AM requesting immediate cancellation.
ACTION ITEM
- Get Your Financial House in Order: Spend some time looking at different budgeting and net worth websites, apps and spreadsheets, or create your own. As discussed above, we’ve decided to use Monarch Money for our personal tracking. Other options include Rocket Money, Empower and Simplifi. Beyond Monarch, we’d also suggest trialing ProjectionLab, which can model out various different scenarios to assist with planning your path to financial independence. Once you’ve surveyed the options, block out a couple of hours and get all of your accounts synced up so that you can see the complete picture that is your current financial position.
IN CONCLUSION
Before you can draw the roadmap to your end goals, you first need to figure out where you currently stand. Doing a comprehensive personal finance audit and linking all of your accounts to a centralized location is the initial step required to find your bearings before truly starting the journey to financial independence.
Thanks for reading. We hope you’ve enjoyed this post, and invite you to continue exploring As Easy As FI.
