Updated Jan, 20th 2013
What processes do you go through on a regular basis? (Explain on a very granular basis and share with the group to find inefficiencies)
Finances - I am not on top of my finances and it is always on my mind. This is not really just one process but I have spent this afternoon trying to conquer my financial situation and come up with a streamline way of managing it. So I kind of did all the steps Ari recommended in one.
I would really like to hear from others about how they automate and effectively manage their finances, oh and be more disciplined.
Calculating Average Monthly Disposal Income
Challenge- I only have a vague idea about how much disposal income I have. By calculating my disposing income I will make smarter financial decisions and stick better to savings goals.
1) I opened an excel spreadsheet with three spreadsheets tabs open, one for annual expenses, one for quarterly expenses and one for monthly expenses (I get paid monthly).
2) I divided my bills into annual, quarterly or monthly expenses then added them to their corresponding spreadsheet. If bills came in fortnightly I calculated their average monthly cost.
3) I then calculated the average monthly cost of each yearly and quarterly expenses.
4) I then added all the monthly equivalent amounts together to get my average monthly expenditure.
5) To calculate my disposal income, I deducted this average monthly expenditure from my monthly income.
This was a really interested exercise for me. I worked out that all those annual or once off expenses (evernote pro, magazine subscriptions etc) that I had signed up to added up to over $250 per month. Now I know how to better evaluate expenses across payment timeframes.
Managing my finances through the year
Challenge - I earn a regular amount each month, but my expenses differ between each month, i.e. December - February are expensive because of Christmas and then my insurance, car registration and other expenses are due. I wanted a way to manage my finances so that I have sufficient amount of money to meet all expenses throughout the year. I don't want to get a credit card to manage these periods.
1) I separated out the annual expenses, quarterly expenses as well as the monthly expenses that I share with my partner.
2) I then calculated a monthly average for these expenses.
3) This have then organised for this amount to be transferred automatically from to my partner and I's joint account on my payday.
4) I will then arrange for each bill to be paid from our joint account.
This way I can be sure that there is always enough the joint account to cover expenses as and when they come in as I am putting away money into our joint account a consistent amount each month.
Better Expense Tracking
Challenge - manage disposable income better so I am not craving payday a week out from the 15th (I get paid that day). I have already calculated much of my main expenses, but I want to better understand the cumulative financial effect of those lattes and dinners out.
1) So now I automatically take out the amount I intend to save for the month and put it into my savings account on payday.
2) I updated my savings account to a savings account that penalises you a lot for taking money out. This will give me even more incentive not to remove money.
3) Setting up the automatic payment for average monthly expenses means that money is not in my account for me to accidently spend.
4) I found an app called 'track my spend,' from ASIC (I am Australian and ASIC is our federal government's corporate and financial regulator). It is a really simple app which lets to set a weekly, fortnightly or monthly spending limit. On the main page it has a bar showing how much you have spent and how much you have left.
5) I set the target at the amount of my disposal income, so that I can see how I am spending it.
Again, I am using a simple expense tracker because my excel spreadsheets, bank statements etc will account for everything else. I just want something to have out and about to add in those purchases that I say to myself don't count (when they do). This was a really useful exercise and I worked out that I spent over $50 in three days on take out food and coffee. So that's where my money goes...
Automating Bill Paying
Challenge- To reduce stress relating to bills and have an out of sight out and out of mind system as best I can.
1) I worked out which expenses can be paid automatically online (i.e. rent can be paid online automatically, petrol/gazoline cannot)
2) then work out which expenses are always the same amount (i.e. rent is the same each month, electricity may be different for each quarter)
3) For expenses that are the same each time I pay them, I set an automatic payment for them.
4) For expenses that vary each time I pay them, I will review them only twice a month. I will review bills on the 1st and the 16th (as I get paid on the 15th) and know that bills that are due between the after the 16th but before the 1st will be reviewed then and those due before the 16th but after the first will be reviewed on the 1st.
5) for those expenses that I cannot automate (eg. petrol or getting my hair done) I will try and schedule appointments or run these errands as close to my payday as I can, so that I know exactly how much disposible income I have for the month.