Good morning! Today I have a guest post from Matt Becker, a personal finance blogger at Mom and Dad Money. Matt is a proud husband and dad and loves to share the financial lessons he’s learned with other young parents. You can find him on twitter and facebook.
I hate it when I have to think about my money.
Don’t get me wrong, I love thinking about financial issues. I love learning new things, tinkering with different processes and strategies, and trying to find the best way of doing something. I just like doing it on my own terms.
When I’m forced to think about my money, it’s usually because something is glaringly wrong and needs to be fixed quickly. I feel uncertainty about how to proceed, guilt and embarrassment that I’m in this situation, and a time pressure that all adds up to a lot of stress. This stress makes it difficult to make good decisions and it negatively affects my mood and how I interact with my family.
But most of all, while good financial management is a cornerstone of a healthy lifestyle, I didn’t grow up with aspirations to track all of my spending. I didn’t daydream about making complicated spreadsheets to follow my investments. I certainly didn’t hope to live a life where I agonize over every spending decision because I’m worried about how it will affect my checking account balance.
I do dream of a simple life where I spend quality time with my family and pursue work that I enjoy. With those goals the forefront, I have tried to set up a personal financial system that lets me be as independent from it as I want, freeing me up to focus on the things I truly value.
What is there to worry about?
The list of potential financial worries is almost endless:
-Did I pay all of my bills on time?
–Am I saving enough money for retirement?
-Can I put food on the table for my son?
-What would happen to my family if I lost my job?
-What would happen to my family if I died?
-Can I afford the flight to go to my best friend’s wedding?
This list is just a small taste of the things that I might worry about. And while they are all legitimate concerns, if they are daily worries then they are taking time and energy away from other parts of my life. This kind of regular worry is exactly what I want to free myself from. There are a few simple ways I try to do it.
Set up my own personal safety net
The first step to removing financial worry is handling the worst case scenarios.
I have a large emergency fund, currently 6 months of full expenses but more like 9 months of emergency-level expenses. This could carry me through a reasonable period of unemployment or handle other big unexpected expenses.
I have ample life insurance, disability insurance, health insurance, and liability insurance.
My wife and I have wills and a living trust set up to make sure our son is cared for if we died.
While experiencing one of these worst case scenarios would still be painful, these safety nets let me know that my family would at least have the financial resources to handle them.
Create good, simple and consistent money habits
We’ve all heard the advice that you need to live below your means. Every financial expert has told us some version of this. And while the advice is absolutely true, we often fail to follow through. When faced with the decision to spend now or save for later, that spending impulse usually gets the best of us.
My approach is to avoid this confrontation altogether by forming regular habits that remove these spend vs. save decisions from my daily life. I bring lunch to work every day and my wife cooks dinner. We take our son to the playground or the park rather than some kind of paid entertainment. I tested different routes to and from work to find the best combination of time and cost.
These are just a few examples of simple, repeatable habits that save me money. Forming good habits ingrains positive behavior into my life and removes the anxiety of constantly having to face tough decisions. By avoiding the confrontation altogether, my life is simpler and more carefree.
Automate as much as possible
My paycheck is direct-deposited. My bills are set on auto-pay. My retirement contributions are transferred directly from my checking account on a regular schedule. We have automated savings for things like travel, car maintenance and doctor’s appointments. I have a simple excel spreadsheet tracking my investments (in only four mutual funds) that tells me when it’s time to rebalance.
All of these things took a little bit of time to set up, but now that they’re in motion I barely ever have to think about them. I never worry about a bill being paid or whether we saved enough this month, because it was all decided and set on a schedule a long time ago.
Check in on a regular schedule
All of the above runs on auto-pilot, but I still check in on a regular basis to make sure things are running smoothly. But because everything is so organized and automatic, these check-ins are almost always quick and simple.
My wife and I have a weekly time that we review our budget and make sure we’re on track for the month, a process that typically takes about 15 minutes.
Once per month I review all of our accounts and record our net worth so I can track our progress over time. This takes another 15 minutes.
On a weekly basis I check on my investment spreadsheet to see if there’s any rebalancing needed. This takes about 5 minutes.
All in all, that’s a total of about 1.5 hours per month spent reviewing our finances. But because we spend that small amount of time doing it, and because my wife and I make sure we communicate regularly to stay on the same page, the rest of the hours in the month are free to focus on other things. These check-ins help us both stay stress-free because they confirm that everything is running smoothly and give us a regular venue to identify and handle anything that isn’t.
Relax and enjoy your life
All of the above takes some work, but it is organized and focused work that relieves financial worry and allows me to spend more time on things I enjoy. I can play with my son without any nagging concern about our bills being paid. My wife and I can spend our time mapping out our plans for tomorrow because we know we have today handled. When I work, I can do it because I enjoy it and I want to produce something great, not because we need to eat tomorrow. I’ve tried to set up a life where I dictate my relationship with money, not the other way around.
Independence from my finances is my dream of financial independence.
What is yours?
Photo Courtesy of FreeDigitalPhotos.net
This post was featured on Monster Piggy Bank, thank you!