It started from a place of passion.
It was the 2012 timeframe, and I had just begun to discover the financial independence, early retirement movement. After learning that a lifetime in a cubicle-prison was not mandatory, I became obsessed with improving my financial situation.
I started working harder, slashing costs, and investing the difference as part of my FI plan. I recorded and categorized every single line item expense, so I could track my spending habits over time.
My month-end ritual was my favorite part. I created a Finance Tracker spreadsheet that I updated religiously. There was a balances tab for tracking my account values and credit card balance. A positions tab, which detailed my investments in their various accounts. Separate tabs for monthly savings, budget, and contributions. A net worth summary.
Every month, I would gleefully enter all of my earnings, expenses, and investments into my spreadsheet. Who am I kidding- I did this multiple times a month. I handled most of my transfers and bill payments manually. This was partly because the transfer values fluctuated, but mostly because I liked to feel like I was intimately involved with the day-to-day workings of my portfolio.
It Became Too Much
I was obsessed with tracking everything and watching my progress, sometimes on a daily basis. Which isn’t necessarily bad, but it was time consuming. I was preoccupied with the daily goings on, when I should have been focusing on the bigger picture.
When Mrs. BF and I got married in 2016, it only became worse. We decided not to combine our accounts immediately. Rather, we opened a joint checking account and a joint credit card. The number of accounts to keep track of nearly doubled, as well as the number of monthly transfers.
Here is what our web of financial accounts and transfers looked like, as of early this year.
I color-coded the transfers to show the automated transactions (such as direct deposit) versus all of the manual transfers I would make. I used to make nine separate transfers to balance our books every month- crazy!
Time to Automate Finances
For someone who prides himself as a student of the continual improvement philosophy, this is obviously embarrassing. At first, it was fun to feel like I was at the control board of some big financial machine. But then it became overwhelming, and frankly a waste of time.
A couple months ago, we started working to simplify our situation. We took the following steps to get everything straightened out.
- Consolidate Accounts. For some reason I was using two checking accounts, and Mrs. BF had a paltry sum parked in her savings account, earning a few pennies a month. We consolidated our banking to one personal checking account each, plus our joint account.
- All Income to Joint Account. We also funneled all of our sources of income (paychecks, rental income, etc…) directly into our joint account. Which made it possible to consolidate our payment sources.
- Pay Everything From One Account. We now make almost all of our payments out of the joint account, except for our personal spending.
- Automate Contributions. This one is key to the simplification strategy. Based on an estimate of our monthly cash flow, we now automate our contributions to our brokerage accounts and Baby BF’s 529 college savings plan.
- Auto-pay Credit Cards. Okay, I’m going to look stupid here. Somehow, I wasn’t aware that I could automatically “pay in full” my credit card balance. I thought I could only auto-pay a minimum payment, and not the full balance. We always zero our balances each month, so I set this up.
- Make Additional Principal Payments. This is the only ‘calculated’ move I make now. After all of the bills are paid and contributions are made, I check our joint account balance. Whatever excess we have above a chosen buffer is applied to the principal of our mortgage.
As you can see, I’ve managed to automate nearly every transfer, contribution, and payment we make each month. And I have to say that it feels great! No more logging into a dozen different accounts every few weeks to ensure that our bills are paid and balances are maintained. Our finances are finally running like the well-oiled machine that they should be.
More on Our Strategy
Finally, I’ll add a little bit more color on our current setup and investing strategy.
Separate Bank Accounts: If we wanted to further simplify things, we could do away with our personal checking accounts and only use the joint account. I’m sure plenty of families do this, but it’s probably overkill for us. We will maintain separate ‘slush funds’ for our respective vices: Mrs. BF frequents the local consignment shop on a regular basis, and I have a bit of a craft beer/homebrewing obsession. To each his (or her) own!
Mortgage Principal Payment: As I mentioned in my April Net Worth Update, we have been making a small monthly contribution toward our mortgage principal in order to reduce the length of our loan repayment and save on interest payments. Internally we’ve been debating the merits of directing additional funds to the mortgage principal or continuing to put it into brokerage accounts, ie. the “debt versus invest” argument.
I will dedicate a separate post to our decision on what to do with our money and why, but here’s the short answer- we are going to aggressively step up our mortgage pay-down strategy. There are a number of factors at play in our decision. In the end, we’d like to reduce our monthly costs as much as possible before exiting the rat race, and housing costs are our biggest expense at this point.
As for me, I’m spending much less time populating spreadsheets these days. It’s still enjoyable to record our progress and see the impact of our efforts on our fiscal bottom line. But I have way more important things to be doing with my time than play with numbers all day.
What do you think about our simplification strategy to automate our finances? Are we doing enough? What would you do differently?