An ambitious four phase process is helping me upgrade my future finances, health, safety, and security. It’s simple, but the rewards take time.
In 2016 I had some projects I wanted to work on in my spare time. But whenever I started, something held me back from giving 100%. In the back of my mind, I felt I should be working on something else. I didn’t feel secure with where my personal finances were at. My health was good but I wasn’t satisfied it would stay that way. And I kept wondering if there were some safety and security risks I hadn’t considered and prepared for. These topics felt more important than my projects.
So I spent some time in productivity limbo. Not progressing with the projects or addressing those concerns about my personal finance, health, safety, and security. Then in mid-2017, an employment change meant I needed to choose a retirement fund. A quick search should solve that, right? It might take an hour at most?
8 months later, I had completely flipped my concerns about my personal finances. I now felt empowered. I had a full financial plan in place, a system for keeping on top of things, and had developed many new, positive habits. I had also chosen a retirement fund 🙂.
What did I do? When researching retirement funds, I decided to only stop once I was comfortable with my knowledge and decision. This meant I had to research related topics beyond retirement planning, which led to researching the entire field of personal finance. Once I had that knowledge, I put it into practice with a plan and a system.
This process replaced my back-of-mind concerns with confidence. It feels like my future has been upgraded and I have a safety net in place. I can work on projects without even thinking about my personal finances!
I plan to apply this same process to my health and safety and security. Looking back, there were four phases to this approach: Absorb, Plan, Systematize, Refine. I’ll explain how they worked for my personal finances.
I needed to choose a retirement fund, but I also wanted to truly understand and be able to justify the decision I’d make.
I started following all research threads. When an article referenced something I didn’t know much about, I looked into that too. Researching retirement funds led more broadly to advice for saving for retirement. This led to investing which led to the entire field of personal finance. Including insurance, mortgages, debt, behavioral psychology, and more.
This took me 6 months. Half a year. (Wow, that’s a long time). Each day I was learning a little more. I went through 19 books and listened to personal finance podcasts every morning.
Interestingly, I discovered when to stop only after reaching that point. While reading a book on advanced investing strategies, I realized I was re-reading every page hoping to understand formulas I would never use. I put the book down. Though it hurt a little at the time.
I now felt confident I had explored every subtopic and could make fast and educated decisions about my personal finances.
Now it was time to face reality. To put what I had absorbed into practice.
The first thing I did was assess our current situation. I broke down my and my partner’s expenses for the last 6 months. Likely including a lot of books!
I also checked my progress in saving for retirement. I was well behind ☹️. I’d been working full time for 10 years but my savings had reached what one would want after 2 years.
Next up was determining our goals. And not just financial goals. Money is a means to an end so this involved us thinking about what we want to do in the next 2, 5, 10, 20 years. This can be an interesting chat between partners! A few goals we decided upon were: Having an emergency fund, living in another country for a year (probably a Nordic country), and being well prepared for retirement. The latter would require some catching up!
I then started making a plan. It’s in an actual document called Financial Plan. Sounds fancy, doesn’t it? But it’s really just trying to answer the question: Given our current situation, how could we achieve our goals? After some attempts at math, I distilled it all down to one monthly, actionable task: Save $800/month. The Financial Plan includes how I calculated this, plus the savings principles and tips I learned in Phase 1: Absorb that will help achieve it.
I now felt confident that, with a plan in place, I don’t need to worry about my long-term finances.
It became obvious after a few weeks that having a plan isn’t enough. It’s a little disconnected from my daily life. Over time, I started developing a personal finance system to make sure my daily actions are in line with the plan. This system includes a variety of tactics. Some aim to keep my goals and plans up-to-date. Others I use to save me time. Personal finance isn’t a hobby of mine (despite spending 6 months learning about it!), so I like to minimize the time and effort I spend on it.
Goals are good for setting a direction, but systems are best for making progress. — James Clear, Atomic Habits
Reviews are my most important tactic. They can surface problems before they compound. When I’m going for a hike on an unmarked trail, I make sure to check my GPS every 15 minutes to ensure I’m still roughly on course — I’m far from an expert hiker! If I waited until something felt wrong, I could get myself in a lot of trouble. This is how I see regular reviews. They keep me safely on course.
My personal finance reviews are nice and quick:
- 2 minute weekly reviews
- 5 minute monthly reviews
- 2 hour yearly reviews
Automation is my favorite tactic. My brain can only do so much, and I’d rather be thinking about things I find more interesting than my daily finances 🙂. My personal finance automations include bill payments, savings transfers, account balance alerts, and review reminders.
Tools are my second choice when complete automation isn’t possible. For personal finance, these include savings and investment spreadsheets, review templates, and tax and investment trackers.
And rules of thumb are my other tactic. These help to make quick decisions that are less taxing on my distracted brain. Some rules of thumb come from the wisdom of others learned in Phase 1: Absorb. E.g. I only purchase insurance for expenses I could not cover myself. Others I figured out myself. E.g. paying upfront for things like smartphones and avoiding contracts.
I now feel confident, with my system in place, that I don’t need to worry about my personal finances on a day-to-day basis.
The first version of our Financial Plan and personal finance system were very different from what they are today. The plan was overly complex and the system, well, didn’t really exist — it evolved over time. Thanks again to Phase 1: Absorb, it has been easy to refine and add to both of these. What is less easy, though, is realizing when something needs refining and having the patience to stop and spend time in making the improvement.
This phase is the hardest to describe in terms of actionable steps or tips. Self-awareness has been very valuable here. The COVID-19 pandemic made us feel underprepared for unpredictable events. To alleviate our fears, we refined our Financial Plan by increasing our emergency fund. And when I feel some parts of the plan or system are becoming a pain to maintain, I invest the time to improve them. Checking our monthly finances used to take 20 minutes. Now it takes 5. Woo hoo!
Having regular reviews has really helped keep me aware of how things are going. On numerous occasions during reviews, I’ve noticed that our spending has increased. We then introduced new rules of thumb for making purchases and got back to our earlier numbers.
I don’t have any tricks to encourage myself to stop and invest time in making these improvements. I’d love to hear if you do! I’ve found that the more improvements I make to the plan and system, the more excited I am to do it next time. I find it almost addictive to have effective and efficient plans and systems 😁.
By making regular refinements, I’m confident that my plan and system reflects my ever-changing needs and goals.
Upgrading my personal finances, via this four-phase process, has been one of the best
decisions I’ve made things I’ve stumbled into. It has improved not only my personal finances but other aspects of my life.
But there’s quite a lot to those four phases! It’s worth asking the question: How else could I have upgraded my personal finances, instead of spending months learning and creating plans and systems?
I could have learned and made changes on an as-needed basis rather than upfront. For example, I could have read some articles about choosing a retirement fund and made my best guess. I’m happy to do this when choosing, say, which pair of headphones to buy. But that’s because the consequences are low if I make a bad choice. With personal finances — as with health, safety, and security — good and bad decisions compound.
I could have hired an advisor. But how would I evaluate their expertise and impartiality if I had minimal knowledge myself? Would I be comfortable or able to articulate my wants or needs to someone I don’t know? I’m not sure I’d have alleviated my back-of-mind concerns if I were relying on someone else.
Lastly, I could have gone less in-depth when absorbing the field of personal finance. This one is tricky. My concern is that I can’t know I’ve learned enough until I’ve gone past that stage and started learning too much. That seems the only way to avoid missing out on a mountain of easily understandable knowledge. Then again, this could be my perfectionism or FOMO speaking 😉.
My personal finances are empirically better. I was originally leaning towards a specific, modern, smart-sounding retirement fund. After Phase 1: Absorb I realized that fund was not only riskier but had way higher fees. Compared to the fund I’m with now, it would have cost me an additional $103,000 in fees over my lifetime! All my other financial decisions are now better informed as well. I’ve no doubt saved myself a lot of money and made my goals easier to achieve.
The biggest benefit, though, is the feeling of empowerment. Having the knowledge, a plan, and a system gives me confidence that I’ll achieve my goals. That confidence has spurred me to start pursuing the projects I’m interested in. It has alleviated the back-of-mind concerns that I felt were holding me back. It feels good!
I’m excited to start upgrading my long-term health, safety, and security. I’d like to be healthy, active, and move freely in my 90s and I’d like to avoid preventable disasters along the way. Even more important, I want to feel empowered to follow my interests and passions, knowing I’ve got plans and systems in places for my finances, health, safety, and security.
I’m also excited to share what I’ve learned and continue to learn. About the different fields, the process, and the systems I develop along the way.
In the meantime, I’m curious — do you hold back from giving 100% in your interests and passions because you feel there’s something else more important you should take care of?
If you addressed that something else in an in-depth manner as I described here, do you think you’d feel more confident? More empowered to pursue your interests and passions?