personal finances – Simple with Money

Until now, I’ve always had the strategy of saving what’s left at the end of the month. This works fine for me, there is usually some money left over. Frugal living pays off, I have already saved a nice amount. However, I do it differently than a lot of advice I read. A lot of financial advice is to pay yourself first. For example from the book Rich dad, poor dad and also The richest man in Babylon. Even Warren Buffett gives this as advice. The people who say this know what they are talking about. They are all millionaires who are very good with money. In the FIRE community there are a lot of people who also pay themselves first. So we can’t get around that.

Not paying rent this month…

Investing immediately after your salary has been received and only spending what is left is also called pay yourself first. Some things are not open to negotiation. It is not optional whether you pay your rent or mortgage this month or whether you do or don’t pay your electricity bill. You just do it because otherwise you will get into very annoying problems very quickly. There is no room for negotiation. The pay yourself first principle states that investing every month is also non-negotiable. You do this every month, preferably a fixed amount.

By doing this at the beginning of the (financial) month, you live frugally. You see how much is still in your bank account and it is easier to decide not to make a purchase if your account is almost empty. I want to implement this, pay myself first and I will start on July 1. I have to pay close attention, because my bills are only debited at the end of the financial month. If I can’t manage my budget, then there isn’t enough to write off the direct debits from the fixed costs.

Resolutions to pay yourself first

From the coming month on, I will think in advance what I will need in the coming month, on what things I expect to spend money. Then I calculate what comes in. I will use the difference according to my investment strategy.

To me, that’s what it looks like for July 2021.

Mortgage	595	Same every month
Electricity and heating	65	Low because of the solarpanels
Phone/spotify/netflix/internet	59	I share Netflix and don’t have a tv
Groceries	200	On the higher end (especially since i’ve stocked up) but I like some room here.
Car (Taxes, insurance and gas)	300	I commute to and from work 4 times a week and it’s about a 120km per day drive. With the gasprices rising it’s a lot. I get compensated more than half of this by my boss.
Eating out	100	The past couple of months (one and a half year) I barely went out to eat or for drinks, but now that we can, I will not cut back.
Miscellaneous	300	All the other stuff, like going away for a weekend, a laser treatment and birthday gifts.
Total	1619

pay yourself first — Waiting for the bridge to close with 30C. Luckily the windows open!

I round to 1700 and anything above that in income goes towards my investment strategy. If I have more left over because I broadly calculated, the remaining money will go to the investment account with next months round.

Planning a big purchase

I’m thinking about buying a camera. I allow myself flexibility in that. If I want to buy it, I take the money from the savings account. I top up the emergency fund the next month to the minimum of 3 months in expenses. If my emergency fund contains a little less than 3 months of expenses for a week or two, I won’t lose any sleep over it. After all, I still have the investments to back me up when shit hits the fan. The money from the investments can be put into my bank account within a day or two if there is an emergency.

I am very curious if budgeting in this way at the beginning of the month will help me to organize my finances even more tightly. That’s why I’m going to try to keep it up for a few months, not just one month. This forces me to start thinking about what I’m going to spend in the next month and then stay within budget. A good exercise in planning and thinking ahead.

How are you doing it, are you paying yourself first?

Do you also plan your finances at the beginning of the month? And can you stick to it? Let me know, I’m curious about your experience.

Until next time!

Elske

I am not a financial advisor, and therefore not your financial advisor. I am not a financial professional. This blog is for entertainment purposes only.

How much time do I actually spend on my finances?

The short answer is about an hour a month. Let’s have a closer look.

On the first of the month (or at least that week) I review my finances. I have been doing this since 2013. Then I log in to all my accounts (bank accounts and brokers) and I put everything I have spent per category in an excel file. My own excel cash book. The greatest benefit of this monthly ritual is insight. I have insight into my income and expenses. In addition, I can easily determine where I can save money or where I have to adjust when things get out of hand. I can also see at a glance whether I will achieve my financial goals.

Note everythink manually

I type in everything by hand. Every transaction i made. So I have to retype manually every subscriptions that I don’t use and other leaks in my expenses every month from my bank statements to my cash book. This makes me want to quickly get rid of expenses and subscriptions I don’t value. It hurts to write it down at the end of the month.

“You must take control over your money or the lack of it will forever control you.”

Dave Ramsey

For me it looks like this:

with fictitious numbers but in my actual cashbook.

Investment book

Since this year, I also keep track of my investments once a month. That way I have a better view of my return. That is sometimes a bit difficult to find in the various apps of the investor accounts. I also add up the balances of all accounts and any cash. At the end of the year, I therefore have a monthly overview of how much my net worth was at that time. All in all, keeping the entire household book takes me about half an hour to 45 minutes. Not that long, but enough to have a good overview and to focus on my goals.

Look ahead and look back

At the end of the year, I look back on the past year and look forward to the year ahead. I list all income and expenses and the investment I made (easy since I kept track of that every month) and then I see how I did. For example, this year I aim to pay at least for the entire renovation of the attic without touching my piggy bank and investments. At the end of the year I will know exactly if I hit my goal. For more on my investment strategy click here.

I encourage you to do this too if you want to take (back) control of your money. It will take you an hour to set up and then an hour a month to keep up. Your overview of what and how you spend becomes a lot clearer. Maybe you always thought you spend about 50 euros a month on home delivery, but now you see that it is more around 150. Then you can do something about it!

Take control of your money back and notice that as soon as you no longer have money worries, you experience a lot less stress and anxiety.

Do you keep track of your finances in a cash book? Let me know, I like to learn new insights!