The Number 1 Tool for Simplifying Your Savings

Dear Rich Lifer,

The year is nearly at an end.

So, I have two questions for you:

  1. How much did you make this past year?
  2. How much did you spend this past year?

If you’re like most Americans, you have no clue how to answer my second question.

According to Gallup, one in three Americans prepare a detailed written or computerized household budget each month that tracks their income and expenses.

When you consider that 57% of Americans have set aside less than $1,000 in financial reserves, it’s no surprise two-thirds of U.S. citizens are without a plan for their money.

The first step to getting your finances in order is knowing exactly where your money goes each month, because how much you spend directly translates into how much you save.

The good news is tracking your spending is now easier than ever.

Where most people fail at this is getting in the habit of inputting every single transaction. We’re not going to worry about that because there are tools that will do this for us.

Today I’m going to walk you through how to use a free, secure tool online that will help track all your spending and more.

Personal Finance Apps

Over the years, several personal finance apps and web-based tools have been introduced. Only a few are any good. In my opinion, Mint, You Need a Budget (YNAB), Quicken, and Personal Capital are worth your time.

While I could walk through any of these, today I want to show you how to track your spending in Personal Capital. I chose Personal Capital because out of the four mentioned above, it’s the only one that really takes into account investment portfolios.

Personal Capital is unique in that it syncs with all of your financial accounts — from your checking and savings accounts to your investment and IRA accounts to your mortgage, home equity loans and credit cards.

The main reason you should consider managing your finances in a system like Personal Capital is it doesn’t allow you to fudge the numbers… whether through underestimation or poor memory or miscalculations. The entries are automatic once your system is synced.

Unlike a spreadsheet where you have to manually enter each expense, Personal Capital pulls data from your various accounts so there’s no question where you stand financially. Everything, including the $5 Starbucks coffees, are tracked.

Is It Secure?

This is a valid question and I’ll let you decide for yourself. But both Mint and Personal Capital use two-factor authentication and neither tool allows you to move money in or out of the application, so no one can touch your money.

To turn over a new leaf in personal finances, go to Personal Capital’s website and click sign up. It only takes a few minutes to set up your free account…

Step 1: Set Up Your Account

Once you’ve signed up, Personal Capital will walk you through how to set up your account. They’ll ask you a few basic questions like your name, how old you are, when you plan to retire, and how much you already have saved. This is to get an idea of where to set your financial and retirement goals in later steps.

Step 2: Sync Your Accounts

After you’ve set up your account, you’ll want to sync all your accounts, including checking, savings, credit cards, loans and investments. Personal Capital has almost every major financial institution listed. If you don’t see your bank listed, use the search bar to find it. Once you’ve add all your accounts, Personal Capital will start the sync process and aggregate all your financial information.

Step 3: View Your Main Dashboard

After your accounts are all synced, you’ll see your net worth and cash flow on the dashboard. If you scroll down, you’ll see graphs of your spending and where your cash has been going for the past 30 days. You should also see the balance of your entire portfolio and how it’s allocated.

Once you’ve reached this point, you’ve pretty much completed the set up. There’s a lot more you can do from here in terms of setting up budgets, savings goals, investment planning etc. For today, I want you to be able to simply see all your expenses in one place.

You have no idea how illuminating it can be.

How to Track Expenses in Personal Capital

As I stated at the beginning, you’re not going to manually be tracking your expenses. To get a snapshot of where your money has been going over the past week, month, or year, follow these three steps:

  1. Log into your Personal Capital dashboard
  2. Click on the “Banking” tab
  3. Adjust the date range to reflect the period of time you want to look at

It’s really that simple. Now you have a clear picture of where your money is being spent every month. Why is this useful?

Let’s say you follow all the steps I’ve outlined so far and you see that you are spending about 10% more than you thought for the year. Ten percent might not seem like a lot but over several years, it takes a toll on your savings rate. You thought you were on track to retire in 5 years, now you’re expected to work at least another 7 or 8 years because your savings rate is lower.

Tracking your spending is step one, step two is budgeting — or at least that’s the natural progression most of us like to follow. However, you probably already know that budgets are hard to stick with, even when you use a tool like this.

An alternative to budgeting that Personal Capital can manage is cash flow.

Instead of budgeting every expense, you can track your cash flow and have set targets. Assuming you’re still working, tracking your inflow and outflow is a less restrictive way to setting up a monthly budget.

Life happens and as long as you’re tracking positive cash flows and hitting your targets, you’ll save what you need.

To a richer life,

Nilus Mattive

Nilus Mattive

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Nilus Mattive

Nilus is the editor for the daily e-letter The Rich Life Roadmap and a Paradigm Press analyst.

Nilus began his professional career at Jono Steinberg’s Individual Investor Group, where he published his original research through a regular investment column. Later, he worked for a private equity business and spent five years editing Standard and Poor’s...

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