Hey Mr. Planner, What’s in Your Bag?
November 04, 2013I’ve always been fascinated by the game of golf or what Mark Twain referred to as “a good walk spoiled.” During childhood, I would spend hours at a time out in my yard creating my own imaginary course designs and pretending that I was at Augusta National competing for the coveted green jacket. (My parents and neighbors were probably grateful that I was using plastic golf balls at the time as my errant shots often landed on cars and houses.)
Now fast forward a few decades and this little child at heart is all grown up now but still loves to get outside in nature and challenge himself with a trip to the links. I don’t play as often as I used to these days, but I still enjoy the game and every year I get together with a bunch of friends and compete for our own champion’s jacket. I’ve always been fascinated by how technology has advanced the game of golf and you can see it just by peeking into the golf bags of competitors at any PGA Tour event or local challenges such as the Jawa Summer Invitational. What’s in my bag is a popular feature in many golf publications and television segments that gives everyday hackers such as me the opportunity to see what the pros are using.
So I thought that today’s blog post would give me a chance to show you what’s in my bag of financial planning. Think of it as a “physician, heal thyself” approach to financial planning. I’ve always enjoyed using that famous proverb to illustrate the challenge of being in a helping profession and actually taking your own advice. Don’t just talk the talk. You have to also try and walk the walk.
The meaning of this phrase is usually related to the need to attend to your own shortcomings and faults rather than place judgment or focus solely on the faults of others. Picture a morbidly obese physician trying to dispense healthy lifestyle advice or a dentist with a rotted grill. Or, dare I say, a financial planner trying to demonstrate the benefits of budgeting when they have no clue where their money is actually going.
Hopefully, you get the point. It’s important to know that people who are dishing out information and guidance are actually taking their own advice. (So, I’ll go ahead and admit that I haven’t always been as timely and consistent in implementing certain parts of my own financial plan.) In keeping with the golf theme of “what’s in your bag,” here a few of the personal finance tools that my family has had some success using during the past year:
Mint – This online budgeting tool helps organize finances and track spending across various expense categories. What I like the most about Mint is that it allows you to set spending limits at the beginning of the month and you can setup reminders to help you know when you need to cut back spending. With most budgeting systems, it really comes down to doing the upfront work of telling your money where to go before the month begins. Mint helps our family do that and it also helps us track our progress as the month goes by.
CreditKarma – In the past I’ve taken advantage of the AnnualCreditReport.com site that allows you to view a copy of your credit report from each of the credit reporting agencies without any fees. I still use that service but take credit monitoring a step further by using CreditKarma. This site allows you to see your credit score but also has some valuable resources to help you monitor your credit without paying any fees. Other similar services include CreditSesame and Quizzle.
ESPlanner BASIC- Awareness is a key part of the retirement planning process. I have no desire to retire for another 25-30 years if I get my way but I want the freedom to be able take a break or step away from the workforce on my terms. That is why it’s so important to run a basic retirement calculation even if that retirement date may currently be a moving target or appear unattainable at the time. Our basic retirement plan estimator does an excellent job of illustrating how current contribution rates to 401k plans or other retirement accounts may impact future spending. What I like about ESPlannerBASIC (Economic Security Planner) is that it focuses on creating a sustainable standard of living. The whole idea of consumption smoothing is to avoid abrupt changes to living standards during retirement years.
Morningstar’s Instant X-Ray- When I used to provide investment advice, my primary focus was on the three things we have some control over with investing: minimizing costs, investing in tax advantaged accounts, and asset allocation. Asset allocation involves more than just finding an ideal mix of stocks, bonds, cash, real estate, and other alternative investments. It also helps to take a deeper dive into investment styles (e.g., value vs. growth), portfolio fees, management style (active vs. passive), and geographic location.
For hands off investors, there are ways to simplify the investing process using balanced or target date funds. But I personally prefer building my own portfolio primarily using passively managed no-load mutual funds and ETFs. The Instant X-Ray tool allows me to look at our total portfolio to pinpoint the strengths and weaknesses and see how our entire retirement nest egg is performing as a whole.
Envelopes and Post-it Notes – The final tool that we use is also the most simplistic. After working directly with hundreds of individuals seeking new methods of creating good money management habits, I’ve found that there is no single method that works for everyone. The budgeting or personal spending plan process is not designed to make managing our finances a stressful ordeal. It is designed to empower our financial lives and make the most of our money. The ultimate goal is to find extra money to either pay off debt, spend more on things that matter, save or invest, and in many cases give to others. But we all have areas of spending that cause problems.
For example, our family’s top “budget buster” categories of restaurants, entertainment, and miscellaneous kid-related expenses have created a recent desire to revisit the envelope system. It’s pretty simple in fact. After using Mint to create our spending limits, we establish an envelope for the areas of our spending plan we want to pay the most attention to and fund those envelopes as we are paid. When the money runs out, the spending must stop. In the past, we have done the same basic thing using a Post-It Note. I’ve had a few people recently tell me about some apps out there such as EEBA that also help monitor spending. Find the plan that works for you and follow it!
As most golfers will attest, the equipment they use can help but it’s only as good as the end user. I’ve seen many weekend warriors on the golf course with shiny new clubs and brand new bags looking the part of a pro and playing like an amateur. Success comes when we practice and try new techniques when the old ways of doing things just aren’t working.