Thursday, March 5, 2009

Simplifying Money Management (And, I Heart Leo Babauta)

J.D. Roth, guesting on Zen Habits, writes a quick summary of themes culled from his widely read blog. Aside from the obvious (make a budget, track spending), stopping junk mail and optimizing your bank account are solid advice.

I continually draw parallels between PF advice and dieting.

Both are infinitely easier for those who have a natural dose of self moderation (note, not control). Sometimes, self moderation is just an appropriate level of awareness - what are you really consuming? On the polar end, are you so obsessed with what you are consuming that you "fall off the wagon" easily? Trust me, the science backs the latter up almost irrefutably (and I leave you to Google et al. if you're curious).

Better, both have similar approaches when it comes to advice. Like the calorie-counting programs of the world (e.g. Weight Watchers), some people find keeping track of everything, maybe forever, is the only way to hold themselves financially accountable. In contrast, there's a very small body of writing that devotes energy to making your finances self regulating, with occasional tune ups coinciding with life changes. The comparator are successful "lifestyle" health books that advocate upfront re-education and retraining about nutrition and health and slowly forming new habits.

Ideally, I want my financial situation to self regulate. Something requiring intensive monitoring isn't worthwhile.

Strategy: investing upfront time to

(a) Cancel anything lingering in my name (deactivated cards), use and remove rewards programs

(b) Make sure my bank fees are controlled and minimized

(c) Get rid of a cell contract and convenient 'extra' charges each month

(d) eliminate and avoid subscriptions, including junk mail, and

(e) centralize cash management so it's paperless and at-a-glance. This spring, an e-filing program will replace the small paper file I've been toting around, at minimum for credit cards and bank statements. I'm working on a method of organizing paper for tax purposes, although at this point a brown envelope marked TAXES has sufficed. The key to managing tax documents is being familiar with what can be claimed, for example most people miss medical claims (and there are software glitches that facilitate this). You can figure this out in an afternoon at a public library with one of many step by step books, along with the difference between deductions and credits and ideas about rolling over credits (i.e. maxing out deductions first).

There really is no excuse for a person to not understand the basic principles of income tax. It's actually simpler, in my opinion, than the idea of compound interest. Even if you never file your taxes yourself.

Why (I) Go With Less:

>> The simpler records are, the easier it is to spot anomalies before they're penalties.

>> Unnecessary charges (and overcharges) stick out. A quick complaint call often rectifies the situation and then some.

>> Projecting income and expenses is ridiculously low-energy. If I have a busy month or am abroad my finances don't fall apart. I don't require an overly complicated tracking system because I don't have much to track.

>> Timing is a non-issue. Nothing is overdue, there are never late bills unaccounted for or cheques that didn't cash. Even with records, the more you keep track of the easier it is to make a mistake.

>> Limiting information inflow (for example, stopping paper flyers and just checking online) allows minimal time investment and focusing energy on what actually makes a difference to you. At the same time, automate information inflow for something you need to purchase - sign up for online alerts about flights or electronics.
We live in an age of information management. More is available at any time than has been available to any previous generation. It's easier to track and analyze your own behavior. However, the dark side of information management is information overload consumes far too much energy and can cause confusion (and, if you're a news junkie, abject depression!) I'm still working on how to balance everything and taking an often Zen Habits-inspired approach of continuous gradual self improvement. Bless Mr. Babauta, seriously.

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