Why We Don’t Micromanage Our Money
Want to guess how much time Mr. Frugalwoods and I spend “managing our money” every month? A whopping 30 minutes.
Yes, we are quintessential frugal weirdos and yes, we save over 70% of our income, and yes, we plan to quit our jobs at 33, and yes, we write this “personal finance” blog. But no, we don’t obsess over our finances. Why? There’s nothing to gain by micromanaging our money. Money is happiest as a loner. It wants to be left alone, with other money, to do its interest-earning thing. The less we mess with our money, the more of it we have.
Folks often assume we employ a ton of time and energy managing our financial empire (hah), but part of the secret to our success is that we don’t. I think it would drive us nuts to constantly think about our accounts and fret over our funds. It would also serve about as much purpose as a greyhound dressed as a bunny rabbit (and is a lot less adorable).
Our Money Routine (Hint: It’s Pretty Simple)
People ask what our “secret sauce” is for early retirement and how we have so much money saved up, and I hate to disappoint that the answer is pretty boring: we created a very simple, math-based system for managing our money and we monitor it regularly, but not fanatically. We don’t have “one weird trick” or some complicated algorithm underlying our fiscal procedures.
I think it’s very easy to fall into the trap of this idea that the more you fiddle with your money, the better off it’ll be. But in reality, we’re better off setting it and forgetting it.
Our regular money routine involves logging into Personal Capital to:
- View our credit card and checking accounts weekly to scan for fraudulent charges.
- Check our investments and 401Ks to ensure that the automated deposits we’ve set-up are operating correctly.
- Review all of our expenses once a month.
And that’s it. We don’t constantly adjust our investment portfolio or buy and sell stocks or do bizarre things with credit cards or create complicated budgets with different buckets of money.
In fact, we don’t budget at all! Instead, we operate from the perspective that we’re not going to spend any money. Obviously we do spend money, but not a whole lot of it. When you start from the idea that you can spend up to a certain budget cap, I think you’re almost guaranteed to spend that much. Conversely, if you start from the framework of spending $0, you’re less inclined to incur debits against your long-term goals. Spending is like a gas–I guarantee you it’ll expand to fill whatever space you give it. So rein in that gas!
In this same vein, our frugality is successful because we created frugal habits, which we routinely execute on frugal autopilot. We don’t innovate frugality every single day, we just follow the effective frugal lifestyle we’ve devised. While we do keep our eyes open for even greater frugality opportunities (such as this year’s Sodastream, coffee, and chest freezer discoveries), these are the result of seeing the world through a frugal lens, not of obsessively brainstorming new ways to save money.
Why We Like Personal Capital
As efficiency optimizers, Mr. FW and I are all about anything that streamlines our processes. And this is why we like Personal Capital. Personal Capital consolidates all of our accounts into one place so we only need to log-in once to review our cash monies. Handy and efficient. We can quickly scan our expenses for the entire month, our 401Ks, checking account, investments, credit cards, spending transactions, and our mortgage. Personal Capital also displays our net worth, income, and portfolio allocations. The only thing it lacks? A greyhound photo-of-the-day. Maybe they’ll come out with that upgrade in 2016.
Personal Capital also automatically categorizes our spending into graph format, which is a super quick way of seeing where we’re allocating the vast majority of our funds (usually groceries because we’re such ballers). Tracking expenses is, in my opinion, step #1 for creating a regimen of high savings. Without knowing where your money is actually going, it’s nearly impossible to set concrete savings or debt repayment goals.
There’s also a fee analyzer on their site, which examines the actual funds in our portfolio and tells us what the expense ratio is on every fund. This projects the amount of money we’ll pay in fees over the course of our working years–an excellent piece of info to possess. Avoiding high fees is a crucial element of reaping the highest yield from our investments over our lifetime.
Personal Capital’s retirement planner calculators are fabulous as well–they’ll tell you if your 401Ks are charging too much. And, it pulls from your data to provide real numbers on whether or not you’re on track for retirement. Plus, Personal Capital allows you to set your date of retirement really early, which is key for frugal weirdos. Most online retirement calculators only permit you to enter age 55 or older, but Personal Capital allows you to select for a younger age.
And the very best part about Personal Capital? It’s free. If you’re interested in trying it out, you can sign-up here.
Stocks: Set Them and Forget Them
Mr. FW says that if he were benevolent dictator of the world, he’d institute a waiting period on selling stocks. Much like buying a firearm, you’d have to enter a five-day waiting period before you’d be allowed to sell your stocks. This is because people panic, sell low, and then wonder why they’re not enjoying the average 7% return on their investments over the long-term.
We have two portfolios of stocks: our taxable investment account and our 401Ks. Our taxable account is invested fully in the low-fee total market index fund (FSTVX). Our overall portfolio is weighted 90% total market index fund and 10% bonds, with the bonds being held in our 401Ks in order to maximize tax efficiency. Both of our 401Ks are in low-fee index funds as we’re staunch believers in avoiding fees whenever and wherever possible. Once a year, we spend 5 minutes rebalancing our portfolio to match our desired asset allocations.
The most important aspect of managing stocks is to choose low-fee index funds, and then resist the urge to tweak, tinker, or otherwise do anything with them, other than funnel in more money. The only time we “follow the market” is when we accidentally hear the stock report on NPR’s Marketplace (sidenote: I do enjoy their sad trombone music for when the market is down, but that’s literally the extent of my day-to-day knowledge).
Do Other Things With Your Time
The more complex you make your finances, the worse off you’ll be. Financial companies love creating a smoke-and-mirrors ambiance for their magical formulas to get you rich quick off their customized portfolios. But the truth is, there’s no way to consistently beat the market over the long-term (unless you’re Warren Buffett).
We take a straightforward, uncomplicated approach and it works. We don’t pay anyone to manage our finances for us and you probably don’t need to either. The linchpin of our entire philosophy is that there’s nothing to gain from micromanaging your money or your frugality. Earn your money, don’t spend too much of it, and invest it. If you want an easy way to quickly check on your dollars every month, use Personal Capital and log-in occasionally to ensure nothing funky is going on. That’s it. At the end of the day, it takes a lot less time to save money than it does to spend it.
Our society often equates being busy with being productive, and so we feel compelled to busily interfere with our money regularly, but in reality, there’s no need. Better to set it, forget it, and use all that saved time to go hiking instead.
P.S. In case you’re wondering, Frugalwoods will receive some money from Personal Capital if you sign-up using one of the links in this post. But, it’s free for you to use and I wouldn’t recommend something that I don’t use myself. Frugal Hound thanks you if you do sign-up as she’s under the impression we’ll use that money to buy her more treats (and maybe we will… ). The reason you don’t see a single ad on Frugalwoods is because the vast majority of stuff companies want to pay us to sell to you is total crap and I refuse to promote crap in exchange for money (unless you’re in legit need of some manure). But on the rare occasion there’s a product that Mr. FW and I actually do use, believe in, and is relevant, I’ll tell you about it.