Budget Like A Badass – PART 2
Welcome back! If you haven’t already read through PART 1, you can find it HERE.
Before we jump in, I’d just like to disclose that I may receive an affiliate fee if you join Personal Capital from my links. Please know that I will never recommend any service or product that I don’t believe will give you significant value and/or use myself. Personal Capital is one of these valuable tools and it’s 100% free to use!
So, let’s get to it.
Personal Capital helps you to aggregate (combine) all of your finance related accounts into a single dashboard you can view online. If you have a smart phone, they also have corresponding apps which means you can check your financial health virtually anytime.
The Power to See 360 Degrees
The reason Personal Capital is so powerful in conjunction with the budgeting spreadsheet is that you can use this tool to extract data fast. What used to be a very tedious process suddenly got a whole lot easier with the ability to track your actual income and spending (expenses) in one location. No more logging into multiple accounts and trying to tie everything together by yourself manually.
I’m sure some of you are already asking then, why don’t you just use Personal Capital in the first place and skip the budgeting spreadsheet? Great question!
The budgeting spreadsheet is there to give you hands on experience with your own money and it forces you to think about your expenditures. It also gives you the ability to forecast into the future, vs. just tracking where you’re at currently and have been.
So, by combining the budget spreadsheet and Personal Capital you get a complete view of Past, Present, and Future. Being able to see 360 degrees is a competitive advantage that you WANT to have. This will make you a badass! 😉
Setting Up Personal Capital
Setting up Personal Capital is easy, but you will need be get a list of logins and passwords for each financial institution you want to connect to.
Once you login for the first time, you’ll need to start adding your financial accounts. Simply click the “Link Accounts” button and you’ll be prompted with a small pop-up window and some suggested financial services you may have accounts with.
Once you’ve added your accounts, you’re good to go. If you can’t find a specific one, you can always add it later.
Also, if there is a custom account you need to add, you can do that also by clicking on the MORE button to get a list of additional accounts.
Although you can add things like jewelry, cars, and other “assets”, I typically don’t include these because the value you think it may be worth could be far off of its liquidation value. (eg. you may think your car is worth $5000 because that’s the Kelly Blue Book value for a private sale, but if you really needed to get the cash in an emergency, you’d probably have to sell it a much larger discount, say like $3000).
Anyhow, as an account aggregator, Personal Capital will track all of your financial data for you and present it to you into a comprehensive dashboard.
Your accounts will be organized into a few different categories like:
CASH – All cash and cash equivalents (i.e. money market accounts, checking and savings accounts, & cash)
INVESTMENT – This is all of your stocks, equities, mutual funds, and ETFs.
CREDIT – This is for all of your credit card accounts
LOAN – Any loans outstanding (eg. car loan)
MORTGAGE – Any mortgages for properties you own
OTHER ASSETS – This includes alternative investments, gold, silver, notes, real estate, etc.
*Click the black triangle to expand specific categories and view individual accounts.
Here’s a main area that we’re after. The Cash Flow area tracks all of your income as well as spending (i.e. expenses) over a given time period. These are made up of your transactions. By default it tracks the most recent 30 days, but you can also view it by month, quarter, year, etc.
You’ll notice income is broken into different categories such as paychecks, other income, investment income, deposits, interest, etc. which is great at giving you visibility to where your actual income is coming from.
One quick note is that Personal Capital will do it’s best to auto-categorize your income and spending (expenses), but it’s not perfect. So, you can always click on the specific transaction and change the category as needed. (Eg. I may have deposited a rental check into my checking account and it will show up as a deposit. I’d rather relabel it as “Other Income” since that’s where I track my other rental income.) It’s always best practice to stay consistent.
The same logic also applies for Spending (expenses).
The pie chart is a great visual on what types of expenses are most prevalent in your life.
Move Your Data
So, now that you have an accurate overview of your actual income and expenses (let’s say for last month), it’s time to apply the data into our budgeting spreadsheet.
As an example, let’s say we found out we spent $255 on gas last month. We’ll go back to our budgeting & cash flow spreadsheet and find our estimated number. If we had $200 in there, we’ll simply replace it with $255 now.
Recall that we’re trying to update our actual numbers from our initial estimates we entered. This simple act will give you an intuitive understanding of how you estimate your money. Are you way too low? Or, maybe too high? Some of you could be spot on with certain figures. Wherever you are, the key is to get as close as you can.
Take this time also to update your numbers for future months. It doesn’t mean to blindly enter the new number you realized, but to reconsider if this new number is accurate in terms of future spending. If it was just a one time anomaly, then maybe the original number stays the same. You get to decide!
The goal is to get better and better at this, so it becomes second nature. You’ll start to see this coming together when you sit down the following month. You should definitely be much closer, right?
Well that’s pretty much it for the entire badass budgeting process. You should try to build out a full 12 month forecast near, or just before, the beginning of a new year. That way it’s easy to track on an annual basis.
Your ultimate goal is to manage your cash flow within the expectations that you’ve set ahead of time. This gives you the most amount of control over your money and the best odds for hitting your financial goals…. whatever they maybe.
Finally, don’t get overwhelmed! The important thing to do is take SOME type of action. If you find that Part 2 is all you can handle in the beginning, that’s fine. Get comfortable with reviewing you current and past numbers to start in Personal Capital. Wait a couple of months, then take a stab at the budgeting spreadsheet in Part 1.
Here’s to wishing you a very profitable and eye-opening 2016!
Readers, if you have any questions, please don’t hesitate to ask. I’d also love to hear about other people’s budgeting process. There’s always more than one way to do the same thing!
END OF PART 2
If you’re interested, I’ll point out a few more really cool things about Personal Capital.
Another great feature of Personal Capital is it gives you insight into your overall portfolio. I love the quick visual benchmarks.
The allocation views are also great. Net worth asset allocation is super important to understand!
You can also have a free analysis on your portfolio to ensure your target allocation is inline with your current allocation. Ultimately this is how Personal Capital makes money, by providing portfolio management services to people who don’t have the time or desire to manage their allocations.
If you are interested in portfolio management that’s low cost, but effective, you may want to check out Betterment. Betterment is a roboadvisor that charges a small fee based on your total assets, and uses technology optimize your allocations… typically into low cost ETFs or index funds. If you’re interested in their special offer, you can receive up to 6 months of service free if you sign up here. )
Finally, this tool is HUGE. Most people have NO CLUE how much they’re paying in fees! That used to include me. I recently switched out some very heavy fee based funds for Vanguard index funds that have fees a fraction of what I used to pay. Personal Capital helps you to get a snapshot of where the hidden fees are buried in your portfolio.
Anyhow, if you couldn’t tell I’m a huge fan of Personal Capital. All of these tools for free really blows my mind, so thank you PC!! Maybe at some point I’ll do a whole post about them. Till then, stay financially alert friends!
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