The path to financial freedom involves accumulating and managing assets. You need to have more resources coming into your life than going out. And you need to grow those resources. To accomplish that, it helps to have tools and a system. You’ll reach financial independence faster if you’re organized for the journey.
The downfall of many a new saver and investor is thinking that they need to have complicated tools, or expensive tools, or a “special” system. Nothing could be further from the truth: A very simple system, cheap to construct, and composed of readily available tools is best.
But you can’t cope with today’s world without using some of today’s technology. You need automated tools to manage and digest the onslaught of information and data directed at you each day. But technology adoption walks a fine line: If you try to use all the latest inventions, sign up for every free service available on the web, or fill your mobile device with every downloadable app, you’ll only make your life more complex, stressful, and brittle.
My strategy is to use a handful of the longest-standing and best-tested tools to automate and simplify my financial life. I also keep an eye on newcomers to see which survive the real-world vetting process and might deserve a spot in my financial life for the long term. But that new technology has to earn that spot by convincing me it will save more than it will cost. After all, every tool requires an investment of your time and energy in learning it, using it, and maintaining it. So, don’t take the decision to add technology to your life lightly, or it will only squander your resources and make matters worse.
It’s been several years since I completed the shift to paperless financial transactions. I no longer intentionally receive any financial statements or confirmations in postal mail. That puts a heavy burden on my email inbox. But the trade off of managing a heavier email load is worth it against the burden of receiving, responding to, and filing paper correspondence. Those tasks are long over in my life, and my office space thanks me every day!
One of the many advantages of email is that it’s quicker. But just because email is immediate, doesn’t mean your response needs to be. I “batch” my financial activities into a few sessions per week. So, rather than processing financial emails when I receive them, I drag them to an email folder named “Statements” where I temporarily store bills, statements, and other financial tasks. (When possible, I use automated rules in my email program to move those incoming messages.) Then, a couple of times each week, I process all my pending financial transactions.
Finally, I archive all my email messages in one very large file, usually sorted in chronological order. I can generally find any email message from the past decade of my life within seconds. If I were to be audited, I’d have some work to do collecting financial documents, but it wouldn’t be overwhelming: I could probably gather all the tax-related supporting documents for any single year with just a few hours of work.
A functional online calendar is essential to basic financial organization. Why? Because so many financial tasks are performed on a recurring basis: reconciling accounts, reviewing investments, collecting tax information.
I use Google’s calendar with items shared between my desktop computer and cell phone. Simple color coding tells me if calendar items are financially-related or something else. Generally, financial items on my calendar are tasks to perform at certain intervals. They aren’t time consuming, and I know that if I stay caught up on these tasks, checking them off when they appear on my daily schedule, that my financial life will remain in order.
And I use my online calendar for one other, non-recurring financial task: When I’m expecting something important from somebody else — a shipment, a confirmation, a payment — I always put it on my calendar, with a special color coding, and include the relevant tracking number and contact information. That way nothing every drops between the cracks!
is my electronic bookkeeper. It’s the only such software that I can recommend from personal experience. For me, and many others, Quicken may be the oldest PC application in continuous use. I switched to Quicken from my own checkbook register program in 1989 and never looked back. It has tracked our spending and savings, balanced our accounts, and kept an eye on our budget for more than two decades now. Quicken is one of the software applications that I would truly dread living without.
It is hard to imagine living in the modern world without a money management program, and Quicken is one of the best. Unfortunately the program appeared to peak in the mid-1990s, and has been coasting for a while. The Quicken of today is not always the fast, seamless, trustworthy application of yesterday. Intuit seems to have been distracted by its many other businesses in recent years. So, while I can still recommend Quicken, you owe it to yourself to review other options as well.
If you’re starting from scratch, there are new web-based options that have very likely surpassed Quicken in power and ease of use. Check out Mint or You Need a Budget, for starters. But Quicken is still good enough for me and my relatively simple financial life. Amazingly, I don’t even use Quicken’s online banking features: I’m not keen on sharing my security credentials or having the software automatically stuff transactions into my carefully kept accounts. Though, I do believe that online banking is a good option for most users.
The venerable electronic spreadsheet is the workhorse of financial analysis. And Microsoft Excel
is the workhorse of electronic spreadsheets. You don’t need to be a geeky engineer to get most of the benefit out of Excel: 90% of the time I’m using it, I only rely on 5% of its features. You can use the program as a simple list manager, that also happens to compute a few formulas, and still get tremendous benefit in your financial life.
Here are the main Excel spreadsheets I use on a regular basis:
- Budget: Sums our expenses by category for each month and year, so we know where our money is going.
- Contributions: Sums our charitable contributions by organization and year, so we can monitor our giving.
- Annual: Records our income, expenses, savings, investment returns, and net worth each year, so we know if we’re headed in the right direction and why.
- AssetAllocation: Lists all of our investment holdings and analyzes our asset allocation across all our accounts, taxable and retirement. Also monitors key warning/performance metrics and expense ratios for our portfolio.
- Tax: Records key values from our tax forms each year: sources of income like interest/dividends/capital gains/business, adjusted gross income, deductions, taxable income, total federal tax, state tax, and effective rates.
- Analytics: Holds business metrics like links, traffic, readership, income, and expenses, so I can run this blog efficiently, and understand where income and expenses are coming from.
Evernote is one of the oldest and most prominent note-tracking applications for the web, desktop, and mobile devices. It lets you enter all manner of free-form data, including text and images, then label and organize it with tags, and finally retrieve it as needed. Evernote scales well and is a suitable repository for thousands if not 10’s or 100’s of thousands of pieces of data.
I’m a consistent Evernote user, but not an avid one. The user interface has always lacked the fluidity and consistency of OneNote (discussed below). So I use Evernote primarily as an “electronic filing cabinet,” for important scanned financial documents like titles, birth certificates, Social Security statements, wills, health care directives, health care records, leases, receipts and confirmations, for example.
My note-taking application of choice for many years has been Microsoft OneNote
. In my view it stands head and shoulders above other Microsoft applications and above other note applications, in general. OneNote has proven an incredibly flexible, efficient, and reliable tool in my near-decade of using it to record all my personal, creative, and business information.
With OneNote, you can start simple and evolve a note-taking structure over time, in accord with your needs. The central design metaphor of notebooks, sections, and pages, is simple to understand and very flexible.
At the top level I currently rely on five separate notebooks:
- Tasks/Contacts: Holds my daily TODO lists, medium and long-term goals, plus all my primary business and personal contacts.
- Shared Tasks: Holds a few lists (such as the grocery/shopping list, home repairs, and recipes) shared with my wife.
- Writing: Holds references, notes, and draft text for all my writing projects (articles and books). Unlike Evernote, the word processor built into OneNote is powerful yet facile — never getting in your way during the early stages of a draft.
- Journal: Holds historical information of all types, including dated notes related to business, personal, financial, house, travel, and other areas.
- Reference: Holds reference data of all types, information expected to be of ongoing use in business, personal, and financial realms.
With a personal finance system composed of simple tools like those above, you can take control of your financial life and expedite your journey to financial independence. Without such a system, you are leaving your financial destiny to chance and — as many people saddled with debt and an unsustainable lifestyle realize — you could head in the wrong direction for years.
Darrow Kirkpatrick is a software engineer and author who lived frugally, invested successfully, and retired in 2011 at age 50. He writes regularly about saving, investing and retiring on his blog CanIRetireYet.com. His latest book is Can I Retire Yet?