The Annual Review of Finances

Last weekend, I conducted my 2nd annual Annual Review of my finances.  Two years ago, I let go of my financial advisor.  I wanted to have a greater amount of control and understanding of how I use my money.  Plus, with the money I saved by not paying an advisor, I’d have more to invest.  This would give me a buffer for the initial mistakes I’d make on the road to financial literacy.

The first challenge was that I needed to manage all of my money, not just the investments.  The second was unraveling the investments made by my financial advisor.  While he did a good job, it required far too much management and knowledge of investment products for me. 

To attack the money management problem, I formed a strategy loosely based off of the book the book/blog I Will Teach You To Be Rich by Ramit Sethi.  The key takeaways for me were

• Automate money movement such that investments accounts and bills get paid automatically
• Follow the 60% Rule: 10% savings, 10% invested, 10% expenses, 10% toys, 60% day-to-day expenses and taxes
• Don’t get too fancy with investments.  Even the best investment professionals struggle to beat the market.  Focus instead on feeding as much as possible to a quality portfolio, such as a lifecycle fund.

Of course, I had to do my own tweaking.  I still get paper bills as they are easier to review.  Logging into a different site for each bill is tedious, and I realized I’m too lazy to do it.  I manually monitor my spending as well.  I never could fit my money management style into the format that sites like Quicken, Wesabi, and Mint prescribe.  I have become fascinated with Yodlee.  It does a good job of providing a unified dashboard for my major accounts.  Plus, it exposes API’s for me to develop against in the future :)

So, what exactly does my financial review consist of?  Basically, I review the last year of spending, review the last year of investing (rebalancing as needed), and determine ways to better tracking my finances for the next year.  I currently do not have the time to learn and follow individual stocks.  But one day, I’d like to set aside a pool of money for managing a stock portfolio.  But for now, my system is inching me towards financial independence.

And what discussion about finances would be complete without the Benajamins: