There’s been a big trend in the personal finance community the past few years towards fully automating your finances. Many people seem to think being as hands-off as possible when it comes to your money is the best way to go. I really don’t think that’s true — I’ve seen firsthand the amount of slippage in my budget when I was lax with checking in on it regularly. Likewise, I’ve seen an immense benefit since I started this blog a year and a half ago and began paying attention to my finances on a monthly basis.
That’s not to say you need to spend as much time thinking about money as a personal finance blogger like myself. Most things in life are about balance. It’s not good to pay zero mind to your finances, and it’s also not healthy to spend all of your time thinking about money and FIRE. The good news is, taking care of my essential personal finance tasks only costs me 15 minutes per month.
Obviously I’m ignoring all the other time I spend on this topic, like writing for this blog or reading to expand my knowledge base (and if you’re a beginner, you’ve got dozens of hours of reading, planning, and tweaking ahead of you). But the fact that now that I’ve got my plan laid out to retire by age 40, the essential tasks to keep on track only costing 15 minutes of my time each month means that I have no excuse not to find that time, even during life’s busiest periods.
Before I share my monthly ritual though, I want to set the groundwork for how and why I’ve settled on this system after many years of managing my finances.
The importance of planning, structure, and habit
Some people who have taken business classes or seminars may recognize the Deming cycle, or PDCA (Plan-Do-Check-Act) chart. This is an iterative management method used for continuous improvement of a process. This is the perfect analogy for how we should treat our personal finances!
The PDCA method obviously consists of the four steps in its name. But it’s iterative, meaning it’s meant to be repeated over and over, making further improvements to your process each time. To quickly explain all the steps involved:
Plan: Establish goals, and actions required to meet those goals.
Do: Implement the actions from the previous step.
Check: Analyze data and outcomes to quantify the effect that your actions had.
Act: Make process changes based on what you learned. If the change did not work, repeat the cycle with a different plan. Implement changes if they had the desired effect, then plan new improvements and repeat the cycle.
To give a simple example of applying the PDCA method to your finances, you could plan to cut your restaurant spending by limiting the amount of times you eat out to once per week. After implementing that action, you check your spending at the end of the next month. If your restaurant spending was not reduced enough, develop a new plan to meet that goal. Or if you’re happy with the results, keep the change, then create a plan of action for a goal to reduce your spending in other areas.
Following a process like this is important because it provides a structure for continuous improvement. And without seeking improvement, we risk stagnation or even regression.
There’s all sorts of research out there about how long it takes to form new habits. Some sources are claiming three weeks, some say two months, but those are for actions performed daily. So that would be the “Act” step, or the everyday decisions ensuring our actions are in line with our plan. Planning daily seems rather excessive, and if you can guess from the article title, I like to plan monthly. I’m not sure how long it takes to form a habit out of a monthly action and it’s probably different for all of us, but turning managing your finances into a recurring habit (rather than a chore or a neglected afterthought) should be the ultimate goal here.
It makes sense that in today’s busy world, one would be tempted to automate this entire monthly process to save as much of your precious personal time and mental energy as possible. But I’m here to tell you I’ve tried that, and it’s probably not the way to go.
A warning against “over-automating” your finances
First, let me say that I love automation for several things. 401k deductions coming straight out of my paycheck. Paying bills without having to log into ten different websites each month. It’s great for those mindless actions.
But I’ve heard a lot of people claim that they don’t need to follow a strict budget, because they can keep their spending in line mentally. Some people may genuinely be able to do this, but I suspect that many who claim to are not as on track with their budget as they think they are. Going back to our PDCA cycle, this is the equivalent of starting at step one to “Plan” and then never doing any of the other steps or iterating over the cycle in search of continuous improvements.
Such people might be like me, where I initially set a half-baked budget missing several line items, then failed to hold myself accountable or update my budget for several years. I thought I could be one of the “mental budgeters” too. But last August when I sought a more effective way to set a budget, I learned that I was actually spending over $800 per month more than my budget would have suggested. Clearly I wasn’t so great at it — my budget wasn’t realistic from the start, but I also believe trying to mentally track my spending allowed it to slowly creep up over time.
The good news is that a year and a half later, thanks to regular monthly budget check-ups, my spending is significantly lower. I was still able to save a bunch of money during my mental budgeting phase, so it didn’t totally blow out my FIRE plans. But quantifying the impact to my potential early retirement date by squeezing an extra few percent into my savings rate, why wouldn’t I trade off some blatantly frivolous spending for a faster timeline to early retirement?
Sure, there’s a point where your spending is as bare-bones as you’d like it to be, and you don’t see any areas to trim more fat in the budget. But that doesn’t mean you should stop monitoring your spending regularly. Unless you’re taking the lazy route of not caring what age you retire at, 15 minutes per month is a small price to pay to ensure you’re on track. Small amounts of creep in your spending could compound to years of slip in your early retirement date!
My 15 minute monthly ritual
Now that I’ve gone through why I think you need to review your finances regularly, let’s get to the how — how can we do this both efficiently and effectively?
My biggest time saver is using a financial aggregator service like Mint or Personal Capital. I’m not going to shill for either of them; Mint has better budgeting tools and Personal Capital has better investment monitoring tools. If you’re wary of linking all of your financial accounts to these services, you can leave off investment accounts and just add credit cards and any checking accounts you pay bills from. You’ll still be able to summarize your spending, but they won’t get a complete picture of your financial life or any clue what your net worth is.
Around the third day of each month (to give any pending credit card transactions from the end of last month time to settle and show up) it’s time for my monthly check-up. The first thing I do is log into Personal Capital, head on over to the Budgeting tab, and switch the sort range to “Last Month.” I then scroll through each transaction that occurred over the month and ensure they’re all categorized properly.
Now confident in the accuracy of my categories, I copy the total spending in each category over into a spreadsheet, adjusting for any split expenses like rent and utilities. I do the same for my monthly income from the Cash Flow tab of Personal Capital. I have a page in my spreadsheet called “Historical Expenses” which is just a copy of my budget where I add new columns for each month of data. I also note any cash transactions in here shortly after they occur so I don’t forget about them later in the month.
Now that I’ve got my entire month of expenses laid out before me, this is where our PDCA chart from earlier comes in. Here’s a few questions I ask myself to trigger any potential improvement plans for next month:
- Am I happy with my overall spending?
- If I went over budget, was it justified?
- Was my spending in each category reasonable?
- Do I need to cut back on spending in any particular area?
Next I grab my net worth from Personal Capital on the last day of the previous month, and toss it into a different page of my spreadsheet so I can track net worth growth over time. That’s the same net worth data you can find on the My Finances page of the blog.
And as a very last step, I take my free cash flow for the month and transfer that all off to various accounts, ensuring that I both put my cash to work for me, and my emergency fund always stays at 6 months worth of expenses. Usually the first destination is my Roth IRA, and once that’s filled up to the yearly maximum, my taxable investment account at Vanguard. This year I’ve been socking away cash for a down payment on a house, so that’s been kind of a temporary re-allocation of my cash flow until I hit my goal amount.
Everyone can find 15 minutes each month to master their finances
I hope I’ve made a convincing argument for why paying regular attention to your finances is the key to building a strong foundation on the path to FIRE. Whether you’re just starting out or you’ve been pursuing FIRE for years, this really isn’t an exercise you should try to waive away or automate. Never forget that small, marginal increases in your savings rate can compound into huge sums of money for your future self. And the fact that you can do this entire process in about 15 minutes per month means there’s really no excuse.
If you haven’t laid out a budget already or started setting up a financial spreadsheet, you’ll have to invest a couple hours up front to do so. And if you need some help with that, you can even read about my method for the most effective way to set a budget. But once you make that one-time investment and get your process in place, every month after is super quick. Personally, I feel that 15 minutes monthly is a small ask for the thousands of dollars I’ve saved this year alone just by cultivating a habit to pay regular attention to my money.
I also do a more in-depth budget review post on the blog twice annually, but a lot of that is just a summary of all the small decisions I’ve made during my monthly reviews over that period, posted for accountability and financial transparency. My advice is to start with a monthly review as outlined above, and as long as you’re honest with reporting your spending and committing to your goals each month, 15 minutes per month is probably all you need.